CREJ - Office Properties Quarterly - September 2016
The commercial real estate market is constantly evolving in the modern era, particularly in space utilization and transformative technologies. These trends can seem overwhelming to a layman, with new buzzwords and technologies appearing on a monthly basis. Even self-driving automobiles will impact office space in the near future. What additional trends will influence office space usage? How can tenants and property owners take advantage of opportunities that go hand-in-hand with new trends, as well as mitigate potential negative implications? Office product in Denver is changing to reflect trends within the corporate environment, as are offices in major markets across the country. The hottest topics are office space densification – the reduction in square footage occupied per employee – and flight to quality. These two trends gained widespread acceptance and acceleration locally and nationally following the Great Recession. Reducing space occupied per employee is a simple way for companies to reduce costs. Concurrent with rising vacancy and flat to declining rents in Denver’s office market, many tenants were able to lease higher-quality space while implementing cost-reduction strategies during the market recovery. Today the market is different, with drum-tight availability in select submarkets and steadily increasing rents, yet tenants still need to reduce occupancy costs. Increases in collaborative office environments and telecommuting emphasize the transformation in corporate layouts from traditional office-intensive designs to a more open plan. Private offices are disappearing, even for C-suite executives. An open plan is considered de rigueur for most corporate environments, from Fortune 500 companies to entrepreneurial startups, with expansion of common areas and adaptive office uses taking precedence. According to the International Facility Management Association, 70 percent of U.S. employees work in an open floor plan. One benefit of this trend is increased team collaboration and more effective utilization of conferencing space. Developments in technology also are improving communication among work groups and providing for enhanced client interface and more activated work environments. In all trends, control and flexibility are the greatest priorities. Rapidly developing technological changes also provide a vehicle for expenditure reduction. Examples include new LED lighting, lighting-control systems, demand-side management programs to monitor and modify utility expenditures, and unique programs designed to provide financing solutions to energy investment challenges. Colorado Property Accessed Clean Energy, commonly known as Colorado PACE, is one example. Lighting an office environment is expensive and can utilize up to 30 percent of electrical expense allocations. Lighting retrofit programs provide a “big bang for the buck” with cost savings on energy, fixtures and bulbs. The latest trends in lighting systems incorporate increasing control over individual environments – either from a tenant or individual worker perspective – through technologies including web and Smartphone control, desktop-lighting control systems, conference room versatility and daylight harvesting (the use of daylight to offset the amount of electric lighting needed to properly light a space in order to reduce energy consumption). In the context of conference room versatility, audiovisual technologies are changing rapidly, providing additional benefits for tenants. Projectors are becoming a thing of the past with smart TVs replacing the dinosaurs. Flat-screen technology cost has decreased significantly, allowing most companies to find upgrades within their budget. These new technologies increase mobility and flexibility within the space, allowing for easy office reconfiguration and adaptability. Further, changes in communications technologies including voice-over IP provide greater flexibility within an office environment, improving mobile office environments and remote access, intra-office communications and voice connectivity through email, while also supporting collaborative office environments. The latest office-finish trends focus on flexibility and customization through modular design, whether in lighting, carpet tile, demountable wall systems or workstation design. Emphasis of natural light and finishes remains a priority, as does simulating privacy and noise reduction in an open office environment through the use of glass partitions and doors. Perhaps nothing sounds as futuristic as autonomous vehicles. Rapid advancements taking place through industry-altering businesses like Uber and its planned use of self-driving cars will have an impact on real estate, specifically in real estate needs of parking structures. As the density of the city increases or changes, so does the need for vehicle ownership (and storage). As public transportation resources expand and as more ride-sharing programs become available, the need for individual vehicle ownership will lessen and the cars in use will be fully utilized, resulting in a corresponding shrinkage in the need for vehicle parking and storage. Underground parking needs will decrease and that space will be repurposed, while stand-alone parking structures will be redeveloped. There is no question parking revenues will be impacted. With so many transformations on the horizon, what are we, as real estate experts, doing to proactively look ahead? How can we effectively address these changes and opportunities for our clients? Even lease documents are mirroring the focus on adaptability, with shorter terms and language designed for flexible and collaborative office space uses – a trend that necessitates greater lease administration and proactive management, requiring additional skill sets from qualified property managers. As real estate professionals plan for the shifts of tomorrow, developers, planning officials, property owners and industry leaders are collaborating to be at the forefront of this evolution. Indepth analyses are underway about the effects of various trends in commercial real estate, including impacts of office space densification and its correlating impact on productivity, and where the sweet spot is located for office expense reductions. In the case of autonomous vehicles, the focus is on researching how mass transit and existing ridesharing services such as Car to Go serve as the bridge between reduced parking requirements and autonomous vehicles. Embracing change, exhaustive research, proactive planning and creative collaboration are the keys to maximizing opportunities in commercial real estate trends. Because, in the words of Bob Dylan: “The line it is drawn The curse it is cast The slow one now Will later be fast As the present now Will later be past The order is Rapidly fadin’ And the first one now Will later be last For the times they are a-changin’.”