Trends in Square Feet per Office Employee
By: Adrian Ponsen, senior real estate economist, CoStar Portfolio Strategy
SQUARE FOOTAGE PER EMPLOYEE (the usage factor) is clearly in long-term decline, as firms maximize the efficiency of their office space. Yet this figure is also highly cyclical. During a recession, tenants are able to cut workers more easily than they are able to break or shrink their leases. As a result, square footage per worker often jumps during recessions. That is one reason why absorption was relatively weak from 2010 through 2013: Companies had empty cubicles to spare as the economic recovery began, so they didn’t need to expand their office footprints even as they began hiring more workers.
In order to gauge which segments of the market (Class A, B or C) or industries are seeing the greatest push for space efficiencies, commercial real estate professionals like to look at changes in the size of average leases over time. The average size of new leases has declined by 8 percent over the past 10 years. But the Class B and C markets have really borne the brunt of this trend. This is because, when it comes to front office locations (i.e., Class A space), many companies are still focused on maintaining spacious layouts with a generous array of amenities like large lobbies and conference rooms that can serve as a marketing tool and help companies recruit and retain top talent by offering a luxurious work environment. Meanwhile, in the Class B and C markets, where more back office operations are concentrated, lease sizes are shrinking rapidly, as employers cut costs by reducing excess space, pushing employees closer together.
In slower-growth industries such as accounting, government, insurance and law, leases are also shrinking more rapidly, as employers are focused less on rapid expansion and more on cost cutting. Office-using industries that are adding jobs most rapidly over the long term, such as technology, media and finance, are seeing leases shrink more slowly. In the fastest-growing sector of the economy, technology, shown here as “computers/data processing,” the average lease size actually increased by 21 percent over the past 10 years. This is partly because competition among employers for technology workers is so steep, employers in the industry need to offer spacious, amenity-rich office space to attract and retain employees.
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