Space Per Employee Still Ratcheting Down

Editorial|&utm_term=|Website-Editorial-NAT(Website)|"> Auction.com's chief economist Peter Muoio tells GlobeSt.com exclusively. We spoke with Muoio about workplace trends and how he sees them affecting commercial real estate in the near and long term.

GlobeSt.com: What does the office real estate market reveal about the latest workplace trends? For example, we're hearing things like Yahoo moving away from telecommuting; what does this mean in a big-picture sense?

Muoio: I don't know that the Yahoo move is necessarily the beginning of a countertrend to the reduction in office space. That said, we clearly can't reduce the amount of office space per employee to zero. But what's happening now is the harvesting of several trends that were initiated or triggered by both technology changes and what I've taken to calling "workstyle" changes, and that's where the Yahoo thing comes in.

There are two pieces to this development. First, in terms of technology changes, we've moved from big PC towers that sat next to your desk to little laptops to screens and keyboards that connect to the Cloud and take up no space. In medical office, there's been a massive shift away from paper medical records because of incentives from the federal government, including the Affordable Care Act that promote the shift to electronic medical records. Physicians I know got rid of a room with paper medical records and turned it over to other patient care after their switch to electronic health records. Practices hiring more doctors don't need to get additional space—they just use the space that had formerly been used for medical records.

Law firms are doing this, too. It turns out they no longer need the file space they once did to house the volumes of paper the legal system churns out because it's increasingly in digital format. Firms are taking significantly less space because of ratcheting down the space they need—law libraries are now only for client show because real lawyers use electronic libraries. This is enabling them to fit more and more people into less and less space.

The other piece to this trend is changes to our "workstyle." Yahoo notwithstanding, we're telecommuting and hoteling, and we have situations in some firms where people do not have an assigned desk—they register for a desk if they're going to be in the office the next day or week. You can really get away with not having dedicated space for each employee, but treat it like a hotel and figure out how much space you will generally need for employees. The style we work in has evolved from enclosed offices to cubicles to desktop-sharing space.

All of those things, from technology to workstyle, are shrinking how much workspace we use per employee. But when you think about it, this is less likely to happen as the unemployment rate tightens further because that's when firms have to do their best to attract employees. My guess is we're still in that process of ratcheting down office space per worker. I haven't noticed a lot of firms jumping on the Yahoo bandwagon, and I don't think this will override the ratcheting down of space.

GlobeSt.com: What do you see as the evolution of workspaces beyond creative office?

Muoio: I don't know. I don't really have something in particular in mind. But I want to repeat that it doesn't go on forever. Once you get down to sharing a desktop, with people working on tables next to each other, you can't get any more space out of them. You can extrapolate on that for a few more years, but that's it.

GlobeSt.com: Do you see the overlap between workspaces and home spaces—and the similarities between the two—as a good thing? Is it good for people to want to spend more time in the office because it offers the amenities of home?

Muoio: That's a value judgment I would generally shy away from, but while firms are putting in ping-pong tables and kitchens and creating a fun environment, it doesn't make up for squeezing people onto shared tables. There's been a little bit of a backlash from employees on the lack of privacy in some creative-office environments. If you're on a sensitive call with a client, it's not appropriate to have five people within earshot of you or for the client to be able to hear the conversations of other people around you—it's not the most professional situation. So, I do think there's a little bit of a pushback on the privacy and productivity issue. Not every job is meant to be best done crammed up against other people. Over time, there will be a little bit more of a distinction of, “Is this the type of job that can handle this setup or do you need more space to spread stuff out in order to digest it appropriately?”

GlobeSt.com: What other trends do you see in this sector?

Muoio: The type of office users varies a lot by market, and the hot portions of the economy are the ones adding the most office jobs. For example, tech has been a really hot sector, and it has been absorbing a lot of office space. Tech is also the poster child for all these things we've been talking about ratcheting down office space per worker. When you think about that, the office markets around the country that have been some of the strongest have been very tech driven: San Francisco, Boston, DC, Austin, Raleigh-Durham. Some have also been healthcare driven. But all the places among the strongest office-job creators are also the sectors that tend to be of the squeeze mode, so the trend toward less office space is also partially a reflection of which sectors of the economy are growing fastest. Headquarters-type offices have not necessarily been where the office jobs have been created, so you may see a shifting in terms of usage of space because of the nature of which kinds of companies are hiring.