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VOL. 9 | NO. 39 | Saturday, September 24, 2016

Open and Shut

Smaller, open office spaces create challenges for tenants, developers

By Madeline Faber

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The office of the future hacks down cubicle walls in favor of modular furniture that encourages collaboration. As many business sectors, from banking to legal services, move to a tech-first approach, companies are turning away from traditional office configurations to attract the next generation of talent.

Shoulder-to-shoulder work stations increase space efficiencies as companies try to cram in more employees in the hopes of increasing productivity.

Memphis' problem is that the office of the future hit the national market about 15 years ago. With the trend recently finding local roots, many of Memphis' older buildings are rendered incompatible with the open-floor design.

The No. 1 factor driving a company to relocate is the need for a building that can accommodate an open-floor plan, said Ron Kastner, senior vice president with CBRE. Landlords are getting creative with tenant configurations, and developers are looking to launch new buildings that can accommodate this new layout.

Memphis held its breath when ServiceMaster Global Holdings announced that it was looking for office space that could accommodate 1,200 employees in a collaborative, open-floor plan. ServiceMaster even went so far as to say that the space they envisioned for the new headquarters did not yet exist in Memphis. With a relocation announcement seemingly imminent, ServiceMaster made headlines when it announced that it would turn the shuttered Peabody Place mall into a multimillion-dollar headquarters to rival a Silicon Valley outfit.

ServiceMaster isn’t just trying to be trendy; it’s trying to keep up. The remodel of its offices is inspired by the company’s focus on becoming a tech-first company to compete with the likes of Google and Amazon. To lure the best IT professionals, ServiceMaster needs to create an innovative environment. And to that end, they looked to the dominant real estate trends of Silicon Valley over the past decade.

Meg Crosby, principal of Memphis-based PeopleCap Advisors, said companies design space to reflect their aspired corporate values. The scrappy startups of Silicon Valley wanted to emphasize transparency, collaboration and a flat hierarchy as a backlash against Corporate America. As that trend has reached its full arc on the West Coast, it has ironically caught the eye of the corporate culture it repudiated.

Nationally, she said that the end is near for the truly open-floor plan where there are no dedicated desks. Instead, she’s seeing the pendulum swing the other way to reincorporate personal space.

“There’s this understanding that people, their personalities, their work styles, their learning styles are very different and require different levels of concentration, so the new trend is to have very flexible space,” Crosby said.

At a recent visit to the Institute of Design at Stanford University, she got to glimpse some the most recent innovations in office spaces. Wide windows and smooth, finished concrete floors are a must. Office furniture is placed on casters so that it can be easily reconfigured. A white board could serve as a backdrop for a collaborative meeting or as a temporary wall for someone wanting to work privately on a project.

She said a company considering an open-floor plan should provide lots of opportunities for different concentration levels and space needs. The abrupt shift from an isolated cubicle to an open-floor plan can be distracting to some employees.

Terry Ingram, vice president of supply management for ServiceMaster, said he has been experimenting with office furniture configurations for a couple of years in advance of the big move. He is setting the stage by transforming ServiceMaster’s existing East Memphis offices. There are only two individual offices on the IT floor of 860 Ridge Lake Blvd.

Cubicle walls are lowered in favor of wide desks where several employees are clustered. ServiceMaster has added more meeting space, from a two-person phone room for conference calls to large conference rooms. Some hallways are painted with a special whiteboard paint so employees can make sweeping illustrations just steps from their desks.

The layout grows out of ServiceMaster’s tech department, its fastest-growing employee sector. With the open-floor plan, Ingram is able to fit 80 more employees in the department. The bench seating means that employees can stay on the pulse of many different projects at once.

In the case of ServiceMaster, the company’s needs were ahead of the market. In moving to a 328,000-square-foot abandoned mall, the company is the bridge between one real estate class and another. With the move from the traditional East Memphis high-rises to an iconic Downtown building, ServiceMaster is able to bring all its employees under one roof. Rather than the boundaries between individual cubicles, spaces will be configured by interactions between departments. The communications department will be next to the IT department, for example, because the two work so closely together in developing and marketing products.

Ingram said that with the move, the company’s employees will have better ease of collaboration, which will attract the next wave of talent to Memphis.

“The more walls you build, the more difficult it is to reconfigure the future,” he said.

FLEXIBLE BUILDING

Steve Guinn, senior vice president with Highwoods Properties Inc., said developers are considering the trend to open-floor plans when developing new buildings.

“I think the trend to be more collaborative is here to stay, more or less,” Guinn said. “So we’re building to what the market wants.”

The move to an open-floor plan is defined by the rise of “we” space over “me” space, he said. Hallways are wider, conference rooms are larger and break rooms are almost “Starbucks-like” compared to fluorescent-washed rooms with little more than a vending machine. On the developer’s side, buildings are incorporating more full-height glass than individual punched-out windows. Offices on the perimeter of the window line are designed with glass walls, rather than sheet rock, to let natural light in the core of the building. He said a high priority for tenants is a column-free floor plan, so developers are making every effort to move columns away from the middle of densely occupied offices.

“A newer building obviously has a better chance working (with an open-floor plan) than something that was built 25 years ago,” Guinn said.

In its other markets, Raleigh, N.C.-based Highwoods has introduced a concept that reimagines a building’s lobby space, therefore expanding the trend of collaboration to encompass the entire building. In this case, Highwoods provides an on-site collaborative work space that can be used by all tenants outside of their traditional offices. Guinn said Memphis’ office market has not yet dictated the need for innovative ground floors, but Highwoods has added WiFi to the lobbies of its Memphis properties in step with that trend.

Highwoods is currently evaluating a new office building on a 4.4-acre parcel adjacent to International Paper Co.’s Tower IV building. When the office project gets off the ground, Guinn plans for it to have wide glass windows and structured parking to accommodate for increased density.

And when it is completed in fall 2017, Boyle Investments Co. will own the newest speculative office building in the Memphis market. The six-story property at 949 Shady Grove Road builds on an office prototype that Boyle has adapted over the past 20 years.

“This level of flexibility is rarely seen in a Memphis office building,” said Danny Valle, principal with Hnedak Bobo Group, the building’s architect. “The column-free space, large floor plates of more than 25,500 square feet and ample core-to-exterior glass dimension all work together to create unparalleled space planning options.”

Mark Halperin, executive vice president and COO at Boyle, said he is more focused on building a flexible property than one that is specifically suited to an open-floor plan. Of course, both of those design prerogatives have a lot of crossovers, like column-free space and large floor plates.

“I think the discussion (about open-floor plans) is getting more air time, but a lot of modern office buildings are very adaptable to what's perceived as the current design trends, and at least ours (at Boyle) are very much adaptable to a lot of open space and a lot of flexibility in design,” Halperin said.

TOO TIGHT?

Kastner said Memphis is a long way from abandoning cubicles, but he has noticed the space needed for individual workstations decrease over the years.

Twenty years ago, the norm was for companies to account for 285 square feet per person. Today, with an average seven employees per 1,000 square feet, that figure is closer to 142 square feet per person.

However, tighter space efficiencies don’t necessarily mean that a company is renting less office space overall. To account for tighter quarters, companies bring in amenities to boost the shared space.

“In an environment where people are so compacted, the business owner is opting for a more energetic workplace as a trade off,” Kastner said. “To make the work environment more interesting or fun, we might even see some tenants with a corn hole game in the corner or a pinball machine or ping-pong table.”

That’s the case at the First Tennessee Bank First Ops building 3451 Prescott Road. As part of a $62 million restructuring of its three properties, the Memphis-based bank is constructing a fitness center and cafeteria at its First Ops building near Memphis International Airport. At the same time, the company is remodeling its Downtown tower at 165 Madison Ave. to accommodate an open-floor plan.

With the renovation, the tower and First Ops building will be able to handle more employees, allowing First Tennessee to sell its office at 55 N. Danny Thomas Blvd. and split its 640 employees between the two remodeled properties.

Robert Hardwick, assistant director of facilities for First Tennessee, said the move to an open-floor plan is absolutely a cost-saving measure. With advances in technology, some of the functions of the First Ops check-processing building were no longer needed.

“We realized that we had about 600 square feet per person, and the industry standard is 150,” he said. “When you start putting all this together, we realized quickly there were some significant savings involved if we do this right.”

Overall, Kastner said Memphis doesn’t have the infrastructure to meet the needs of a market truly dominated by open-floor plans because most of its buildings were designed to house cushy individual offices.

“In Downtown, most of the buildings were built between the 1950s and the 1970s. Back then, the word workspace, workstation or cubicle was unheard of,” he said.

Only a handful of office buildings have been constructed within the past 10 years, so most of Memphis’ buildings have tight columns, oddly shaped floor plates and limited parking that render them “functionally obsolescent” for an open-floor plan.

To accommodate for increased density, some developers are restriping parking lots to squeeze in a few more cars. In some extreme circumstances, companies contract with a third party to use another parking lot and shuttle employees.

ServiceMaster will have access to the 1,000-space garage adjacent to the Peabody Place mall. Without that perk, it would have been nearly impossible for ServiceMaster to fit its employees into the Downtown core.

Kastner said the trend of companies maximizing occupancy is definitely here to stay. At the same time, he hopes the city’s reliance on personal automobiles is changing.

As the office walls come down in favor of packed workstations, there just isn’t enough parking to accommodate the boost in employees. Nearly every office building with dedicated parking in Memphis was designed to host no more than four cars per 1,000 square feet of office space, so several properties have halted leasing even though they have 10 percent vacancy.

“At some point, you have to stop leasing space because you can't get another car in your lot,” Kastner said. “And we've never been at that point before here. It's unheard of, but we're there in many buildings right now.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 0 133 1,342
MORTGAGES 0 131 1,047
FORECLOSURE NOTICES 20 39 190
BUILDING PERMITS 0 305 3,056
BANKRUPTCIES 17 135 753
BUSINESS LICENSES 0 53 329
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0