According to an recent article at Reuters.com, the US is approaching the turning point in the office space downturn and should start to see a slow recovery over the next couple of years.
"The U.S. office vacancy rate is expected to peak in the middle of next year at 16.8 percent, as it did in 2003, and is expected to fall very slowly to 16.4 percent by the end of 2011 and to 15.3 percent by the end of 2012, according to CBRE Econometric Advisors.
Real estate research firm REIS Inc also sees a slow office recovery. REIS sees the U.S. office vacancy rate peaking at 17.7 percent at the end of this year and then slipping to 17.4 percent by the end of next year.
"There's nothing in the job market that's pointing to a quick lease-up of space," said Victor Calanog, REIS director of real estate."
The good news is that the bottom appears to be near. The bad news is that it will be a long slow recovery that will most likely parrallel the economic recovery of the US.
There are a few major markets that are already seeing good improvement. Both Manhattan and Washingtom DC has seen a lot of leasing activity. Ironically, they are the two most expensive markets in the US.
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For decades office space has pretty much remained the same. The top executives resided in enclosed offices with windows and doors while most of the staff members worked in cubicles. While the layout improved over the years with ergonomic advances, the basic layout and work style of offices remained more or less static.
Now that we are in the 21st Century, office space is being re-imaged completely by many businesses and the re-invention of the office is proving to be more productive. Office work styles are changing radically, driving some of these changes.
The last few decades have also experienced workers who remained with a business for a few years, then moving into other positions of higher levels in competing companies. Many businesses accepted this style of employment because few employees remained long enough to earn a pension and the associated costs. However, the cost of locating and training quality employees was very high and the experience factor that was lost began to cost many companies in the long run. This, too, drives the re-imaging of office space.
Silicon Valley was the first area in which non-traditional office spaces began to emerge. Google is a prime example of one of the first businesses to re-image their office space. Instead of a bullpen full of cubicles, workers have desks and equipment in
communities where those who work on similar projects can easily brainstorm at any time. If someone needs a few minutes to think in a quiet area, there are plenty of unique locations to do so, such as a large bathtub full of pillows facing a wall of aquariums. While some meetings are held around a table with chairs, employees have options to meet in comfortable lounges with comfortable furnishings or outdoors. Areas for recreation are provided; including video game stations, a top of the line cafeteria and the entire area has data access so anyone can use their laptops anywhere they wish. If someone needs to go to the far side of the Googleplex, as it is known, they can jump on one of the readily available bicycles which can be used in the wide hallways or outdoors.
It may seem as if the re-invention of an office into this new style would cut productivity. The reverse has proven true, as the huge profits generated by the employees of Google has proven. Employee satisfaction is extremely high, making team members want to produce. Benefits and freedom to work in whatever style is preferred by the team members generates strong employee loyalty, reducing turnover so that training and experience is maximized.
This re-invention of office space looks and feels very radical at first, but when you think of how people really work and where their ideas are generated, it makes perfect sense. Seldom do cutting edge ideas emerge from a single person. Usually they occur when people are interfaces, chatting over a cup of coffee, or brainstorming together. Why should they be forced relegated to cubicles where they face barriers to communication and contact with others?
Google’s solution to what an office space should be and how it should functions has let other corporations, both large and small, to adopt changes which improve human contact and happiness. It has long been known that happy employees are loyal, trustworthy, and extremely productive. While unhappy employees may produce, many ideas that could earn millions in profit never come to light. The confinement inherent to traditional office space layouts is radically changing and your business may find that re-inventing all or part of your office space may increase productivity and employee satisfaction.
Having looked at one office re-invention, our next post on this topic will delve deeper into the drivers of office space re-invention. Then we will look at ways to apply these concepts to your own workspace.
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The following is from our OfficeFinder LinkedIn group discussion on the most importnat activities Tenant Reps provide their clients on addition to just finding space:
I believe the top
Time & Money saving services that we provide to clients all revolve
around the Transfer of Specialized Knowledge to the client, so that they
may make the most informed decision. Up to date market information,
understanding the players involved, defining and executing the process
required for a successful outcome and most importantly, proactive
advocacy, each individually represents significant savings for a client.
Mike in Boston
Avoiding mistakes is another important aspect of
why tenant representation is so important for office tenants. We do this
every day, just like the landlords and listing agents. Tenants only
search and negotiate for office space every few years. Landlords and
listing agents love to see tenants coming unrepresented. It makes their
business much more profitable than when a tenant is represented by
experienced and knowledgeable tenant reps...like the ones we have at
Jim - OfficeFinder Founder
We provide lease
digests and early reminders of important dates i.e. rights and renewal
options. We also place these dates on an earlier call up internally so
that we remind the tenant that they need to be addressing their real
estate needs, even if their intent is to renew. We also assist with
renewals. In today’s market the lease signed five years ago is most
likely far above today’s market rates.
A 10% discount off of today's asking rate may sound good however, the
market may be giving a 25% discount. Only through the use of their own
broker can a tenant gain an accurate opinion of today’s market.
Any business who leases office, retail or industrial space expiring
within the next 6 to 18 months should be talking with a broker to
represent their interests. This not only pertains to renewals subject
to negotiation but also pre-stated rent renewals. This is also a good
time to negotiate terms and conditions not included in the original
We have a good system in place and when started at the right time in the
renewal process, we have been successful in leveraging our position,
procuring rent reductions and changes in other terms beneficial to the
tenant. We've also been able to facilitate early renewals where the
tenant benefits from the negotiated terms and conditions sooner than
Lynn in St Louis
There is no question as a tenant representative
we can all save our clients real money in the transaction and "time"
money by not only doing things they would have to do but also the fact
we know what to look for in the first place.
We might want to consider the money we can save clients by handling
non-transactional issues after the lease is signed. Two examples: 1)
client is a 501C-3 teaching museum- eligible for property tax relief.
Worked with county and LL-client received over $100K in refunds over 12
years. 2)Client located in Enterprise Zone. Another client/accounting
firm specializes in that area of tax. Put them together...anticipate
over $500K in saving over next 6 years. There's a lot more we can do
than just focus on the transaction. Just my $.02 :)
Office Leasing Tips , Office Space Negotiations , Tenant Representation
Jerry in Orange County, Ca
Operating a small business can be both exciting and
lucrative. More and more people are leaving the traditional workplace to open
their own ventures and becoming quite successful. Many startups begin with only
the owner working in the business which makes leasing or renting office space
the largest overhead expense. There are practical ways to cut this big overhead
item by thinking creatively. There’s no reason that every business needs a
walk-up storefront in order to succeed.
Share an Office: If you have friends or colleagues who are
also starting businesses that don’t require storefronts, consider leasing a
spacious one or two room office and split the expenses equally. This reduces the costs for electricity, internet,
janitorial, and other equipment leases. Instead of each office partner
procuring a copier, fax, and other equipment that both parties use, only one
item is needed, significantly cutting the cost. Compatible services work well
in shared office spaces. One example that has proven to work great in shared
spaces might be a software development company and a computer technology
company. There are many other compatible
combinations; just be sure there won’t be a conflict of interest or direct
competition. Instead, seek an office mate that will be synergistic to your
business so you can help each other grow and thrive.
Executive Suite: These are shared office with services run by a management company. They provide not only office space but furniture, phones, Internet, office equipment and administrative service. They are typically a full floor of a prestigious office building and you will have lots of other small businesses around for networking.
Co-Working: Much like office sharing, co-working is a
concept originated in 1999 where entrepreneurs and small business owners who
share the same values ban together to form a community of business people.
Co-working usually begins when networking partners find they enjoy the social
aspects of working in the same space and may often help either other’s business
in various ways. The partners then lease an office space, sharing all expenses.
Each of the co-working partners conducts their own business in their own
workspace in the shared office and the co-workers may share support staff such
as receptionists or clerical staff in order to keep overhead costs low while
providing everyone effective support for their small businesses. This concept
is growing into a great solution for hundreds of like-minded small business
Virtual Office: Today, you really don’t need
a specific location for an office with walls. With mobile wireless internet
services, hot spots available in most metro locations and even urban areas,
multiple personal data devices, and smart phones that do almost everything a
computer does, it is possible to work anywhere at anytime. You can operate your
business from your living room sofa, poolside, in your vehicle (please stop
your vehicle in a safe location before texting or computing for safety), in a
coffee shop, at McDonald’s, and right at your client’s desk. By using online
services such as GoogleDocs, your information can be safely stored online for
presenting to your client easily. With outsourcing of many tasks, you can take
your laptop and smart phone and conduct business in any location you desire. If you do have a need for an office, Executive Suites also offer a virtual office service that allows you to use an office or conference room on an as needed basis.
Lease a Desk in a Business that Buys
Your Services: Often, a small business begins because on business
requires the services that will be offered. For example, an insurance company
may regularly require the services of a licenses investigator. If your small
business is complimentary to a local business, check into leasing a desk in an
unused area of the office. In tough
economic times, many offices are willing to lease a desk space to a small
business that is not in conflict with their own business.
Home Office: The vast
majority of small business startups begin in a home office. This allows the
entrepreneur to begin conducting business without making a huge commitment to
overhead expenses. Also, many owners of small startups begin their venture
while working a traditional career, making certain their business will succeed
before giving up the regular paycheck.
Some of these small businesses never move out of the home office, even
after hiring an employee or two. Of
course, if the operation grows large enough or requires a great deal of
inventory, the time will come to move from the home, but many virtual service
businesses never leave the home office. Home Office Blog Posts
Warehouse Rental: Storage warehouses of various sizes are zoned
commercial and in most areas can be used as a business location. These
warehouse locations are great for the small startup business that manufactures
a product, purchases and adds quality to an existing product before sale, and
service companies that provide auto repair, computer repair, and similar
services. If your business is the type that does not really benefit from a
“flashy” storefront, this can be a great solution for keeping your startup
costs very low. Traditionally, people seeking auto repair, auto body work, auto
paint, motorcycle accessories or repairs, and similar services tend to believe
that if the storefront is too fancy, they will be overcharged. These types of
business can actually benefit from the casual office space offered by leasing a
storage warehouse. Just make sure the type of business you are starting meets
the zoning regulations and the landlord’s lease restrictions.
More on Flexible Workspaces from the OfficeFinder Blog.
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A recent article on Bloomberg.com discussed the impact of "Shadow Space" on the recovery of the office space market. The officeFinder Blog discussed the affect of "Shadow Space" on the market back in April 2010. We defined it as "Shadow Office Space is office space that is currently under lease by a
tenant, but which is not being used due to layoff of employees." Here is what the Bloomberg article had to say:
"The U.S. office sector will be the
slowest to recover as companies absorb empty space and advances
in technology reduce the need for square footage, said Kenneth Rosen, a professor at the University of California, Berkeley.
Unoccupied “shadow inventory” accounts for 3 percent to 5
percent of total business leases, and that space will be filled
before firms sign new rental agreements, Rosen, chairman of
Berkeley’s Fisher Center for Real Estate and Urban Economics,
said at a conference in San Francisco. Cloud computing and other
tech advances let employees work away from offices, further
reducing space needs, he said.
“Every company has shadow space,” Rosen, who also runs
Berkeley-based hedge fund Rosen Real Estate Securities LLC, said
in an interview yesterday. Most U.S. cities face prolonged
vacancies because of the surplus, excepting Washington, New
York, San Francisco, Boston and parts of the Silicon Valley,
where technology and venture capital spur leasing, he said."
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