Office Market Data

Market Trends(23)

Tomorrow's Office

Very soon, the days of expecting employees to commute to simply sit at computers will seem archaic, according to Collaboration 2020, a research study of 1,700 office workers by Johnson Controls Global WorkPlace Innovation.

A fundamental shift is happening in the way that offices are used. Technologies such as broadband and mobile Internet mean that most employees can perform many of their daily tasks at home or elsewhere. The future purpose of the office will be to provide an environment that allows employees to collaborate. This drive toward mass collaboration will change the way companies think about the real estate that they occupy.

In the next decade, office workers expect to spend more time

• working in team spaces that have built-in collaborative technologies;
• communicating with colleagues and others through video conferencing; and
• using dedicated collaboration rooms.

They expect to spend far less time at their desks on the phone or in traditional meeting rooms.

In most offices, the demand for collaboration space already exceeds supply. Companies tend to allocate a cubicle or office for each employee, but most studies show that the majority of workstations are unoccupied for large parts of the day. This underutilization will need to be addressed in conjunction with providing more collaborative spaces, if companies are going to derive value from their real estate portfolios.

In the future it's likely that many companies will occupy less floor space, but, significantly, a higher proportion of that space will be designed specifically to support collaboration. There may well be a menu of standard components for companies to select from; although, like today, many organizations probably will customize their space to support their business model and culture.

The universal use of video conferencing also will have a significant impact on office design and equipment. Not only will there be dedicated, networked rooms for conferencing, but webcams will become standard on every computer.

Respondents to Collaboration 2020 also emphasized that collaboration is a key area where the office can add significant value. Enlightened organizations increasingly define objectives and allow their employees to choose the most effective way to deliver them, rather than count the number of hours they spend at a desk. Collaboration between knowledge workers is a principal driver of creativity, innovation, and, therefore, business advantage.

—by Marie Puybaraud, Ph.D., director, Global WorkPlace Innovation, Johnson Controls, and Kjetil Kristensen, Ph.D., collaboration strategist, Kristensen Consulting. Contact them at marie.c.puybaraud@jci.com and kc@kristensenconsulting.com.

Multifamily: Start Your Bulldozers

Apartment REIT AvalonBay has a $2.6 billion construction pipeline humming along, reports Multifamily Executive, and other developers are expected to soon follow suit as construction financing loosens up. “Over time, the financing challenge will be overcome because the yields will be so attractive. 2013 could be a watershed year in terms of supply hitting the market,” says Ron Johnsey, president and CEO of industry data consultancy Axiometrics, reported in ME.

“Hotel capitalization rates are the lowest we have seen in a long time and are due to low mortgage interest rates, the large amount of equity capital chasing very few acquisition opportunities, and the fact that there is a huge upside potential in future NOI.”

—Stephen Rushmore, president and founder of HVS, a global hospitality consulting firm

Briefly Noted

Industrial — Space demand will broaden beyond warehouses: As credit loosens, small businesses will expand into multitenant business parks and flex properties, according to Marcus & Millichap’s Midyear 2011 Industrial Report. Approximately 78 million sf will be absorbed by year-end with only 30 million sf of new product coming online.

Hospitality — Around $11.4 billion in lodging assets sold in the first half of 2011, compared with $4.9 billion in 1H2010, according to CoStar. Single-asset sales comprised 90 percent of the deal volume, with real estate investment trusts buying in major gateway cities.

Multifamily — In 2Q11, “Tertiary markets posted better than average gains YOY,” reports Real Capital Analytics. In the first half of 2011, $23 billion in assets have traded, with 2Q11 apartment transaction volume surging 132 percent YOY.

Office — The U.S. office market absorbed 12.0 million sf in 2Q11, the highest amount since 3Q07. Vacancy fell by 40 basis points, to 17.3 percent, and more space was absorbed in the suburbs than CBD, says Grubb & Ellis.

Retail — While other retail venues suffer, outlet malls are on an expansion kick, according to Retailing Today. Houston is attracting attention from outlet developers looking for land parcels, and Chicago has three new centers under construction. Once a destination trip for shoppers, new properties are built on sites close to major shopping hubs to attract regular customers.