Impacts of Changing Demand for Office Space

79
Workplace Revolution: The Impacts of Changing Demand for Office Space Appraisal Institute Symposium March 22, 2014 Peter Carlston

description

Tech and Communications Innovation, Younger Workforce and Cultural Changes, Changing Workplace Strategy, Cutting Costs, Gen X, Gen Y, Millennials, flexible work hours, recognition, social work environment, cool, creative and inspirational space, urban, collaboration, flexibility, streamline operations, corporate real estate managers, overhead expenses, efficiency, less space per employee, coworking, shared workplaces, location, leases, sustainability, supply, demand, renovation, construction, future

Transcript of Impacts of Changing Demand for Office Space

Page 1: Impacts of Changing Demand for Office Space

Workplace Revolution:The Impacts of Changing Demand

for Office Space

Appraisal Institute Symposium

March 22, 2014Peter Carlston

Page 2: Impacts of Changing Demand for Office Space

Peter CarlstonCEO | Principal Broker

801.948.0899 | [email protected]

100 S. Main Street, Suite 609Salt Lake City, UT 84101www.elevationre.com

Page 3: Impacts of Changing Demand for Office Space

Sources

• Commercial Real Estate Brokerages: Colliers International, CBRE, JLL, Commerce CRG

• MIT• NAIOP• Urban Land Institute• CCIM• Appraisal Institute• CoreNet Global• Vendors and Consultants:

Steelcase, Others• EDCU, Utah GOPB• Wall Street Journal, New York

Times, Forbes• Glassdoor.com• Appraisers• Developers• Corporate real estate

directors and clients• University of Utah• USGBC

Page 4: Impacts of Changing Demand for Office Space

First, a Story

Site selection: Any office park will do, good freeway access

Page 5: Impacts of Changing Demand for Office Space
Page 6: Impacts of Changing Demand for Office Space
Page 7: Impacts of Changing Demand for Office Space

Site selection: Must be close to CalTrain station and hip urban core

Page 8: Impacts of Changing Demand for Office Space
Page 9: Impacts of Changing Demand for Office Space
Page 10: Impacts of Changing Demand for Office Space
Page 11: Impacts of Changing Demand for Office Space
Page 12: Impacts of Changing Demand for Office Space
Page 13: Impacts of Changing Demand for Office Space
Page 14: Impacts of Changing Demand for Office Space

Today’s Presentation

• Drivers of Office Demand• Current Trends• Implications for Value

Page 15: Impacts of Changing Demand for Office Space

Drivers of Office Demand

• Tech and Communications Innovation

• Younger Workforce and Cultural Changes

• Changing Workplace Strategy

• Cutting Costs

Page 16: Impacts of Changing Demand for Office Space

Driver: Innovation

• Industrial Age to Knowledge Age• Technology and Communications

Page 17: Impacts of Changing Demand for Office Space

Driver: Innovation

Page 18: Impacts of Changing Demand for Office Space

Driver: Innovation

Page 19: Impacts of Changing Demand for Office Space
Page 20: Impacts of Changing Demand for Office Space
Page 21: Impacts of Changing Demand for Office Space
Page 22: Impacts of Changing Demand for Office Space

Driver: Younger Workforce

• Gen X: mid-60’s to early 80’s • Gen Y / Millennials: 1978-1989 or 1977-2000

Boomers Gen X Millennials0

102030405060708090

Page 23: Impacts of Changing Demand for Office Space
Page 24: Impacts of Changing Demand for Office Space

Gen X vs Gen Y

• Gen X: Latch-key kids

• Gen X: Radicals

• Gen Y: Most parented generation in history

• Gen Y: Happy conformists

Page 25: Impacts of Changing Demand for Office Space
Page 26: Impacts of Changing Demand for Office Space

Millennials

• SUPER-Confident (all those trophies)• Crave feedback• Want stimulating, social work• Less materialistic – it’s about Experiences …

and then Sharing Them• Highly educated, technologically savvy and

ambitious• Connected

Page 27: Impacts of Changing Demand for Office Space

Millennials

At the workplace, Millenials want:• Flexible work hours• Recognition• Social work environment• Cool, creative & inspirational space

Page 28: Impacts of Changing Demand for Office Space

Millennials

• Space is PLACE; key to culture and brand• Vital for attracting and retaining talent!

Page 29: Impacts of Changing Demand for Office Space
Page 30: Impacts of Changing Demand for Office Space
Page 31: Impacts of Changing Demand for Office Space

Driver: Workplace Strategy

• Increased need for collaboration and flexibility

Page 32: Impacts of Changing Demand for Office Space

Driver: Cutting Costs

• Pressure to minimize costs and streamline operations

• Corporate real estate managers focus on cutting fixed overhead expenses and increasing efficiency

Page 33: Impacts of Changing Demand for Office Space

Current Trends

• Less Space per Employee• Need More Flexibility• Open Floor Plans for Collaboration• Shared Workplaces: “Coworking”• Location As Important As Ever• Smaller Leases• (New buildings and efficiency / style

renovations)

Page 34: Impacts of Changing Demand for Office Space

Trend: Less Space per Employee

2010 2012 2017 Beyond0

50

100

150

200

250

Page 35: Impacts of Changing Demand for Office Space

Trend: Less Space per Employee

• Filing space has shrunk from 15 to 20 percent of office space to around 2 to 3 percent in many cases today

Page 36: Impacts of Changing Demand for Office Space
Page 37: Impacts of Changing Demand for Office Space

Trend: Greater Flexibility

• Flexibility is a necessary strategy, no longer a perk

• Essential to employee retention• American Express:– Hub– Club– Home– Roam

Page 38: Impacts of Changing Demand for Office Space

Trend: Greater Flexibility

• Aetna:• 35,000 employees• 14,500 do not have desks at Aetna• Policies impact 47% of workforce• Rid of 2.7 million square feet of office space• @ $29/sf, company has saved about $78M per

year!

Page 39: Impacts of Changing Demand for Office Space

Trend: Greater Flexibility

• Yahoo• “A few years ago it was bring your own device

to work, now it's bring your own [butt] to work.”

• Collaboration, not telecommuting, is the goal• Innovation doesn’t happen in isolation

Page 40: Impacts of Changing Demand for Office Space

Trend: Open Floor Plans

• “I” space to “We” space• Allocate workspace to issues instead of

people

Page 41: Impacts of Changing Demand for Office Space

Trend: Open Floor Plans

Page 42: Impacts of Changing Demand for Office Space

Trend: Open Floor Plans

Page 43: Impacts of Changing Demand for Office Space

Trend: Open Floor Plans

Page 44: Impacts of Changing Demand for Office Space

Client Case: Color Labs

Page 45: Impacts of Changing Demand for Office Space

Client Case: Color Labs

Page 46: Impacts of Changing Demand for Office Space

Trend: Open Floor Plans

• Backlash!• High Stress• Conflict

• High Blood Pressure• High Staff Turnover

Page 47: Impacts of Changing Demand for Office Space

Trend: “Coworking”

Page 48: Impacts of Changing Demand for Office Space

Trend: “Coworking”

Page 49: Impacts of Changing Demand for Office Space
Page 50: Impacts of Changing Demand for Office Space
Page 51: Impacts of Changing Demand for Office Space

Cushman & Wakefield | Commerce to Bring First Shared Executive Office Building to Park City

Page 52: Impacts of Changing Demand for Office Space
Page 53: Impacts of Changing Demand for Office Space

Trend: Smaller Leases

Page 54: Impacts of Changing Demand for Office Space

Trend: Smaller Leases

Page 55: Impacts of Changing Demand for Office Space
Page 56: Impacts of Changing Demand for Office Space

Demand and Supply

Page 57: Impacts of Changing Demand for Office Space

Trend: Location Matters

• Color• “Accelerated Serendipity”• Near cultural amenities• Near transit options• Premium locations still matter• “The City”

Page 58: Impacts of Changing Demand for Office Space

Trend: Sustainability

Page 59: Impacts of Changing Demand for Office Space

Trend: Sustainability

• “’Embracers’ have better stock prices, better revenue growth, better everything.” MIT

• Economics• 20,000 sf @ $18/sf = $360,000• 15,000 sf @ $20/sf = $300,000

Page 60: Impacts of Changing Demand for Office Space

Implications for Value

• Lack of standardized, conceptual approach to valuing green buildings

• Green premium data of limited use to appraisers

• Brown discount unaddressed• Limitations of DCF-based valuation approach

Page 61: Impacts of Changing Demand for Office Space
Page 62: Impacts of Changing Demand for Office Space
Page 63: Impacts of Changing Demand for Office Space

Implications for Value

• Office Demand• Opportunities• To Be Competitive• How Much Space Needed?• Future Space Needs• Other Factors Impacting Demand• Parking

Page 64: Impacts of Changing Demand for Office Space

Case Study: Adobe

• Campus helps Adobe win the "talent war“• “Cross generational“ workforce• Space demand is a pendulum• What's more efficient, more sf per work space

or more meeting rooms and amenities?• Timeless look outside, modular inside• All about flexibility and variety.

Page 65: Impacts of Changing Demand for Office Space
Page 66: Impacts of Changing Demand for Office Space
Page 67: Impacts of Changing Demand for Office Space
Page 68: Impacts of Changing Demand for Office Space
Page 69: Impacts of Changing Demand for Office Space
Page 70: Impacts of Changing Demand for Office Space
Page 71: Impacts of Changing Demand for Office Space

Case Study: 222 Main

• 426,657 square feet• Completed in December

2009 at a reported cost of $125 million

• Designed by the international architecture firm Skidmore, Owings & Merrill

Page 72: Impacts of Changing Demand for Office Space

222 Main

Page 73: Impacts of Changing Demand for Office Space

222 Main

• SILVER LEED CERTIFICATION • High performance glazing designed to provide daylight

harvesting• Designed to operate 15% below the State of Utah energy

code• Ability to integrate green technology within individual

tenant space• Building located in a developed urban area with access to

existing infrastructure• Portable water use for landscape irrigation & internal use

reduced by 50% and 40% respectively

Page 74: Impacts of Changing Demand for Office Space

222 Main

Tenants• Goldman Sachs• Brinks Hofer Gilson and Lione• Holland & Hart• CBRE• Hamilton Partners

Page 75: Impacts of Changing Demand for Office Space

222 Main

Page 76: Impacts of Changing Demand for Office Space

222 Main

• KBS Realty purchased for $400/sf, record-breaking price in Utah

• Key reasons for KBS purchase:– building’s first-class finishes;– views of the Wasatch Mountains; – key location in Salt Lake’s central business district;– parking facilities; and its – proximity to TRAX and City Creek shopping mall.

Page 77: Impacts of Changing Demand for Office Space

222 Main

"This proves that an outsider can come in from out of state and build a Class A building, lease it in bad economic times, and sell it at record-breaking number for a profit.“- Bruce Bingham, developer of 222 Main

Page 78: Impacts of Changing Demand for Office Space

Thank You

Page 79: Impacts of Changing Demand for Office Space

Peter CarlstonCEO | Principal Broker

801.948.0899 | [email protected]

100 S. Main Street, Suite 609Salt Lake City, UT 84101www.elevationre.com