Impacts of Changing Demand for Office Space

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Tech and Communications Innovation, Younger Workforce and Cultural Changes, Changing Workplace Strategy, Cutting Costs, Gen X, Gen Y, Millennials, flexible work hours, recognition, social work environment, cool, creative and inspirational space, urban, collaboration, flexibility, streamline operations, corporate real estate managers, overhead expenses, efficiency, less space per employee, coworking, shared workplaces, location, leases, sustainability, supply, demand, renovation, construction, future

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Impacts of Changing Demand for Office Space

  1. 1. Workplace Revolution: The Impacts of Changing Demand for Office Space Appraisal Institute Symposium March 22, 2014 Peter Carlston
  2. 2. Peter Carlston CEO | Principal Broker 801.948.0899 | 650.533.3736 pc@elevationre.com 100 S. Main Street, Suite 609 Salt Lake City, UT 84101 www.elevationre.com
  3. 3. Sources • Commercial Real Estate Brokerages: Colliers International, CBRE, JLL, Commerce CRG • MIT • NAIOP • Urban Land Institute • CCIM • Appraisal Institute • CoreNet Global • Vendors and Consultants: Steelcase, Others • EDCU, Utah GOPB • Wall Street Journal, New York Times, Forbes • Glassdoor.com • Appraisers • Developers • Corporate real estate directors and clients • University of Utah • USGBC
  4. 4. First, a Story Site selection: Any office park will do, good freeway access
  5. 5. Site selection: Must be close to CalTrain station and hip urban core
  6. 6. Today’s Presentation • Drivers of Office Demand • Current Trends • Implications for Value
  7. 7. Drivers of Office Demand • Tech and Communications Innovation • Younger Workforce and Cultural Changes • Changing Workplace Strategy • Cutting Costs
  8. 8. Driver: Innovation • Industrial Age to Knowledge Age • Technology and Communications
  9. 9. Driver: Innovation
  10. 10. Driver: Innovation
  11. 11. Driver: Younger Workforce • Gen X: mid-60’s to early 80’s • Gen Y / Millennials: 1978-1989 or 1977-2000 0 20 40 60 80 100 Boomers Gen X Millennials
  12. 12. Gen X vs Gen Y • Gen X: Latch-key kids • Gen X: Radicals • Gen Y: Most parented generation in history • Gen Y: Happy conformists
  13. 13. Millennials • SUPER-Confident (all those trophies) • Crave feedback • Want stimulating, social work • Less materialistic – it’s about Experiences … and then Sharing Them • Highly educated, technologically savvy and ambitious • Connected
  14. 14. Millennials At the workplace, Millenials want: • Flexible work hours • Recognition • Social work environment • Cool, creative & inspirational space
  15. 15. Millennials • Space is PLACE; key to culture and brand • Vital for attracting and retaining talent!
  16. 16. Driver: Workplace Strategy • Increased need for collaboration and flexibility
  17. 17. Driver: Cutting Costs • Pressure to minimize costs and streamline operations • Corporate real estate managers focus on cutting fixed overhead expenses and increasing efficiency
  18. 18. Current Trends • Less Space per Employee • Need More Flexibility • Open Floor Plans for Collaboration • Shared Workplaces: “Coworking” • Location As Important As Ever • Smaller Leases • (New buildings and efficiency / style renovations)
  19. 19. Trend: Less Space per Employee 0 50 100 150 200 250 2010 2012 2017 Beyond
  20. 20. Trend: Less Space per Employee • Filing space has shrunk from 15 to 20 percent of office space to around 2 to 3 percent in many cases today
  21. 21. Trend: Greater Flexibility • Flexibility is a necessary strategy, no longer a perk • Essential to employee retention • American Express: – Hub – Club – Home – Roam
  22. 22. Trend: Greater Flexibility • Aetna: • 35,000 employees • 14,500 do not have desks at Aetna • Policies impact 47% of workforce • Rid of 2.7 million square feet of office space • @ $29/sf, company has saved about $78M per year!
  23. 23. Trend: Greater Flexibility • Yahoo • “A few years ago it was bring your own device to work, now it's bring your own [butt] to work.” • Collaboration, not telecommuting, is the goal • Innovation doesn’t happen in isolation
  24. 24. Trend: Open Floor Plans • “I” space to “We” space • Allocate workspace to issues instead of people
  25. 25. Trend: Open Floor Plans
  26. 26. Trend: Open Floor Plans
  27. 27. Trend: Open Floor Plans
  28. 28. Client Case: Color Labs
  29. 29. Client Case: Color Labs
  30. 30. Trend: Open Floor Plans • Backlash! • High Stress • Conflict • High Blood Pressure • High Staff Turnover
  31. 31. Trend: “Coworking”
  32. 32. Trend: “Coworking”
  33. 33. Cushman & Wakefield | Commerce to Bring First Shared Executive Office Building to Park City
  34. 34. Trend: Smaller Leases
  35. 35. Trend: Smaller Leases
  36. 36. Demand and Supply
  37. 37. Trend: Location Matters • Color • “Accelerated Serendipity” • Near cultural amenities • Near transit options • Premium locations still matter • “The City”
  38. 38. Trend: Sustainability
  39. 39. Trend: Sustainability • “’Embracers’ have better stock prices, better revenue growth, better everything.” MIT • Economics • 20,000 sf @ $18/sf = $360,000 • 15,000 sf @ $20/sf = $300,000
  40. 40. Implications for Value • Lack of standardized, conceptual approach to valuing green buildings • Green premium data of limited use to appraisers • Brown discount unaddressed • Limitations of DCF-based valuation approach
  41. 41. Implications for Value • Office Demand • Opportunities • To Be Competitive • How Much Space Needed? • Future Space Needs • Other Factors Impacting Demand • Parking
  42. 42. Case Study: Adobe • Campus helps Adobe win the "talent war“ • “Cross generational“ workforce • Space demand is a pendulum • What's more efficient, more sf per work space or more meeting rooms and amenities? • Timeless look outside, modular inside • All about flexibility and variety.
  43. 43. Case Study: 222 Main • 426,657 square feet • Completed in December 2009 at a reported cost of $125 million • Designed by the international architecture firm Skidmore, Owings & Merrill
  44. 44. 222 Main
  45. 45. 222 Main • SILVER LEED CERTIFICATION • High performance glazing designed to provide daylight harvesting • Designed to operate 15% below the State of Utah energy code • Ability to integrate green technology within individual tenant space • Building located in a developed urban area with access to existing infrastructure • Portable water use for landscape irrigation & internal use reduced by 50% and 40% respectively
  46. 46. 222 Main Tenants • Goldman Sachs • Brinks Hofer Gilson and Lione • Holland & Hart • CBRE • Hamilton Partners
  47. 47. 222 Main
  48. 48. 222 Main • KBS Realty purchased for $400/sf, record- breaking price in Utah • Key reasons for KBS purchase: – building’s first-class finishes; – views of the Wasatch Mountains; – key location in Salt Lake’s central business district; – parking facilities; and its – proximity to TRAX and City Creek shopping mall.
  49. 49. 222 Main "This proves that an outsider can come in from out of state and build a Class A building, lease it in bad economic times, and sell it at record-breaking number for a profit.“ - Bruce Bingham, developer of 222 Main
  50. 50. Thank You
  51. 51. Peter Carlston CEO | Principal Broker 801.948.0899 | 650.533.3736 pc@elevationre.com 100 S. Main Street, Suite 609 Salt Lake City, UT 84101 www.elevationre.com

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