I once had the pleasure of reading a book by Marshall McLuhan called “Understanding Media,” (OK, it was a grad school assignment, but I am fortunate to have been introduced to such a visionary thinker). What I found most striking was his reference to a global village. He envisioned our world shrunk to the size […]
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I once had the pleasure of reading a book by Marshall McLuhan called “Understanding Media,” (OK, it was a grad school assignment, but I am fortunate to have been introduced to such a visionary thinker). What I found most striking was his reference to a global village. He envisioned our world shrunk to the size of a country village solely due to communication technology. Amazingly, it was written in 1964. Bill Gates was 7 years old.
McLuhan correctly predicted a society that was seamlessly connected and interactive. Fifty years later, it is undeniable that we are in a technologically unified global village. What neither McLuhan nor any commercial real estate experts could predict was the major impact this phenomenon would have on commercial office markets.
The average office space in the 1970s and early '80s was often 400 to 500 square feet per employee. An accountant's office, with 15 people, would be renting at least a 6,000-square-foot office space complete with shag carpeting and faux wood-paneled walls. That average in 2012, according to CoreNet Global, was down to 176 square feet per employee and falling dramatically. So today, that same CPA is likely sharing a 2,640-square-foot office with 14 co-workers; a full 56% decrease in rentable square feet since the '80s. Most impactful, from a commercial landlord's perspective, this also equals a 56% decrease in potential rent.
Two trends in the office market account for the shrinking workplace:
- Reducing overhead costs First is an overall focus on efficient use of space. Real estate occupancy cost is often one of the largest expenses on a company's balance sheet. So it stands to reason that, over time, businesses will become more self-aware of how they use valuable square footage.
- Interactive offices Second is the way businesses and employees operate on a day-to-day basis. Open flow concepts and flexible cloud-based networks are becoming more common. The classic private offices, cubicles, conference room and reception area layouts are proving inefficient, costly to build out and equally costly to retrofit upon tenant turnover. Additionally, more interactive and collaborative office spaces are more appealing to the all-important Generation X and Y work forces that were raised on social media and mass sharing.
“Co-working” has evolved from these trends as landlords look for creative ways to fill spaces. Co-working is simply a shared work environment where different companies, self-employed individuals, entrepreneurs, etc. can share a fully furnished and networked environment. The leases are often month-to-month and are sometimes based on the number of desks occupied.
Portland has successfully embraced this concept and has a handful of co-working opportunities, including Peloton Labs, Think Tank Portland, The Engine Room and the Casco Bay Technology Hub. Each provides logistical flexibility, but more importantly, if you ask their members, truly collaborative work environments.
There is a positive spin from a property owner's perspective. An inherent condition of most co-working spaces is that they serve as incubators for their members. Incubators, by definition, are environments conditioned for development. So, the theory goes, good business practices breed more businesses. These companies will often quickly outgrow the co-working stage and move into into larger, permanent, higher-priced real estate. In fact, all the co-working hubs mentioned above market the fact that a large number of their clients move on to bigger and better things.
Property owners and business leaders need to be aware of this growing trend and plan wisely. I encourage my landlord clients to focus on flexible layouts when negotiating with a tenant. Partition walls are becoming more high-tech and attractive. They can often prove to be an adaptable, cost-effective solution. McLuhan's global village has been fully realized. Commercial property owners and users are well-advised to recognize this and adapt accordingly.
Justin Lamontagne, a commercial broker with NAI Dunham Group, can be reached at justin@dunham-group.com.