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The Future of Office Space

Mark Elliot wrote an interesting piece in today’s Real Talk on the ABC. He talks about why office space is changing and how office space will look in the future. (http://www.bizjournals.com/atlanta/real_talk/2011/02/what-next-gen-offices-may-look-like.html?ed=2011-02-03&s=article_du&ana=e_du_pap)

First of all, let me say that I think Mark does a great job on Real Talk. Not to take away from Ray or Abe or Wes, but I always seem to enjoy his posts the most.

Secondly, Mark raises a valid point here, but I think he may need to include a few more variables.

He argues that large office spaces will be shrinking over the next several years due to the shrinking corner of office , reduction of on-floor amenities (large lobbies, breakrooms, etc.), and increased layout efficiency.

I would agree that all of these factors are legitimate and are probably already taking place. As backlash against what was perceived as lavishness of Wall St executives in the PGR days (Pre-Great Recession), executives and managing directors have seen their compensation and benefits heavily scrutinized and cut back. I would say that a vast corner office with room for a chipping green would fall into that category.

As for on-floor amenities, I am sure that most offices will continue to have breakrooms and work rooms with printers, faxes, mailboxes, etc. What I expect to see falling in greater numbers is the storage or file room. With the increased availability and efficiency of cloud-computing and online storage capabilities, why do you need a paper copy of old data in a huge filing cabinet down the hall? Sure, you may want to keep a hard copy of deal info on your current deals and maybe the deals you have done in the last year or two. But that 250-page appraisal from the deal you closed 8 years ago can probably take a vacation to the shredder.

Don’t get me wrong; I think there will always be a need for some on-site storage. But I think I could get away with a two drawer file cabinet at my desk and have all the storage I need (given that I have plenty of online storage).

As for efficiency, I think you will see a slight bifurcation in the market. I think creative companies will continue to demand unique (odd?) layouts and typical service providers will go for the vanilla, uber-efficient space. To Mark’s point, I would argue that a larger portion of office users are service providers that want the vanilla space.

Another factor that Mark omitted is the telecommute option. What do you need to do at work that you cannot accomplish with your Blackberry and laptop at home? The answer is usually “very little.” I’m going to assume that there will always be a space for employee interaction and conference rooms, but we are seeing increasing numbers of telecommuters with every passing year. That trend alone may lead to a slight drop in demand for office space.

So I agree with Mark’s point, but I’m not sure the shift will be as cataclysmic as some have opined. To paraphrase Malcolm Gladwell, there will be a tipping point. At least there will be a tipping point in Atlanta.

The fact is, Atlanta is a growing and expanding city and job market. Strategically located in the heart of the Sunbelt, Atlanta has long been known as the Capital of the South and seems to be the market to beat in terms of corporate relocations and expansions. Simply put, if you want a presence in the Southeastern U.S., Atlanta is usually your first choice. (Take that Miami!)

More people continue to move into our city and demand white collar (office-occupying) careers every year. So, since the office space equation has two components, available office space (supply) and demand for office space (demand), the two components can balance each other out.

That is, I agree with Mark that office users will demand less space and be more efficient with the space they do occupy. But I would also argue that Atlanta is going to continue to attract its fair share of corporations and companies that will demand new space. These new companies will, in theory, occupy the spaces left vacant by downsizing firms that already occupy space in the market (aka, Positive Absorption).

The crux of the issue will fall to the office developers of the city. If developers can keep from oversupplying the market with product, I would assert that the office space market will remain healthy and may even tighten (15% overall vacancy instead of 20%). If (more likely) developers get a little overzealous and chase the margins, we may see perpetually high vacancies.

Which will it be? I guess we will have to wait and see . . . .

-Duke

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