Rethinking Office Space in 2016

Jim Groch, Chief Financial Officer, CBRE
January 15, 2016

Jim Groch, Chief Financial Officer, CBRE, discusses changes to office space usage

Overview

Cost-savings driven "Free addressing/Hoteling" office space in the 1990s failed because users hated their spaces
Today's movement is driven by the need to attract talent and enable collaboration. Although less space is required saving rent dollars, the overall investment in the space is much higher so there is likely no overall expense difference
Providing creative, collaborative and flexible office space requires meticulous planning and change management; although this movement will continue to gain traction, it's not for everyone
Jim expects the impact on the office markets to be twofold – a modest slowdown in the increase in annual absorption and a widening of value between the best buildings in a market and the one-tier-down buildings

Executive Summary

In the 1990s the concept around free-addressing was referred to as "hoteling." It was a big movement that was meant to reduce occupancy costs and it was driven primarily by accounting and consulting firms. The predictions for this new concept were generally favorable but did not prove popular in the market. To the contrary, there were huge increases in demand for office facilities largely because people hated "hoteling" space. Thus, while you could achieve savings in the abstract, in reality it did not work. The change in office space use today is was driven initially by creative, successful firms like Google and Bloomberg. The objective today is to attract talent and to encourage creative collaboration in beautiful spaces. CBRE has built out this type of collaborative space in 30 major markets around the world over the last two or three years. The lessons learned:

It's expensive, it's hard to execute and it requires considerable determination and "change management."
It requires 6 to 12 months of lead time to transform how people work and to digitize the workforce. Materials must be gone through meticulously – file drawer by drawer, scanned and organized.

The impact on CBRE has been positive but Groch cautions that the driving force is not savings. Groch believes that office square footage can be reduced over time and that a reduction in the rent is possible but that the investment in space (including technology, work stations, architecture and facilities) is significant (on average a couple hundred dollars a square foot). Groch believes the impact on the office markets broadly will be a modest slowdown in the increase in annual absorption and that the difference in value between the best buildings in the market and one tier down buildings will continue to widen.

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