Posted by: BayAreaComRE | May 11, 2010

The New Landscape of Commercial Real Estate – A Discussion on the Future of Office Space

The landscape of the commercial real estate industry is changing. How and when a new trend will surface is yet to be seen. San Francisco underwent a major transformation in the first part of the 21st century as Internet-based companies swept through the South of Market District leasing any and all space from glorified warehouses to live/work condominiums. The tech companies preserved the brick and timber walls, exposed ceilings, cement floors and open space.  The tech industry defined an office build-out. The industry cooled down since the dot-com boom and bust and San Francisco normalized from the downturn, but the creative style office build-out lived on.

This last boom of 2005-2007 engendered expensive and expansive build-outs. The market crash and ensuing Great Recession struck a nerve in the corporate world to make a change. This is a forum to lead and address that change. We are openly discussing the issues that at this level exist mostly behind closed doors. We are not the only ones, as Gensler, Interior Architects, DEGW (to name a few) are making strides. Our theory is that due to the dearth of land to develop in San Francisco, architects and real estate consultants will lead the transformation here in SF, but we would like to hear how work places are changing in other markets as well.

What will be the major factor that affects transformative change in the CRE landscape of this era? Economic forces? Environmental standards? Generational Influences?

“We don’t work in the same way as we did 150 years ago—and, as the way we work as changed, so too has office design. The last twenty years in particular have brought about a sea change: Rather than simply typing at a computer all day, the workaday ideal involves meetings and brainstorming sessions. A lounge might be every bit as productive as a cubicle, and that lesson has been embraced by dotcoms and ad agencies.” says Cliff Kuang of Fast Company. How We’ll Work in 2025. The case studies by Fast Company are real.

Economic forces certainly will have influence on the future of office space. A burgeoning industry could emerge with a significantly different business model that requires an entirely different office space. Companies will not want to pay for private offices for employees who travel 150 days in a year.

Environmental build-outs do not seem to be sparking a transformative change, notwithstanding its positive influence on the environment. Bovis Lend Lease made strides with their LEED Gold build-out at 71 Stevenson. Their space looks great, saves energy and brings in great natural light, but it is still a traditional office build-out with private offices, conference rooms, copy, kitchen, etc.

Generational trends are having an enormous impact on work style and office space. Our generation does not need private offices, abhors commuting and is universally mobile.

The change will happen in collaborative workspaces, more efficient office spaces, modular furniture, and “free address”  (no assigned desks or offices). Take a look at the offices featured in Unplggd.com. 10 Inspiring Company Offices (via www.workalicious.org) They feature offices like Facebook’s Palo Alto Headquarters to an Ogilby & Mather office to a Gentleman’s Club office in Machester.

We attended a meeting hosted by SPUR (San Francisco Planning & Urban Research Association), www.spur.org, and facilitated by Gensler in which a panel discussed the idea of Open Source City. The panel boasted Gervais Tompkin, The Workplace Guru, Jim Gollub, The Economic Therapist and Egon Terplan, The Planner Extraordinaire. They broached topics of city planning, regional trends and scenario exercises. The discussion centered around the notion of buildings or offices in which any professional can come. The Open Source  facilitates collaboration of individuals or groups from different businesses and across different industries. An office space, building or city could be a hub for different professionals to tap into the Internet, collaborate and network. Almost like a library for professionals. Better yet, a Starbuck’s with desks and white boards. Lewis Knight, explains his vision of an Open Source City and what it means for the urban landscape here. What is an Open Source City?

In a similar concept in New York, Emily Rueb describes the scene in a Manhatten co-working facility. “While many freelancers need nothing more than a WiFi connection, for some independent contractors or people who work remotely, like Mr. Townsend, the ability to use the human network as a launching pad for ideas is crucial. On one project where he was developing an iPhone application, he bounced ideas off an iPhone developer at the space.” Working in the Company of Strangers.

This is a tech, start-up specific place at the Hive 55 in New York, but Gensler envisions a space where people from many different industries and titles can come to work under the same roof. Open Source still necessitates a place to work, network and team-up, but it may not be in the traditional sense we are familiar. Additionally, the Open Source can compliment the traditional office use, as employees can bring the ideas and results back to their office from an open source session. Visit Genler’s on-going blog on Open Source, The Open Source City.

We have countless stories of companies moving towards “free address” and flexible workspaces. Oracle constructed their Japanese headquarters with “free address.” See our full coverage of  Oracle Redefines Office Space in New Japanese HQ – Scores Innovator Award from CoreNetWe recently sat down with the global managing director of Bain Consulting, and he attested to Bain’s movement towards free address, modular workstations, and accommodating working from home 1-2 days a week in several worldwide locations. The movement is transcending technology companies.

Office space needs to be more efficient. Bain is taking measures that could allow them to grow 20 percent and not rent another square foot. Wells Fargo and Bank of America are similar. Companies are more global, mobile and flexible. Office space needs to reflect these growing efficiencies and changes.

“Companies are looking to be more efficient with their real estate in the future…the idea is less about building new, more about doing more with what they have,” says Jessica Hoffman of DEGW. San Francisco is supply constrained, meaning fewer buildings are being built, so the major players in commercial office space will be the likes of Gensler, Interior Architects, DEGW among others that will re-define office space to meet the ever-changing landscape in our innovative and diverse city.

There will always be value for office space. This is about evolving workplaces, not eliminating them.

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Responses

  1. Great post Justin,
    Thoughts..and you knew they were coming..
    1. How much space is “repurposed” space?
    2. How does this trend effect lease rates..generally?
    3.What about mid market trends ie; Nashville,Kansas City,Indianapolis,Birmingham?
    4. Is this being followed buy Govt. state,local?
    5. The broker’s role is…what? again??

    • Thanks Duke. Jon and I have been tracking this trend in San Francisco and the Greater Bay Area, so we can speak to our region. It depends on what industry as well. 1. Tech companies, at their onset, take repurposed space for the short term, but on the whole the longer term deals are new build-outs. Lease rates are intrinsically tied to tenant improvements. If the tenant build-outs are more elaborate, the rent will be commensurate to the out-of-pocket costs from the Landlord. 3. Let us know what the mid-market trends are as we’d be curious to find out as well. 4. The government is adopting trends with environmental build-outs and LEED standards, but we have not seen flexible work spaces. 5. The broker’s role is pivotal in this process. We advise our clients at the beginning stages of the real state process…the earlier the better. As we manage portfolios for multi-market tenants, our role becomes more instrumental in assessing, reshaping and re-invigorating a company’s real estate. Furthermore, many of our clients trust us to make referrals to architects, consultants and construction companies that enhance and innovate the workplace.

  2. Please visit my blog Remodeling SF Bay Area; and Urban Ecology. Thanks. http://oakhiro.blogspot.com/

  3. I wanted to push your thought process in an exponentially more progressive direction.

    Changing the way we work in 2025? How about the way we learn, live, and play.

    Technology is changing the Generation Y workforce. Mobile video, conferencing, and internet solutions will enable the workers of the future to work from anywhere they are in the world.

    Management & productivity models will embrace this change, leading the way for a more flexible workforce.

    CMRE of the future must also embrace
    City 2.0. Intelligent Urbanization. Digital Cities will be high-tech, green, and technology-forward. A perfect example of what the cities of the future will look like is Songdo, South Korea.

    The implications on CMRE are yours to translate, but if you’re going to think progressive, push the limits. It is only through doing so that we can begin to become more efficient as a society.

  4. Karl, thank you for your comment. We agree, technology has a big role in the changing landscape of CRE. It not only has to be adopted by CRE professionals, but the innovations and proliferation of technology to businesses and professionals will affect the idea and use of office space. Great point!

    Are you going to the Cal v Aggie football game this upcoming season?

  5. Hi..
    I believe that the real estate companies have great future as there is a lot of demand in this industry..

  6. […]  https://bayareacomre.wordpress.com/2010/05/11/the-new-landscape-of-commercial-real-estate-a-discussio… […]

  7. […] is LEED working? Recent think tanks by Gensler and SPUR got us thinking, how can workspaces evolve (The New Landscape of Commercial Real Estate)? What are the government agencies doing in the environmental realm and how are they becoming more […]

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  10. […] “The New Landscape of Commercial Real Estate – A Discussion of the Future of Office Space.” Bay Area Commercial Real Estate Blog 11 May […]

  11. What will the future of offices look like in the next 5-10 years?…

    I have a post on this topic at my blog called the New Landscape of Commercial Real Estate, a discussion on the future of office space –  “The change will happen in collaborative workspaces, more efficient office spaces, modular furniture, and “free ad…

  12. […] “The New Landscape of Commercial Real Estate – A Discussion of the Future of Office Space.” Bay Area Commercial Real Estate Blog 11 May […]

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