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Era of the Smaller Office at an End? Perhaps Not

Volume of New Leasing Steadily Improving as has Size of the Average Office
July 8, 2013
By: Glen Marker, Senior Market Advisor

There’s been a lot of discussion of late trumpeting that a combination of Gen Y demand and technology innovation is leading companies to redesign and reduce their office space to optimize collaboration, create a more egalitarian distribution of space, and reduce costs. The office leasing data, however, points to another possible explanation for the smaller-than-average size of leases signed in 2009-2011 -- cyclicality.


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Make no mistake; there’s definitely a trend towards a more efficient use of space among office users thanks to the advancement of digital file storage, Wi-Fi, and the like. But we’re a long way away from the 100 square feet per worker figure mentioned in a recent and oft-cited CoreNet survey.

It's complicated, not to mention costly, to implement the changes needed to reach this target. Challenges include the turnover rate of employees, time required to fill vacant positions, internal company growth rates, the length of existing leases, and the cost of leasing more space if one misses the mark.

Instead, recent office leasing trends point to the cyclicality of office demand as the driver of smaller lease sizes (see Exhibit 1).

Small businesses tend to shed jobs earlier in recessions than midsize and large companies do, but they also drive growth earlier in the recovery stage of each business cycle. In other words, the smaller than average size of office leases is as much about where we are in the business cycle as it is about the trend toward more efficient, collaborative spaces.

The good news is that the volume of new leasing has been steadily improving over the past few years, as has the size of the average office lease.

The challenge is that 73% of recent leasing activity, in terms of the total square feet occupied, has been driven by tenants requiring less than 25,000 square feet of space. During the previous business cycle, 2000-2007, tenants requiring less than 25,000 square feet accounted for 67% of the total square feet of new leasing demand in any given year, whereas the small tenant share of new demand reached as high as 75% at the end of 2009.

In other words, it appears that smaller tenants continue to drive an above-average share of new demand at this stage in the recovery.

Glen Marker is a senior market advisor for CoStar Group.






































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