Like goatees, 19-year-old billionaires, and taking your dog to work, the open office format sounds like a '90s idea that should be over by now. On the contrary, the idea is gaining momentum.
Corporations as varied as computer software giant Microsoft and health benefits provider CIGNA have found that by using this new style — less private space, more shared space, and increased reliance on mobile technology — they can reduce their overall office space needs by 30% or more.
Planners say advances in technology have made workers more mobile while reducing their need for paper files and bulky hardware. More laptops, slimmer desktop monitors, wireless computer networks, telephones routed over the Internet, and the growing use of online databases instead of books and paper files are all reducing the need for square footage.
Design innovations are helping to shrink offices as well. Today, architects are installing more efficient furniture and fewer cubicle partitions. Many firms have reduced the number of standard office modules in their layouts, making layouts more efficient as well, says Frank Edwards, a corporate managing director with New York-based Studley, a corporate tenant advisory firm.
To help squeeze even more desks onto one floor, some planners have reversed the century-old tradition of keeping most private offices near the exterior windows and common areas in the core.
As a result of all these advances, Microsoft and CIGNA have found that for sales representatives and other highly mobile workers, seven people — or even more — can share a single desk, says Jean Bellas, president of Space, an interior architecture firm based in San Francisco.
Nor are the gains confined to a few forward-looking companies. Over the last five years, the average office space per employee has shrunk by more than 20%, according to surveys conducted by Marcus & Millichap Real Estate Investment Brokerage Co.
Since 2000, the firm estimates that the amount of space companies are leasing for each employee has dropped from about 250 sq. ft. to 190 sq. ft., a drastic reduction that has brought space ratios back to levels not seen since 1981.
Jim Costello, an office sector analyst for Torto Wheaton Research in Boston, believes that the squeeze wasn't due to the recession. On the contrary, he says, the ratio of space per worker usually climbs in a recession because after layoffs there are typically fewer workers sharing the same amount of space.
An even tighter squeeze ahead
Marcus & Millichap predicts that the ratio of space per employee will remain level for the next few years, but some industry experts argue that outlook is too conservative. Jan Fasse, a research analyst for Allsteel of Muscatine, Ill., an office furniture maker, says that according to some surveys, corporate space planners believe they can shrink space another 21% without affecting productivity.
One of those optimists is Christopher Hood, program manager for HP Workplace, a space planning division of Palo Alto, Calif.-based Hewlett-Packard Co. Hood figures that his firm will be able to cut 30% of its office portfolio by improving its efficiency. That might sound like a lot, but Hood says colleagues at other companies believe they can shrink their office size by as much as 50%.
Dan Boutross, the Kansas City-based director of strategic portfolio and project planning at Sprint, is in the 50% camp. Boutross is currently spearheading Sprint's effort to reduce the amount of space occupied by its national 6,000-person sales force from 2 million sq. ft. to 1 million sq. ft. He's accomplishing the task through office redesign and better support software for the company's mobile sales force, such as wireless e-mail access and online collaboration software.
The savings can be so dramatic that even some bosses are getting booted out of their offices these days and placed with the rest of the staff. “You're not necessarily entitled to an office just by title any longer,” says Edwards of tenant rep advisory firm Studley. What's taking the place of the coveted corner office? At some large firms, he says, an employee's place in the hierarchy shows up not in the size of the office, but in the quality of his office furniture.
HP's Hood says that he knows of many companies now undertaking similar projects. “This isn't just a few companies out there closing down empty space. This is a significant trend,” Hood says.
A push from above
Hood argues that his firm and others are simply catching up with the way employees are already working, but changes in how planners and designers are paid may also play a role. Until the early '90s, space planners literally went by the book in their planning, multiplying a set amount of square footage by the employee's pay grade, Costello says. Now, planners are compensated on how well they are using the firm's capital, giving them an incentive to think small.
Most firms today watch their real estate costs more closely than ever before. Firms now benchmark themselves against their peers on how efficiently they adhere to their real estate budget. Those costs aren't negligible: Hood's ballpark estimate of real estate cost per employee ranges from $4,000 to $12,000, depending on the office's density and the particular market.
Faced with similar pressures as the space planners, architects and designers are now more careful to consider how offices are actually being used. Karen League, an Atlanta-based senior vice president for HOK, an architectural firm, says some workplace surveys HOK has done on behalf of its clients found that workers weren't using their space nearly as much as previously believed. “We found very few that were at their desk even 50% of the time,” she says.
In some categories, particularly sales, such low utilization rates aren't uncommon. At HP, Hood says that company analysts found an average of 35% to 50% utilization, “and that's average,” he emphasizes.
New designs for a new era
While workers are doubling up on desk usage, architects are being called upon to design more space for teams in a collaborative setting. “It's not effective to have a sea of beige cubicles and nowhere else for people to work,” Allsteel's Fasse explains.
“The old ways of working many times don't work,” adds HOK's League. Many businesses are changing so rapidly these days that managers encourage employees to work in groups to tackle problems — and groups need more space for projects, she says. “We're seeing it happen across the board with our corporate clients,” she says. From law offices to corporate offices, many organizations are looking for configurations that make group work easier.
While meeting areas and shared work spaces account for about 10% of the total space in a conventional office, in the new office layout meeting rooms can represent 40% to 60% of the total, according to Bellas of Space.
Although the cost savings are high, such newly styled offices can require a significant investment as well. Hood says that more heavily used buildings require a higher ratio of parking spaces, more powerful electrical and mechanical systems, and more expensive finishes. And those meeting places often cost more per square foot than ordinary space, notes architect Steven Clem, a principal with TVS Interiors in Atlanta.
Bellas argues that the extra expense is worth it. “It's sort of like a Hagen-Daz ice cream scoop versus a generic brand,” she says. The new style of office may be more expensive, but you're satisfied with less.
Brave new job
In this new era, the office often becomes less a place to work than a place to meet. “The office is no longer a home, it's a hub,” says Donna Marin, a Newark, N.J.-based vice president of client development at Space.
HOK's League says the typical day of a worker in this new environment begins to look a bit like a day in the life of a college student. Just as a student doesn't typically study in one spot all day long, the office worker may need to move around for any number of reasons.
Apparently, workers like the flexibility. The idea that all this space-cutting is making employees happier might sound a little suspect, much like an airline claiming that passengers actually prefer less legroom. However, CIGNA found that one firm that implemented an open office plan was able to reduce employee turnover by more than 50%.
Lynne Kelley-Lewicki, who led the CIGNA project and is now president of Stoneblue LLC, a consulting firm based in Stonington Conn., that helps companies develop new work places and practices, says that she has observed turnover drop by as much as 50% after the creation of a more flexible, open work environment. Additionally, Kelley-Lewicki points out, worker productivity has increased anywhere from 4% to 16% when both the space and the ground rules for mobile working are well planned.
But while rank-and-file workers actually like the freedom of the new designs, and top executives like the cost savings, many middle managers reportedly find the transition to the open, flexible office a difficult one. Middle managers are often especially resistant to the change, says Sprint's Boutross, since they are concerned about maintaining productivity. “It's been very, very difficult.”
Some developers and landlords may have a hard time adjusting to the new reality as well. “It's grim news indeed for people who are supplying real estate,” speculates Hood. But Hood's forecast that more worker mobility and more efficient space planning will lead to lower demand for office space isn't shared by real estate industry analysts. Torto-Wheaton, for example, is still forecasting an overall decline in vacancy rates over the next five years, from a current 15.4% national vacancy rate to 12.3% in 2009.
But Torto Wheaton's Costello does predict that the nature of the space most in demand is likely to change. He says that the buildings that will lease most easily will be those with smaller footprints. His reasoning doesn't have to do with shrinking offices, however, but shrinking corporations. After all, it's small companies that create the most jobs today, he says, not large firms.
“It's a small, dynamic world and the space that's going to fit that need is going to do the best,” Costello says.
Welcome to the work club
While this trend toward smaller offices may be bad news for the office sector as a whole, newly mobile workers may be creating new kinds of opportunities.
A few futurists forecast that demand is going to grow for such spaces as a “work club,” an office shared by workers from many firms. The concept is a bit analogous to a health club. It's basically a work space for people who either don't want to go into their company office or don't want to work in a home office.
Perhaps the most ambitious experiment of this kind was the 14,000 sq. ft. Gate-3 WorkClub, a sleek facility designed and operated by former Herman Miller designer Neil Goldberg. Gate-3 opened last year in Emeryville, Calif., but shut down in February when it couldn't attract enough tenants.
But Goldberg may have just missed that market by a hair. Starbucks, for instance, may already qualify as a kind of work club. The Seattle-based coffee provider's wireless Internet service provider, T-Mobile, estimates that 90% of Wi-Fi use at the 3,100 Starbucks outlets that have wireless hotspots occurs after 9 a.m., with a typical subscriber logging on for over an hour and visiting over eight times a month.
McDonald's has apparently smelled the opportunity as well. A technology partner is installing hotspots in 6,000 of its stores this year, about half of all the McDonald's in the country.
HP's Hood thinks that the kind of office space that's in demand is likely to change as well in this new era. The lower rental bills will enable firms to take another look at how attractive their offices are to prospective employees.
“I think when you look at the dynamics of the work force going forward, it's younger, it's shrinking, and it's competitive, so you need to attract people,” he says.
In the future, a weight room or a location in a lively neighborhood may become an important way companies will differentiate themselves to potential recruits, Hood speculates. As a result, many companies will shift from anonymous suburban offices to more unusual spaces such as downtown urban lofts. Location decisions, he says, will become a “quality and amenities-driven equation rather than just a dollars-per-square-foot race.”
Bennett Voyles is a New York-based writer