There is a coming crisis in many markets: the changing occupier needs can no longer be adequately supported by the majority of the already-built inventory.
A review of the class A office buildings across the central business districts of Boston, New York, Washington DC, Chicago, Los Angeles and San Francisco reveals that over 53% of class A buildings in those markets were constructed prior to 1980. That’s 30-plus years ago! While many of these buildings have undergone renovations to modernize their infrastructure, today’s occupiers are working very differently than even five years ago. Corporations have clear goals from their workplace and they are focused on productivity, efficiency, flexibility and cost. Oh, and social responsibility as well!
Occupiers are looking to do more with less and many corporations, through the use of technology that allows for remote work, open floor plate designs to provide collaboration, or built-to-suit projects, are increasing the per person density in their portfolios. This means that even though their businesses are growing they will need less space- some even as much as 20% less.
Many owners do not fully grasp the significance of these changes and what they may mean for their properties. They do not understand that these new requirements are firmly rooted in corporate real estate strategy and are here to stay. Owners, particularly those in markets with technology, life science, or finance concentrations, need to assess whether the buildings they own can support the new ways of working. Does a building have the infrastructure in place to handle higher densities? Can occupiers maximize space loss factors within the floor plates? Does the building have the right amenity mix to support a 24/7 work environment? Those properties that can’t address these issues may require significantly more capital investment than anticipated and run the risk of becoming uncompetitive, or even functionally obsolete.