Brave New World— In Your Office Building

The age of the tenant's market is upon us, and it does not appear the pendulum will swing back to the landlord's side any time soon. This seems especially true with Generation Y poised to make its mark on the world of work and an economy that's yet to fully recover.

Even if the tide does shift to support fewer concessions and greater rent increases over the next few years, 21st-century office design is rapidly evolving. Workplace blueprints indeed must evolve to keep up with current and predicted trends like green building, mobile technology and impending demographic shifts in the workforce.

Consider the changing officing landscape: Alternative workplace strategies are gaining the attention of Fortune 500 companies and bootstrapping entrepreneurs alike. The long-prophesied and once-criticized green building has finally gone mainstream. And an emerging mobile workforce—and the technologies that are empowering it—are transforming how, when and where work is accomplished.

As these and other factors converge on landlords, office design, whether new construction or retrofit, is becoming an all-important means of attracting tenants who need something beyond standard answers. And savvy landlords recognize the signs of the times and are willing to invest in what tenants want now even as they prepare to invest in the officing demands of the future.

"Tenants are motivated in large part by economics," says Will McIntosh, global head of research at USAA Real Estate Co. in San Antonio. "Whether they're expanding or downsizing, tenants are looking for office designs that help them operate more efficiently and do more with less."

One might say the "more-with-less" trend has trickled down to office design—and its influence may begin to flood it. Telecommuting and mobile-worker trends are clearly rippling through office towers and sprawling complexes alike. Industry watchers report less square footage per individual employee and overall smaller footprints for corporate tenants.

CoreNet Global's new 2012 State of the Industry Report explores how emerging work strategies are changing the workplace and how the economy has increased the adoption of alternative and flexible work strategies. Those strategies are tied directly to the heart of real estate compression.

For example, office space per person already averages 100 square feet or less in Europe. CoreNet Global's data predict 40% of North American companies will be running on similar space requirements by 2017. That's a dramatic shift over the next five years and one for which forward-thinking landlords are already preparing. The end game: Companies are using less work space, but they are making it more inviting, open, progressive and collaborative.

"In the last two large deals we've done—and these are 900,000-square-foot-plus deals—the average square foot per employee dipped from about 300 to 200," says Boyd Zoccola, past chairman of BOMA and executive vice president of Hokanson Cos., a full-service commercial real estate firm in Indianapolis. "We've heard about groups with as low as 40 square feet. That's not because everyone is in small cubes. It's because the tenant didn't feel the need to have a space for every employee. You're going to see that on a wide scale, though, because most employees enjoy the camaraderie and teamwork in an office."

To be sure, the CoreNet report reveals more workers prefer to go to the office despite the move toward flexible work and telecommuting. Specifically, 70% of employees regard the office as the best means to interact with colleagues, and 40% believe the office provides better tools and technology. But CoreNet concludes that's not slowing the trend toward bricks and mortar taking a back seat to a growing mobile workforce.

"In tomorrow's world, work will go to people, people won't necessarily go to work," says Steve Hargis, a senior vice president and director of global consulting and global workplace specialist at architecture firm HOK in San Francisco. "But that won't diminish the importance of place, because people—and companies—need human interaction."

Shared office space, hoteling, hot desking, coworking, telecommuting, virtual office space...all of these trends are informing traditional office designs, and GenY is driving much of the revolution. By 2025, in fact, they will make up about 75% of the world's workforce, according to BPW Foundation's GenY study.

As this generation emerges, so do concepts like workshifting—a practice that allows employees to put in their time at any hour of the day rather than a standard 9 to 5—and a Results-Only Work Environment. ROWE is a human resources strategy that focuses on performance or results over presence.

According to the Citrix Global Workshifting Index, 93% of organizations will have implemented workshifting policies by the end of 2013. That's up from 37% that currently offer workshifting at some level. The survey confirms that companies recognize the benefits of mobile workstyles and workshifting, which include improved business productivity and agility for the organization and greater freedom, mobility and flexibility for users.

"The younger generation of workers demands feedback and likes the ability to work in teams," Zoccola says. "Informal meetings are taking place in touchdown areas rather than corner offices and conference rooms. We're going to have five generations of workers in offices soon. Designs need to make it easier for seasoned professionals to mentor younger workers with high-tech skills."

John Mooz, a senior managing director with Hines' southwest region, is already seeing larger tenants tap into the shared-officing trend. He calls it "dynamic sharing" and says it carries the potential for doing more with less. If an employee is traveling on Thursday someone else can sit in the space he would have occupied. The concept is officially known as hot desking, where multiple employees use a single cubicle at different time periods. Essentially, no one owns the workstation.

"Hot desking is a trend that started outside the US long ago," says Mooz. "I'm not suggesting that it's a huge trend here, but it's emerging. Other tenants are offering touchdown space. There may be 10 offices that don't have anyone's name on them." The Big Four accounting firms have been doing this for some time, he adds, and other large tenants have begun looking at it in light of mobile workforce trends.

Mobile devices may be the greatest catalyst corporate America—and office design— has seen since the Industrial Revolution. According to market research firm IDC, the world's mobile-worker population will reach 1.3 billion by 2015. That's a large percentage of the 6.8 billion people in the world.

Although the most significant gains are expected in emerging markets in the Asia Pacific, the trend is already in force in North America, with 75% of its workforce mobile in 2010. The Americas region, which includes the United States, Canada and Latin America, will see the number of mobile workers grow from 182.5 million in 2010 to 212.1 million in 2015, IDC reports.

"Research shows there are around 1 billion mobile workers globally," says Mark Dixon, CEO of Regus, the executive suites provider. "Though they communicate and work using smartphones, tablets and laptops, they miss access to a professional place to work where there is easy access to state-of-the-art business facilities."

The combined more-with-less and mobile workforce phenomena are clearly steering the direction of office designs. CoreNet's previously mentioned survey reveals that employees will "bring their own technology" in less than a decade. Bring Your Own Technology will impact the size and design of the corporate office, driving down the square footage per employee.

Although the concept of BYOT was improbable, even inconceivable, five or six years ago because of integration, security and other issues, the trend is already gaining momentum. The lines between personal and business technology are blurring in a cloud-based, mobile world. "BYOT is happening now," says Keith Perske of E-Business Strategies and a Corporate Real Estate 2020 Technology team member. "Corporations can't keep up with personal technology, so the next step is already happening."

Not only happening, but set to explode. CoreNet predicts that by 2010 the number of personal digital devices will double. At the same time, unified communications will integrate voice, data, graphic and video in a single device.

"Cloud computing is about to be replaced by 'always-networked' personal devices with near-infinite memory," Perske says. "It's fast becoming collaboration in the pocket. One day soon, it will take the form of wearable technology."

This always-networked mentality is driving a demand for buildings that are wired— and wireless. Many tenants, especially tenants in high-tech sectors, want to lease in office buildings with the infrastructures to offer seamless connections no matter what device is being used. This is another trend that Gen Y is driving. The Cisco Connected World Technology Report found that more than 40% of college students and young employees said they would accept a lower-paying job that had more flexibility with regard to device choice and mobility than a higher-paying job with less flexibility.

Once scoffed at, sustainable officing is a key concern for a growing number of tenants. Beyond lowering energy costs, tenants have a distinct motivation for going green: government incentives. Sustainability is becoming a factor in more corporate location decisions as companies seek to lower taxes by complying with green regulations.

"Sustainability has moved beyond a single initiative to a baseline in every new project," says Karen Thomas, managing director of the Seattle office of Gensler, a global planning and strategic consulting firm. "Sustainability is becoming a market indicator for quality. If you aren't focused on sustainability, you aren't considered a quality space."

Mooz agrees. He says sustainability has moved from last on a broker's proposal request to first or second. That drives the demand for buildings that are technologically sound enough to handle the evolution of sustainable features.

The bottom line: Developers, architects and engineers are designing systems that pave the way for LEED certification whether the owner immediately pursues it or not.

Although LEED certification makes a difference, "there are so many factors that come into play in corporate location decisions," Zoccola concludes. "Access to public transportation is becoming more important, as well as buildings that are close to where employees live. Rent is still a major driver, as well as how the building is managed and operating expenses. All that is as important as a plaque on the front door."