Will Office Densification Continue?
Has densification of the office environment reached a tipping point? Yes, say
research directors from national real estate brokerage, data and investment firms,
whose consensus is that on the whole, office densification is either approaching
or has already reached a tipping point, as most of the larger office space
users have already downsized and the smaller ones that are left to downsize
are not expected to move the market.
These research directors came together in mid-September at an annual
gathering hosted by the NAIOP Research Foundation.
Sarah Dryer, director of research, Washington, D.C., region for Savills Studley,
stated the trend will vary by industry. Tech firms, for example, might continue
to shrink their office footprints but others want to “right size” as different
industries use space in different ways. Elizabeth Norton, managing research
director for Transwestern’s Mid-Atlantic region, noted that many larger firms
have already restructured, but when one considers that average lease sizes
range between 8,000 and 10,000 square feet, she does not know if it will be
possible for the smaller firms to contract further, given that they are starting
from such a low basis.
One participant noted, however, that there may be possibilities for contraction
among public sector tenants. “Current federal government offices are still
relatively large but new leases are smaller by 15 to 20 percent,” said
Revathi Greenwood, Americas Head of Research at Cushman & Wakefield.
“There is still room for densification within the federal sector and with some
of the Washington, D.C., law firms as they move their libraries online.”
Jim Costello, senior vice president at Real Capital Analytics, and John Chang,
first vice president of research at Marcus & Millichap, believe that going
forward, it is unlikely there will be continued contraction among office space
users. They noted that for some employers building out new space, individual
workstations are smaller, but collaborative spaces are larger, resulting in no
loss or gain of square footage upon execution of new leases.
The participants noted that resizing and open plans are not always optimal, as
densification can lead to decreased productivity among workers and stretch
the limits of building systems (e.g., HVAC and bathrooms), a challenge faced
by numerous owners. “Some companies have crunched so small that they
actually have to renegotiate space,” said Ray Wong, vice president at Altus
Group in Toronto. He countered by saying, “I think there’s still some room in
the marketplace to densify, but at what cost? Productivity and densification
need to balance. Densification for densification doesn’t make sense.”