FRAZIER BAKER and WILL BARDEN
Nationally, as of July, the primary office using sectors recovered 93 percent of jobs lost during the recession as compared to an overall recovery rate of 77 percent in total employment. That’s great news for the office real estate sector then, right?
A recent Colliers International update on the state of the office sector nationwide points out that despite the fact growth in office-using employment has outpaced overall employment growth during the last few years, absorption of office space has been tracking at a much slower pace. Why is that? Call it the “new economy” – a move toward efficiency that has even growing offices looking at smaller spaces. Today, corporate users are seeking to reduce the average space per employee to less than 200 square feet, and as low as 100 square feet in some cases. In fact, our own Colliers International brokerage office in Memphis has recently relocated to a smaller space that is actually designed to accommodate a moderate amount of growth in our staff.
But it isn’t just cost efficiency that is driving the move to smaller spaces. Increased use of mobile devices such as tablets and smartphones, and shared workstations reduce the requirement for office space. Additionally, a continued move toward more collaborative workspaces and flexible work arrangements is reducing the overall office footprint. This is particularly prevalent in companies that attract younger employees, such as technology.
While it may be a bit soon to say how this adjustment to workspace size will impact productivity, one thing is for sure. Increasing employee density will increase the demand for parking. When the typical suburban parking ratio is 4 spaces per 1000 square feet, parking is likely to become an issue.
Although the trend of tenant downsizing will continue to result in a slower recovery in national office market conditions relative to previous cycles, further expansion in office-using employment bodes well for moderate increases in office absorption and rents in 2013. Office-using employment is poised to exceed the pre-recession peak by year-end, as a broader economic recovery bolsters demand from tenants outside of the robust ICEE (intellectual capital, energy and education) industries.
While office vacancy rates in the Memphis metro have fluctuated a bit over the last two years, they don’t look much different today than they did two years ago. The trend toward smaller, more efficient spaces is certainly impacting the local market. However, it is difficult when you look at local numbers to tell how much one-time events, such as the loss of Pinnacle Airlines and the downsizing of Raymond James, are dampening vacancy rates and how much the general trend toward a smaller office footprint is contributing. Assuming our market will experience office-employment growth similar to what is projected nationally, we would expect to see moderate improvement in vacancy rates headed our way, particularly in the most popular areas like the 385 Corridor and East submarkets. But the fundamental shifts in the way companies are configuring office space will have a lasting impact on the office real estate sector for the foreseeable future.
Frazier Baker, vice president of Office Services and Will Barden, vice president of Office Services, provide office tenant representation services for Colliers International | Memphis.