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Tech affects commercial space: ‘Industrial’ is the new ‘office’

10/17/2013 | Real Estate Blog

The time has come to stop blaming the recession for the slow commercial real estate market, according to an economist presenting at an Urban Land Institute event. The office market has been improving, but incrementally. Office space absorption is down about 40 percent from before the recession, and it is unlikely to recover completely. Brokers, agents and customers need to embrace the new normal, it seems, and the new normal has a lot to do with advances in technology.

Mobile technology, to be exact, has lowered demand for traditional office space. With smart phones and tablets and enhanced connectivity, employees, especially Millennials, prefer working from home, a coffee shop or another more relaxed remote location. As long as the work gets done, employers don’t object: The shift translates into less office space and significant savings for them.

Research shows that companies rented about 225 square feet of space per employee in 2010. In just three years, the number has decreased by about 25 percent to 165 square feet. Even a less drastic space reduction can save millions. Say a 400-person company is paying $50 per square foot in rent and reduces its office space by 15 percent, from 202 square feet to 177 square feet per employee. The employer saves $1.5 million per year.

Not only has the amount of office space changed, but the configuration of that space is different, too. These employees prefer collaborative, open spaces to the seclusion of individual offices. Companies are saving on build-outs and remodels — good for them, less good for the commercial real estate industry.

Technology has not only changed the way people work, though. We’ll get into the other differences in our next post.

Source: Phoenix Business Journal, “How technology is changing the commercial real estate industry,” Kristena Hansen, Sep 17, 2013