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Smarter Ways to Reduce Space

Corporate real estate executives today face conflicting pressures. On the one hand, they are being charged with finding new ways to lower occupancy costs. At the same time, the drumbeat to develop comfortable offices that help retain employees and improve productivity has grown louder.

Increasingly the solution to all the requirements has come in an emerging concept known as alternative workspace strategies (AWS). The typical approach saves on space by eliminating large private offices. Most employees sit at workstations located in open floors. To improve productivity, workstations are outfitted with the latest in technology, including laptop computers, which allow employees to be more mobile.

The success of AWS is attracting attention. A survey of corporate clients conducted by Jones Lang LaSalle in 2003 revealed that less than 10% of respondents had used some alternative workplace strategies. By 2005, the number had grown to more than 35%.

“With the best alternate strategies, you see a reduction in demand for real estate, and you can invest some of the savings in technology that helps improve efficiency,” says Lenny Beaudoin, vice president of Jones Lang LaSalle.

The amount of space per employee has been dropping for more than a decade. The average office space for employees in upper management fell from 289 sq. ft. in 1994 to 239 sq. ft. in 2002, according to the most recent survey conducted by the International Facility Management Association based in Houston. During the same period, offices of middle managers dipped from 151 sq. ft. to 126 sq. ft. Architects report that the trend toward shrinking space is continuing.

Seeking to save space, Capital One, the credit card provider, recently used alternative workspace strategies to perform what might appear to be a sleight of hand. The shift occurred in a four-story suburban office building occupied by Capital One in Richmond, Va. While the structure was designed for 650 employees, the company was able to accommodate 1,200 employees. No, Capital One did not add more desks to the facility, and none of the occupants had to stand.

Under the new system, some Capital One business units only utilize one workstation for every three employees. Workers who need a desk take one on a first-come, first-serve basis. The approach works because many employees spend time in meeting rooms or outside the building. “By using space more efficiently, we avoided buying a new building this year, which would have cost about $25 million,” says Bryan Berthold, Capital One's director of strategy, planning, and analysis.

Corporations pay to play

Capital One began its space-saving pilot program several years ago when the company studied how offices were actually used. It soon emerged that much space was being wasted. On a typical day, 10% of desks sat vacant, since employees worked at home or were absent. In some departments, there were simply more desks than employees, particularly in the IT building. These employees constantly traveled to other Capital One properties where they installed technology systems and helped revive crashed computers.

The AWS process comes with some costs. Capital One spent about $2,000 per employee outfitting everyone with laptops and Blackberry wireless devices. But the savings are almost immediate. Berthold says that it costs about $10,000 a year to maintain a workstation, including costs of heating and maintaining the building. While the company has not reached any conclusions, surveys suggest that employees support the approach.

“In the past, many areas were not vibrant because half the seats were empty,” says Berthold. “Now the seats are full, so the energy level picks up. You feel things happening, and you are collaborating with different people every day.”

Capital One is hardly the only large company seeking to use less space. Companies that have achieved major savings include Procter & Gamble, Ernst & Young, and Cisco Systems. Technology advances have helped achieve the cost cuts. Many companies are now outfitting employees of all kinds with laptop computers, including some wireless machines that can make phone calls over the Internet.

The cost cutting is slowing demand for office buildings, confirms Raymond Torto, principal and chief strategist of Torto Wheaton Research, a Boston consulting firm. With the economy growing at an annual rate of more than 3%, the total number of office jobs should grow by 1.8% in the next year, says Torto.

This growth will help the office market absorb 66 million sq. ft. of space. Torto says that absorption of office space is currently growing at a 2% annual rate. That looks tepid compared to the 4% figure recorded in the early 1990s, another period when the economy was on the rebound following a downturn. “With the economy growing, there will be more demand for office space, but we will not see the stellar performance that appeared in earlier decades,” Torto predicts.

What knowledge workers need

Many corporations began trying to save space in the 1960s and 1970s, replacing traditional offices with cubicles. The current wave of redesigns goes a step further. Along with cutting costs, it aims to structure offices in ways that will boost productivity and lower employee turnover. The goal is to provide workers with the kinds of spaces that are best suited for the jobs of today. Knowledge workers only spend about 30% of their time in their offices, says Michael Joroff, senior lecturer at MIT. Much of the rest of the time is spent traveling or working in conference rooms.

Time spent in conference rooms is a big factor because in today's complex global business arena, workers must collaborate more than ever. Companies must consider a welter of issues ranging from changing regulations to moves in foreign currencies. A generation ago, regulations were simpler, and many companies did not have to contend with currency issues because there were few sales abroad.

To accommodate the changing climate, many companies have reconfigured the way their employees work. In the past, accountants and sales people sat separately. Now many global companies assemble teams from different disciplines to work on complicated projects. “For the project to succeed, you want the accounting guy to sit right next to the sales guy so that they can talk constantly about how to solve problems,” says Guy Geier, a principal with Fox & Fowle Architects in New York.

To foster creativity and collaboration, companies give employees the option of using a variety of spaces. If a six-person team is working on a project, members may be assigned workstations next to each other.

The space will have plenty of whiteboard where workers can jot down ideas. When three team members want to meet intensively, they can adjourn to a conference room. Some companies also supply so-called living areas, places with comfortable easy chairs where employees can discuss ideas or chat with customers.

Relying on laptops

Those employees who need to focus on “heads-down” work can take their laptops and move to quiet areas. At some companies, these are open rooms of workstations where etiquette demands that everyone refrain from using speaker phones. For even more quiet time, employees can move to rooms of about 50 sq. ft. where they can close the doors and work, or make private phone calls.

Wireless laptop computers make it easy for an employee to work in several different spaces during the course of a day. Laptops have been a particular boon for sales people and others who spend most of their time outside the home office. In the old days, a sales person might need to head back to the office regularly to check on paperwork and pick up messages. Now most of the paper is gone, replaced by electronic files.

Say a salesman needs to catch an 11 a.m. plane. In the past, he would need to go into the office, and then race off to the airport. Now he can spend several hours working productively at home, calling clients or using the laptop — before catching the plane.

When the salesman does need a desk at the home office, he might use a “hoteling” arrangement. Under this system, he makes a reservation online or through a secretary. When the salesman arrives at the office, he heads to his assigned office where his paper files may be waiting in a rolling cabinet. His phone calls automatically come to the desk.

Steelcase, the office furniture maker, is introducing flat-screen monitors that fit on the walls of hotel units. That way, the salesman enters the office and is greeted by an image of his family or some other favorite picture.

To accommodate changing work patterns, companies also are shifting to more flexible furniture. Workstation modules are on wheels, so that they can be easily moved. If a team takes on two new members for a one-month project, it can simply roll in new furniture. In-house facilities people or the team members themselves can make the move. “Because of the flexibility, you can expand or reduce the furnishings without calling in a contractor to rebuild the area,” says Margaret Serrato, a senior associate of TVS Interiors, a design firm in Atlanta.

When shopping for properties that can accommodate the new systems, corporate real estate executives prefer state-of-the-art facilities with lots of light and wireless Internet service. The floors and heating systems must be strong enough to accommodate an expanding number of employees. Still, some companies are forced to retrofit older buildings with low ceilings and outdated features. “It can be expensive to adjust a heating system that was designed to serve traditional offices where executives had 200 sq. ft. and closed their doors,” says Eric Bowles, director of global research for CoreNet Global, a professional association that serves the corporate real estate industry. Bowles says that retrofitting can cost from $25 per sq. ft. to $125 per sq. ft. In some cases, the cost of improving floors and heating systems may make retrofitting prohibitive.

Filling empty desks

The demand for new buildings with the latest technology is growing because of the high cost of renovation, says architect Guy Geier, a principal with Fox & Fowle Architects in New York. “Older buildings were quite serviceable for big companies 10 or 15 years ago,” says Geier. “Now we are starting to see out-of-date buildings being converted to residential use.”

Alternate strategies are proving particularly effective for large accounting firms. Auditors often work in teams serving big clients. And often the accountants spend most of their time in the offices of clients. In the past, many firms gave each staff member a big office with a closed door.

Ernst & Young, which occupies 6 million sq. ft. of space globally, used to supply offices that were up to 300 sq. ft. Now, no offices are larger than 120 sq. ft. Many auditors are assigned to workstations designed for teams and space needs have been reduced by 25%, says Trex Morris, the firm's national director of real estate.

The firm is encouraging more staff members to work at home. “If someone doesn't have to commute every day, they may be more productive and happier with their jobs,” says Morris.

Greater flexibility

Procter & Gamble has been operating a work-from-home system in its Singapore office. Now that the program is finely tuned, the company hopes to bring the approach to the Cincinnati headquarters. The consumer products giant has 900 employees in the Singapore office and only 700 desks. A team of 20 employees is assigned 14 seats. It is up to the team to determine who sits in the chairs each day. The key to success is that about 450 employees work out of the office at least part of the time. The program has been particularly attractive for sales people and others who travel.

To work from home, employees must apply to their supervisors. Staff members face quarterly evaluations of their working arrangements. “If people aren't being productive, then they can't work at home,” says Michelle Neal, Procter & Gamble's global workplace effectiveness manager.

Real estate consultants agree that the efforts to reduce space will expand. One of the advantages of the new strategies is that they give real estate planners greater flexibility. Under the old systems, corporate real estate executives had to search for more space during economic booms when companies were hiring.

But under the flexible strategies, companies can simply squeeze more bodies into the same building during good times. When recessions occur and layoffs appear, there is less pressure to sublease space in a flexible building where all the seats are filled.

If the economy remains strong, the space per employee will continue dropping rapidly, says Martha O'Mara, managing director of Corporate Portfolio Analytics, a real estate consultant in Boston. Many technology companies in San Francisco and elsewhere took on too much space during the go-go years of the 1990s. “After the downturn, there was no real economic motivation to shed space because no one was willing to sublease or take over the excess real estate anyway,” she says. “Now companies are more able to get rid of extra space.”

Stan Luxenberg is a New York-based writer.


Wireless technology is a key element enabling flexibility because it allows for greater mobility. Of the more than 50 corporate real estate directors surveyed, 31 % currently use wireless technology extensively.

We use it extensively 31%
We use it only selectively 51%
We have little and don't view it as strategic 12%
We're striving to use it extensively 6%
Source: Jones Lang LaSalle

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