CHICAGO—Craig Robinson of Cassidy Turley kicked off a session on corporate real estate at yesterday's SIOR conference here with a sobering statistic. In the past, growth in the number of office jobs would roughly coincide with increased demand from office users. But since the economy began adding office jobs a few years ago, corporations have remained determined to shrink footprints by reconfiguring offices into more collaborative layouts, among other strategies, keeping net absorption below the historical norm. Robinson asked his fellow panelists if they could find a silver lining in all these numbers. At first, as they spoke about their corporate clients, it was not easy.
“They still have 20% more space than they need,” said Martha O'Mara, a co-founder and managing director of Corporate Portfolio Analytics, a real estate advisory firm in Cambridge, MA, and this should keep the overall market from returning to the days when job growth and net absorption were closely linked. “It doesn't mean every market is going to be like that,” but the office sector in general is unlikely to see the return of boom times.
“Most of the corporate clients I speak and work with are shedding space,” said Sarah Bagby, the Richmond-based vice president and real estate leader at Genworth Financial. “[Real estate] gets looked at with a very critical eye,” she added. However, instead of causing a narrow focus on cost per square-foot, squeezing employees into a smaller footprint has many clients focusing on the value they get per square-foot.
“We're evaluating our buildings from a whole different perspective,” said Bryan Berthold, the Atlanta-based senior vice president, corporate real estate at SunTrust Bank. In fact, he added, the push for reconfigured, more modern offices forces those in corporate real estate to gain a better understanding of how clients do their work, and how they need to shape spaces and use technology to build a more productive work environment. Therefore, although leases might be smaller, for corporate real estate “it's a fascinating time,” he said, perhaps finding that silver lining Robinson asked about.
O'Mara agrees that the new trend requires those in corporate real estate to expand their horizons. She pointed out that the greater employee density many companies now want requires an office infrastructure that can handle a heavier electrical load, among other needs, and many buildings won't support these changes. Ironically, buildings once considered ancient, even ones built a century ago, are frequently more adaptable to modern needs than structures from the 1980s. And brokers need to keep all this in mind as their clients' leases expire. “You need to understand what in your portfolio is future-ready.”
“The role of the broker is potentially evolving,” Robinson concluded.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
