The demand for corporate real estate is down dramatically and the vacancy being counted and reported now does not yet represent the depth of the problem. Corporations are either not willing to take losses in disposition of real estate, or are holding property and leases for an imagined future and are yet to confront the real scale of recovery. Landlords, believing that vacancies harm them especially when leases to some companies represent property status, are not yet reporting the actual scale of occupancies. Historically, rising employment and a traditionally aligned increase in real estate demand lags the trajectory of recovery by months. And credit supply, certainly, has a different relationship to real estate demand now.
Business recovery, no matter how robust, will never absorb the current building supply.
Many architectural firms whose fortune and fame were built on corporate space are still in denial. Past indices of architectural revenues had a relatively direct relationship between white collar employment and services demand, so most firms are wishing and waiting for “recovery.” I think that the wait for new architectural commissions is going to be very long.
The growth of real estate demand and the resultant rewards to the profession over the early portions of the past decade had foundations that were both real and virtual. Actual business growth was part of the mix, as was a need for smart infrastructure to support the momentum of technology implementation in the workplace. Lagging commitments to corporate standards, including a surprisingly tenacious hold on the office as perk, also fueled a demand for space that was larger than the effective working need. And the attractiveness of debt – that is, the availability of cheap credit – was, as we all now know, a driver of global construction without a real market supporting it.
As things began to collapse, we already had an abnormally high ratio of space to real and emerging demand. It’s all dynamically correcting now, and the current metrics of the issue are not yet balanced.
So what is the future for architects, and for their clients?
First, a quick review. I believe that the actual emerging demand at the front edge of the recovery (when it happens) will be a small fraction of current supply. If this block represents 100 square feet of pre-collapse space, the crisis could finally reconcile demand at 50% of current supply, if not still significantly less.
The reductions in demand come from –
- Rightsizing Corporate layoffs now represent not just a temporary alignment with an economic downturn, but will also ultimately reflect a permanent change in the scale of business. This permanency will come from a new conservatism (corporations, like shoppers, realize that bling is dead, and sustainability as a value looks real), a lag of response to demand, and new ways of doing things brought by the operating discipline imposed by the Great Recession.
- Utilizing As the recession was beginning, we began to deploy new analytical tools and metrics in workplace planning to more effectively align our design practice with business strategy. We were able to show that the typical workplace was unoccupied for much, if not most, of the workday. It appeared that the (finally) lighter and more ubiquitous technology, and collaborative workstyles generated by the innovation agenda, meant that the fix on individual and assigned workstations was beginning to wane. Corporations were rapidly learning that adherence to traditional and even recently updated standards meant a 40-60% competitive disadvantage when measured in real estate costs.
- Mobilizing Corporate globalization, technology improvements, wifi infrastructures and new workstyles also contributed to global, local and internal mobility. This mobility not only directly revised the demand on real estate, but the managerial and HR tolerance of work done anywhere meant that home, Starbucks, and the airport replaced the office.
- Standardizing I actually consider this a bad word, but there is at last a move in corporate facilities departments, and among us as planners, to institutionalize revolutionary new metrics for office and real estate occupancy. Square feet per person and dollars per square foot are not measures of the work that people do. The proportional alignment of space to an individual and not to the mission perpetuated higher costs and barriers to competitive differentiation. In other words, previous methods of forecasting and planning for real estate demand overlooked a concept of real estate as a tool for business performance.
So if corporations, and cities, are already overbuilt (and they are), and the reconciliation of demand and supply will mean that there will be even more vacant space going begging soon, and if the drivers of corporate demand are easing, then what are the opportunities for architects and designers in this New Normal?
As with any transformation program, an examination of the business model is an important discipline. Conventional architectural fees are based on consumption, not performance. Fees are typically expressed as percentages of construction cost, or as dollars per square foot of project size. Bigger and more complex is better. As clients seek to do more with less, however, and if architects can respond effectively, the relationship shifts from the amount and cost of space to the effectiveness of place to deliver positive influences in the achievement of the organizational mission.
I’d suggest that as architects have been embracing sustainability as a key value informing practice, conventional metrics and methods of practice, now reinforced by the New Normal, provide the platform for rich opportunity in at least 4 newly defined areas in the emerging business landscape –
It’s about place, not space – Some of our past clients have been occupying space at up to a 30:1 seating ratio. That is, their mobility practices and other workstyles have led to such a reduction in space demand that they need space only for the equivalent of one person where they used to provide individual assigned space for 30. So the role of the office changes from where I do my work to where I connect with my brand, culture and colleagues. The making of a compelling place to be, a place where employees want to go, is the new role of the architect, rather than the design of a standards-driven container of cubes.
Work looks different, now – The new values of work are about innovation, speed, opportunity, service, and differentiation. These require continuous learning, managerial transparency, visual and verbal connectivity, dynamic collaboration, and organizational agility. Architects have a great opportunity to remake the workplace based on a new formal lexicon in support of the enabling workmodes of socialization, learning, and collaboration.
These two concepts may represent the entire domain of practice measured by the level of reoccupation of corporate space in an emerging economic restoration. What happens with the rest of the space? Do we bulldoze the city?
I’d offer a couple of more optimistic suggestions –
New metrics, new typologies – Floorplate size, dimensions, configurations, volume, infrastructure, building image, location and other metrics all have an influence on corporate (people) performance. Previous planning, if aligned, has been a denominator strategy, delivering cost reduction. New approaches, built on our awareness of beneficial associations of place and performance, enable us to evaluate properties for their contribution to numerator strategies – direct relationships of place to performance. Buildings that fit our template have the potential for longer term sustainability. Re-profiling these buildings to gain attention in corporate expansion may be the most beneficial and rewarding planning and design service in the recovery transformation.
New markets (and Squellettes) – If all of the above is achieved, there remains a large portfolio of property that may be considered obsolete for corporate purposes. What about this surplus? In the ongoing, maybe increasing, competition between city and suburb, obsolete urban corporate properties have re-use potential that can yield highly attractive options. This is a very challenging domain, but seems to have a place in conversations even in unlikely places. Wired magazine, for example, has proposed a term form these properties and begun a discussion about what to do about them. A great illustration of spirit, thought and potential is in this example from Brazil in which a group of artists and architects intends to occupy and transform a 20-story tower in Sao Paolo as a cultural and civic laboratory.
Overlaid on all this is sustainable design, of course, which has some momentum moving from using less to occupying less to building less to reusing.
It feels as if we are at one of those historical/cultural/social inflection points and doing things in new ways feels more rewarding and productive than waiting for “recovery.”
© Jim Meredith, 2009
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