Trends to look for in the commercial real estate market

Trends to look for in the commercial real estate market

In the past years, the commercial real estate market has experienced a multitude of changes in response to poor economic conditions. Tenants, particularly large public firms, have been downsizing to cut costs. Office spaces are changing to accommodate downsizes. For example, non-dedicated offices and flex spaces are being utilized to diminish costs.

In addition,  Norm G. Miller, PhD, a professor at the University of San Diego, observed 4 major trend in the market:

  1. A movement to standardized work spaces
  2. Shared office spaces with more in-office amenities
  3. Increased telecommuting
  4. More collaborative work spaces

In past years, the amount of leased space per employee has decreased as shared spaces and telecommuting practices are integrated. Ten years ago, the average office space per employee was 250 feet. Today, that space has decreased to 195 feet on average.

Miller says, “Firms that have moved to sharing space are seeing much more efficient utilization rates of 80% to 95%, sometimes using conference space seats to handle unexpected overflow.”

Furthermore, due to economic uncertainty companies are hesitant to sign long terms leases. Long-term trends are shifting toward space saving efforts.

In addition to telecommuting and shared office space, companies are adopting paperless technologies.

However, shared office space trends are only statistically prevalent in large corporate offices. Smaller tenants (less than 5,000 square feet) still prefer private office spaces to open ones.

The economic downturn forced companies to rethink how they utilize commercial space. Many companies have removed the fluff and occupancy rates have dropped around the country in response.

Telecommunicating

Collaborative work spaces are proven to increase employee productivity throughout the day. During economic downturns new trends indicate that telecommuting is often cut immediately.

Recently, Yahoo announced they were cutting back significantly on telecommuting within the company. This practice is indicative of a company’s desire to increase worker productivity and collaboration in the office.

Garrick Brown, director of research at Cassidy Turley, says that telecommuting decreases in time of economic recession due to worked paranoia, as well. If a company is downsizing, an employee may want to relocate to an office space where he/she gains more visibility.

Over the past couple years, non-tech companies have adopted a tech-style office structure.

More People, More Stress

Christian Beaudoin, director of Jones Lang LaSalle in Chicago, says that as companies utilize spaces more efficiently, buildings deteriorate faster. Parking demand increases, additional heating, electric, and cooling systems may need to be installed, elevators need to be renovated to accommodate increased usage, plumbing systems are strained, etc.

For more about trends in commercial real estate, read CoStar’s article on the topic.

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