impacts of changing demand for office space

Workplace Revolution:The Impacts of Changing Demand

for Office Space

Appraisal Institute Symposium

March 22, 2014Peter Carlston

Peter CarlstonCEO | Principal Broker

801.948.0899 | 650.533.3736pc@elevationre.com

100 S. Main Street, Suite 609Salt Lake City, UT 84101www.elevationre.com

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

First, a Story

Site selection: Any office park will do, good freeway access

Site selection: Must be close to CalTrain station and hip urban core

Today’s Presentation

• Drivers of Office Demand• Current Trends• Implications for Value

Drivers of Office Demand

• Tech and Communications Innovation

• Younger Workforce and Cultural Changes

• Changing Workplace Strategy

• Cutting Costs

Driver: Innovation

• Industrial Age to Knowledge Age• Technology and Communications

Driver: Innovation

Driver: Innovation

Driver: Younger Workforce

• Gen X: mid-60’s to early 80’s • Gen Y / Millennials: 1978-1989 or 1977-2000

Boomers Gen X Millennials0

102030405060708090

Gen X vs Gen Y

• Gen X: Latch-key kids

• Gen X: Radicals

• Gen Y: Most parented generation in history

• Gen Y: Happy conformists

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

Millennials

At the workplace, Millenials want:• Flexible work hours• Recognition• Social work environment• Cool, creative & inspirational space

Millennials

• Space is PLACE; key to culture and brand• Vital for attracting and retaining talent!

Driver: Workplace Strategy

• Increased need for collaboration and flexibility

Driver: Cutting Costs

• Pressure to minimize costs and streamline operations

• Corporate real estate managers focus on cutting fixed overhead expenses and increasing efficiency

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)

Trend: Less Space per Employee

2010 2012 2017 Beyond0

50

100

150

200

250

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

Trend: Greater Flexibility

• Flexibility is a necessary strategy, no longer a perk

• Essential to employee retention• American Express:– Hub– Club– Home– Roam

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!

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

Trend: Open Floor Plans

• “I” space to “We” space• Allocate workspace to issues instead of

people

Trend: Open Floor Plans

Trend: Open Floor Plans

Trend: Open Floor Plans

Client Case: Color Labs

Client Case: Color Labs

Trend: Open Floor Plans

• Backlash!• High Stress• Conflict

• High Blood Pressure• High Staff Turnover

Trend: “Coworking”

Trend: “Coworking”

Cushman & Wakefield | Commerce to Bring First Shared Executive Office Building to Park City

Trend: Smaller Leases

Trend: Smaller Leases

Demand and Supply

Trend: Location Matters

• Color• “Accelerated Serendipity”• Near cultural amenities• Near transit options• Premium locations still matter• “The City”

Trend: Sustainability

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

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

Implications for Value

• Office Demand• Opportunities• To Be Competitive• How Much Space Needed?• Future Space Needs• Other Factors Impacting Demand• Parking

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.

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

222 Main

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

222 Main

Tenants• Goldman Sachs• Brinks Hofer Gilson and Lione• Holland & Hart• CBRE• Hamilton Partners

222 Main

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.

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

Thank You

Peter CarlstonCEO | Principal Broker

801.948.0899 | 650.533.3736pc@elevationre.com

100 S. Main Street, Suite 609Salt Lake City, UT 84101www.elevationre.com