Office Locations

Chicago
200 S. Wacker Drive
Suite 700
Chicago, IL 60606

Rosemont
6250 N. River Road
Suite 11-100
Rosemont, IL 60018

Third Quarter 2015

2015 is being marked as the year of recovery.  The U.S. economy is rebounding from the Great  Recession which led to the collapse of the U.S. housing bubble and caused many large financial institutions to breakdown. Likewise, the real estate industry sector has shifted towards recovery, and, in some cases, has made a full recovery. In an attempt to survive the recession, many companies reduced their workforce and overhead. However, most were unable to reduce their footprint due to lease contracts, forcing them to ride out the weak economy with underutilized space, otherwise known as shadow space.  With the economy improving, tenants are beginning to grow their business and hire more employees. Those who are restricted by long‐term leases have taken advantage of their existing shadow space, expanding without the need to relocate. Others who have impending lease expirations are taking advantage of the market and downsizing, thereby creating more efficient workspaces. Based on CoreNet Global survey results, the pre‐recession CRE average office space metric was in the range of 225 rentable square feet per employee.  In 2013, that number for the Chicago market alone was over 300 square feet per employee (CoStar). Recent lease transactions in 2015 are showing significant reductions, with some companies targeting less than 150 square feet per employee.

The most recent Colliers National Research Report confirms that there is over six billion square feet of Class A, B and C office space in the United States.  That represents billions of dollars in value, and millions for companies looking to shed unwanted space. According to Dawn Newman, Principal and Interior Designer for Newman Architecture, companies under pressure to reduce costs logically turn to their real estate requirement for cost reductions. She argues that improved efficiencies in the workplace resulted in a reduction of real estate costs with companies leasing less space.   Workplace strategies to achieve these efficiencies include the use of open office areas and a reduction in the number of private offices, with some having no private offices. According to Dawn, this new workplace strategy, coupled with millennials in the work force, fostered a more collaborative environment and in order to compensate for the tighter work space, companies added amenities such as large open kitchens/collaboration areas, game rooms, work out facilities and sit/stand workstations. She points out that the current average square foot per employee has been reduced to 176 square feet per person with predictions that this number could go as low as 100 square feet per employee for certain market  sectors.

Revenue changes constantly and in order to keep the real estate costs in line with revenue, cost must be monitored and adjusted frequently. Forecasting of the business cycle is critical to the performance of a real estate portfolio. Pre‐determined metrics will reinforce the need to keep real estate engaged and present opportunities to rebalance portfolios, which typically require long lead‐times to add or reduce space. In recent lease transactions, such as Kraft‐Heinz relocating from the suburbs to 200 E. Randolph, companies have found a way to not only compete for new talent, but reduce their footprint in the process taking advantage of more efficient floor plates. According to a CoreNet Corporate Real Estate 2020 Report, competition for talent will yield a more distributed work force, dramatically altering space demand. Their prediction was that companies will begin utilizing Alternate Work Spaces (AWS) or teleworking more frequently.   This is a new trend many companies turn to in order to optimize their  real estate portfolios and drive down space costs.  Some organizations disagree with allowing employees to work remotely, saying it negates the culture they are trying to create within the organization and limits creativity and productivity since teamwork and collaboration doesn’t occur. Others turn to the open space concept instead, creating collaborative workspace and shared workstations. Office space is often perceived as a hierarchy of status. The corner office with the best view determines your achievement and rank in the corporation. This once coveted mindset is now changing, thus allowing corporate real estate leaders to reevaluate their space utilization and create a more efficient workspace, therefore reducing their overall square foot per employee metrics, and ultimately improving the bottom line.

Regardless of the methodology in minimizing overall space utilization, the fact is, companies are reducing their footprint and in turn reducing their real estate overhead. Taking the time to create a standard “per square foot per employee” metric will help to reduce existing costs for those leases that are nearing expiration while planning for more efficiency with attractive and contemporary design to enable great productivity.

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The Burden Corporate Solutions Team is pleased to have an opportunity to provide an overview of our corporate real estate service lines of transaction management, lease administration and portfolio strategy.

Forecasting of the business cycle is critical to the performance of a real estate portfolio. 

For More Information, Please Contact:


Chicago
6250 North River Road, Suite 11-100 Rosemont, IL 60018 United States | Tel: +1 847 698 8444