getting ready to move now
are realigning their space
to get by with less.
WASHINGTON, DC-If the average tenant decreases the square footage it occupies by 10% every time its moves because the new building offers a more efficient use of space, and the average tenant moves every 10 years, what does that add up to? In a word, for landlords at least, trouble—even here in Washington, DC, one of the strongest commercial real estate markets in the country.
To make up the shortfall caused by efficiency, Studley’s EVP David Lipson tells GlobeSt.com, a submarket needs 10% growth to offset the overall 10% decrease in utilization. Studley research director Christian Volney attributes this embrace of efficiency as one of the reasons behind DC’s puzzling occupancy rates. “Last year DC had job growth, but we didn’t have any net absorption,” Volney tells GlobeSt.com. “That is one of the reasons why.”
That firms are becoming more efficient in their space needs is not news. However, the Studley executives say it is far more prevalent and in the aggregate is reshaping CRE markets across the country. “Every tenant who is getting ready to move will consider realigning their space so they can get by with less,” Lipson says. The only time it doesn’t become a factor in a lease renewal or new negotiation, he says, is when the capital costs of reconfiguring the space in question are too high to be worthwhile.
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Government in particular, the city’s major tenant, is making a real and public push to become more efficient in the utilization of its space, Lipson adds. “In a lot of cases they have been in their current space for a long time, so there are real opportunities for savings via efficiency. For example, the government is looking at telecommuting and alternative work arrangements.” Like the private sector, though, Lipson adds, government agencies are also weighing the capital costs of reconfiguring their space against the benefits.
In a forthcoming report, Studley points to a particularly dramatic example—the planned consolidation of GSA headquarters at 1800 F St. NW. An analysis of the agency’s existing spaces throughout DC showed that only 60% of the office space was being fully utilized on a given day. GSA found that they could go from housing 1,800 employees in the building to 6,200 employees.
While landlords are feeling the pinch, tenants, clearly, are benefiting from this trend—to say nothing of tenants’ representatives. Studley just closed its best year ever in 2011, the firm reports, having represented tenants in five of the areas’ top deals.