I attended the Bay Area Economic Development Council’s luncheon today. Before the speaker our table began to discuss the future of office space. Examples like the recent ‘hotelling’ concept were brought up, as was the new ‘rejiggered’ version being referred to as ‘co-working.’ I mentioned this study that Herman Miller released on office space utilization – specifically referring to the quoted statistics that offices are unoccupied 77% of the time, and workstations are unoccupied 60% of the time. We all found these statistics a bit surprising – and we all tried to justify the statistics with our business clichés – ‘we’d rather our people out in the field working then sitting behind a desk’, etc.
Herman Miller obviously is in the business of selling office furniture, so they’re study is trying to cast some light on the fact that poor real estate decisions mean you’re spending too much money for too much space. Herman Miller wants you to think about downsizing (moving furniture is often more expensive than leaving it), and buying new Herman Miller furniture that makes offices and workstations conducive to employees wanting to work in the office. And of course the study gives a few other possible justifications such as increased telecommuting, increased societal mobility and employee/employer access offsite.
All Herman Miller’s statistics and suggested remedies can be circumstantially true. And in commercial real estate, it is our job to best advise our clients for their current a future real estate needs. However, if you are, like we were, shocked at the poor space utilization, don’t be. Here’s why you shouldn’t be too alarmed. This study was for office utilization over the last two years – which will show some of the highest office space per employee in recent history. The slowdown in 2007/2008 had businesses laying off employees but stuck in their leases. Over the next five years we’re going to see our space per head drop from 2010’s record peak of 225 sq ft per employee to a more normal 151 sq ft per employee .
To show exactly how the drop in office employment effectively created offices and workstations that are unoccupied 77% and 60% of the time respectively, I did a quick study on just Houston. Below you can clearly see the drop in office employment, but a total stagnation of occupied office space. The result is fewer employees, but the same amount of spaced leased. And surprise, surprise! If you were to look at the last two years, 2010 and 2011, you’d see that the gap between occupied space and office employment has not yet matched up, inflating the amount of space per employee.
The good news is that many leases are renewing or coming up for renewal, so businesses are able to ‘right size’ their real estate. And more importantly for businesses and commercial real estate’s prospects, employment is catching up to the occupied space, meaning growth for space demand is not far off.