Mobile Professionals Are Altering Space Plans

Thanks to smart phones, wireless networking and Web-based productivity, today's professionals are spending much less time in the office. As a result, many companies are altering their occupancy strategies.

"Hoteling," as one particular office-space design is called, focuses on an open floorplan that reduces expensive - and often wasted - hard-wall offices and cubicle systems. The "hotel" concept comes from the use of small, connected workstations where mobile employees can temporarily plug in to the corporate network for access to shared files and company data, or to use printers, scanners and company phone lines.

Ideal for companies that have mobile sales or customer relations teams, hoteling can significantly reduce the amount of square footage needed per employee. On average, tenants who implement successful hoteling programs can reduce per employee space usage by 100 square feet, down to 150 per employee. Capital One Financial Corp., Bank of America and Hewlett Packard, which spends less than half the national average ($9,000) on real estate per employee, have all installed successful hoteling plans.

The cost for an office build-out is only increasing. Hoteling plans can also significantly reduce a tenant build-out costs. In turn, landlords may be more apt to offer other lease concessions if they know a tenant's build-out will not require significant alteration of an existing floor plate.

Mobility-oriented office plans can cut the cost of adding an employee and also help breakdown an office's social barriers between the "cube dwellers" and "the guy in the corner office." According to some facility experts, traditional offices have been known to promote excessive file retention or unnecessary space dedicated to storage. Hoteling can reduce that, offering broader electronic options and a more streamlined, community file system.

Remember that there is always a need for some private offices and conference rooms, as an open floor plan can lead to distractions. However, if balanced with the right amount of traditional office space, hoteling plans can make today's mobile professionals feel right at home.

 
Real Estate Industry Experiencing Downward Trends; Subleases on the Rise

Long considered a leading indicator of national economic health, office leasing activity in many markets is bowing under the pressure of a devastated housing market, record oil costs and historically tight lending standards. Quite literally, money isn't moving. And office tenants are following suit, choosing to stay put and in many cases, downsize current office commitments.

In Raleigh-Durham, the office vacancy rate is at 13.2 percent, a two-year high. In Atlanta, the two largest leasing transactions of the year involved subleases. According to one Atlanta brokerage firm office space around the usually active Northwest submarket (at I-75 and the I-285 Perimeter) has experienced 247,000 square feet in negative absorption. In Richmond, VA, 1 million square feet of sublease space is available, an all-time high.

In Washington, D.C.'s NoMa district, close to 880,000 square feet of office space is vacant, representing 10.4 percent of the market. Throughout the typically tight D.C. office market, vacancy rates edged up to 11.2 percent from 10.4 percent at the end of 2007. In California's Inland Empire, east of Los Angeles, local real estate professionals are predicting a five to seven year supply of office space is on the market.

For tenants, the weakened market conditions do provide opportunities to secure early renewals at competitive prices as landlords shore up their rent roll to stabilize occupancy and prepare for continued market degradation. Additionally, with so much sublease space on the market, landlords are recognizing that competition is heating up, which can substantially benefit tenants and lead to market-wide concessions.

While economic conditions may not meet the traditional definition of a recession, commercial real estate leasing activity has shown us, in large, garish type, that the writing is on the wall. And as we have discussed in recent newsletters, it appears understanding the specificities of subleasing, whether as a tenant or sub-landlord, may play an important role in upcoming real estate decisions and negotiations.

In less than twelve months, the market pendulum has moved drastically in favor of tenants. Regardless of your future space needs or your current lease commitments, talk to you tenant representative about how to use current market dynamics to your advantage.

 
Be Green with Care

Efforts around the country, such as LEED certification, newly developed building efficiencies and an almost universal buy-in to green best practices by real estate professionals have proven successful in reducing the environmental impact our workplaces have on the planet. Unfortunately, other efforts being introduced are doing so while risking the vitality of existing economies. By forcing into place overly aggressive mandates and regulations, developers and real estate professionals are beginning to resist government-driven green policies. If this skepticism of municipal mandates grows, a chasm of distrust may shear open between green-minded politicians and the commercial real estate industry.

A few months ago, this newsletter highlighted such an effort in San Francisco. The city's mayor was considering the implementation of sustainability standards that would hamper the city's growth. The new regulations were signed into law this month and thankfully, their severity was tempered slightly because of an agreement to phase them in gradually.

Still, some city officials estimate a cost of $30 million to $700 million per year for the codes' implementation. The only way landlords and their investors can recoup this additional cost is through higher rents to tenants. Unfortunately, in a soft real estate market, tenants are unwilling or unable to accept higher rent, even for a "greener" building. As a result, these required standards may impact the financial feasibility of many new projects. The codes' backers are denying the costs will be that dramatic. Nevertheless, developers and real estate investors remain concerned.

At the federal level, the Small Business Administration altered its standard operating procedures to include new green regulations that will impact the run-up to securing loans for real estate projects. The policies involve additional environmental studies and more in-depth involvement with the property from the lender. To an extent, these are worthwhile insertions to the SBA's underwriting process; however, given the currently harrowing real estate lending environment and the fact that banks are already diminishing their commitment to SBA-backed loans, the timing of these new rules can be seriously questioned.

To point, green efforts should not be rushed into being simply to meet a social conscience. Sustainable causes need to be just that: sustainable for the long-term. Therefore, we should encourage elected officials and environmental leaders to implement with diligence and steady progress, or else the track of success toward environmental balance may soon run off course.

The Miller Richmond Company
Two Ravinia Drive, Suite 1590 • Atlanta, GA   30346
phone: 770-390-1891 • fax: 770-390-1899
drubenstein@millerrichmond.com  •  http://www.millerrichmond.com