Decoding)Densification)

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1 Decoding)Densification) Insights(and(opportunities(for(CRE(professionals( ByPhilMobley,Principal,KoineCommunications January2016 Densificationhasbecomeawatchwordinthecommercialrealestateindustry. Dozensofarticles,whitepapersandresearchreportsaddressinghighFdensitywork environmentshaveappearedinrecentmonths.atthe2015bomainternational AnnualConvention&ExpoinLosAngeles,apanelofexpertsdiscussedthetopicin aneducationsessionentitled DensificationandtheOfficeoftheFuture. Hostingmorepeopleinthesameamountofspacehasimportantimplicationsfor howrealestateprofessionalsoperatebuildingsanddeliverhighfqualitywork environmentsforspaceusers.thisreportbrieflysummarizesrecentresearchon thesubjectandsuggestsopportunitiesforrealestateprofessionalstodevelop furthercapabilitiestoservetheircustomers. MajorThemesinDensification 1.(Densification(is(happening,(but(unevenly.( Thereisagreatdealofempiricalevidencethatspaceoccupiersaretargetingmore efficientlayouts.forexample: CoreNetGlobalhasprojectedthattheaveragesquarefootageperoffice workerwilldropto151by2017,downfrom176in2013and225in AccordingtoconstructionandengineeringconsultingfirmJacobs,usable squarefeetperpersontrendeddownwardfrom218in2010to192in ADeltaAssociatessurveyoftheWashington,DCmetroareasuggesteda declineinrentedsquarefootageperofficeworkerfrom197in2000to178 in ArchitectureanddesignfirmGenslerhasestimatedthatofficespaceneeds coulddecreaseasmuchas50percentby Benchmarksurvey,CoreNetGlobal(2012) 2 PresentationtoNationalAdvisoryCouncil,Jacobs(April2015) 3 trendlines(twentyfourteen,transwesternanddeltaassociates(february 2014) 4 Trends(in(Office(Footprints,Gensler(February2013)( 1

2 Densificationiscertainlyhappening,andithasarealimpact,aswillbeexplored furtherbelow.nevertheless,itisnotauniversal,monolithictrend.rather,itis uneven,variableanddrivenbyasubsetofspaceusers,affectingdifferentbuildings indifferentways. StudiesbybothKingsleyAssociatesandtheBritishCouncilforOfficessuggesta minorityoftenants(assmallas11percent)ispursuingintentionaldensification. 5,6 Itistruethatthesetenantstendtobelarger,marketFleadingoccupiers,amplifying theirimpact.itisalsolikelythatthepaceofdensificationwillincreasewith triggeringevents(suchasleaserollovers).however,alargesegmentofoccupiers currentlyremainsinmoretraditionalfloorplans. Evenwhentenantsestablishhigherdensitytargets,theydonotalwaysachieve theminthenearterm.regularemployeeturnoverandcyclicalhiringprocesses meanthateffectivedensitiesareoftenfarlowerthantargets.furthermore,many tenantsexecuteleaseagreementswithplannedgrowthinmind,keepingdensity belowtargetsatthebeginningoftheterm.thesefactorstendtomitigatethepaceof densification,particularlyinmultiftenantedbuildingswhereleaserolloversare staggered. Workplacemodelscanalsoimpacttheeffectivedensityoftenantspace.Arobust teleworkingfandfhotelingplandecreasestheratioofsquarefootagetototal employees,butitdoesnotnecessarilyincreasethenumberofpeopleinthespaceon agivenday.flexibleworkschedulescanincreasetheoverallnumberofhoursa tenant sspaceisoccupiedwithoutincreasingtheeffectivedensityatanyparticular pointintime.obviously,thesetypesofarrangementshavedifferingimpactson buildingoperations. Densityoftenvarieswidelywithintenantsuitesthemselves.Some neighborhoods inthespacemayhousealargenumberofworkstationsinarelativelytightarea. Othersmaybefarmoreopen,whetherdesignedascollaborativespaces,break rooms,loungesorothermorespecializedspace.suchdesignslessentheaverage densityofofficespace,atleastasitimpactstheoverallbuilding.forinstance,some researchsuggeststhatforevery2squarefeetremovedfromindividualworkstation space,atleast1isaddedbackinsharedorpublicspace. 7 Thisindicatesthat,inthe questforthemosteffectiveworkplaces,occupiersareseekingtooptimizeoverall densityratherthanmaximize(it. Densification seffectscanbeprofound,particularlyatsingleftenantedfacilitiesand buildingswhereoneortwotenantsoccupyasignificantportionofthebuilding.at otherbuildings,changeswilllikelyoccurmoregradually,givingmanagementstaff timetoadjust. 5 Surveyoftenants,KingsleyAssociates(2014) 6 Occupier(Density(Study,BritishCouncilforOffices(2013) 7 Welcome(to(the(Office(of(the(Future,GeorgiaPacific(2015) 2

3 2.(Densification(is(best(understood(in(a(larger(context.( Thetraditionalmotivationforincreaseddensity costefficiency certainly remainsapowerfulincentiveforoccupierspursuingdensification.formany,itmay stillbethestrongestmotivator. 8 However,theleadingedgeofcontemporary densificationisproperlyplacedwithinthecomplexlargertrendofworkplace( transformation. Knowledgeworkisbecomingincreasinglycreativeandcollaborative.Anew generationofemployeesprefersnewwaysofworking.andonline,mobile technologyenablesmuchworktobedonefromanywhere.thus,businessesare beginningtoaskmoreoftheirspace.ratherthanmerelyafixedassetwithan amortizedcost,theyarebeginningtothinkofspaceasa strategiccommunication tool 9 ora highfperformanceenvironment. 10 Theyareaskinglessabouthowmuch spacetheyneedandmoreabouthowitwillbeused. 11 Higherdensityisacomponentofthisbroaderdiscussion,whichalsoincludes mobileconnectivity,environmentalsustainability,brandedenvironmentsand alternativeworkmodes.controllingoccupancycostwillalwaysbeimportant,but thetransformedworkplaceisnotviewedprimarilyasacostcenter.instead,itisa criticalcontributortoproductivity,innovationandemployeeengagement. 12 ( 3.(The(challenges(of(higher(density(are(real,(but(manageable.( ( Giventhattheoverwhelmingmajorityofofficespaceconsistsoftheexisting buildingstockdesignedformore traditional densities,densificationpresents operationalandchallengestobuildingmanagers.thefirst,andoneofthemost pressing,startsoutsidethewallsofthebuilding:parking. Someestimatessuggestthatover80percentofworkersinsuburbsandcities underservedbypublictransitcommutebydrivingalone. 13 Parkingisamajor challengeforexistingbuildingsintheseareasthatweredesignedwithlower densitiesinview.italsoillustratesclearlytheimpactafewtenants(orevenone) canhaveontheoverallbuilding.ifonelargetenantrequires15f20percentmore parkingbecauseofhigherdensities,thatleavesfewerspacesforremainingtenants. 8 Surveyoftenants,KingsleyAssociates(2014) 9 Whywehateouroffices, (Harvard(Business(Review(October2014) 10 Trends(in(Office(Footprints,Gensler(February2013) 11 trendlines(twentyfourteen,transwesternanddeltaassociates(february 2014) 12 Forjustoneperspectiveonthis,seereportsfromBisnow s TheFutureofOffice andcreativeworkspace seminar,heldinwashington,dcinmarchof InternalportfoliodatafromBentallKennedy 3

4 Simplyaddingmoreparkingwillnotbefeasibleinmanycases.Spacefornew parkingstructuresislimitedincentralbusinessdistricts,andmunicipalitiesand sustainabilitycertificationprogramsdiscourageaccommodatingmorecars. Solutionswillrequirecreativityandflexibility. Insidethebuilding,morepeoplemeansmorefrequentandintensivecleaning (potentiallyovermorehours),moreuseofconsumablesandmorewear/tearfor floors,doors,elevatorsandotherareas.thesameappliestoenergyandwater consumption.thisnotonlyputspressureonoperatingcosts,italsoaddscomplexity whenattemptingtoallocatethosecostsfairly.whensuitesarebuiltoutspecifically forhigherdensity,manyofthesecostscanbeanticipated,meteredandassigned accordingly.whererestroomsandamenityareasarelocatedoutsidetenantsuites, thisbecomesmoredifficult.inmultiftenantedbuildingswithtenantsofvarying densities,squarefootagemaynolongerbethebestallocationfactor. Densification simpactgoesbeyonddayftofdayoperationstocapitalbudgeting. Equipmentsuchaselevators,restroomfixturesandHVACsystemswillrun differentlywhenservingmorepeople,alteringtheirmaintenanceschedulesand potentiallyshorteningtheirusefullives.insomecases,thelayoutofthespacewill changeequipmentreplacementdecisions.forexample,onehvacsystemmaybe optimalforamorecontemporaryopenlayout,whileadifferentsystemwouldbetter serveamoretraditional cellular layout. 14 Maintainingahygienicworkenvironmentis,anunderFresearchedimpactof densification.intuitively,morepeoplemeansmoregerms.furthermore,insome workplacemodels,employeesfrequentlymovefromworkstationtoworkstation, rarelyoccupyingthesameoneforanextendedperiodoftime.whetherthisleadsto moreillnesshasnotbeenproven.still,itimpliestheneedforamoreintensive cleaningandsanitationmodel,perhapsmoresimilartothatfoundinhotels. Employeehealthwillbeatopicofconcerninthetransformedworkplace. 15 Inallthis,thereisgoodnewsforbuildingmangers.TheBritishCouncilforOffices concludedthattherehasbeennoevidenceintheunitedkingdomthatbuildings constructedtoalowerdensitystandardhavebeensubsequentlybeenunableto copewithincreaseddensity.indeed,averagedensityinbritainisalready117 squarefeet(note:unitsconverted)perperson,lowerthanintheunitedstates.(and workersinjapanandchinahavelongworkedineventighterquarters. 16 )Thisstudy andothershavealsopointedoutthat,forreasonsnotedabove,buildingoperators areunlikelytobeconfrontedwiththe doomsdayscenario offast,mass densification ThispointwasmadeinapropertymanagementdiscussionatBisnow schicago eventonpropertymanagementandtheofficeofthefuture(april2015) 15 Cleaning(High(Density(Workspaces,GeorgiaPacific(2015) 16 RayTortolectureonofficemarkets(September2012) 17 Occupier(Density(Study,BritishCouncilforOffices(2013) 4

5 5 Managingtheoperational,capitalandtenantservicechallengesofhigherdensity willnotbeeasy,butthereisampleevidencethattheindustrycanadapt successfully,especiallysincethepaceofchangeisstructurallylimitedbycurrent leaseterms. OpportunitiesAssociatedwithDensification CREprofessionalshaveseveralopportunitiestoaddressdensificationproactively andconstructively,helpingoccupiersnavigatethetrend: Largeoccupierswithrobustcorporaterealestateandfacilitiesmanagement expertisearetheprimarydriversofdensification.othertenantsmaywantthe samebenefits,butlacktheinfhouseexpertise.buildingmanagersinamultif tenantedenvironmentarewellpositionedtoservesuchtenants.large managementfirmscanleveragetheirplatformstoprovidebenchmarksand changefmanagementcasestudiesfromsimilartenants.smallermanagement firmscanalsoguidetenantsonhowbesttoleveragetidollarstoachieve effectiveworkplaceswithappropriatedesignsthatencompasshigherdensity. WellFinformedpropertymanagerscanhelptenants(particularlysmallerones) avoidthepitfallsofmerecopycatting,guidingthemtowardchoicesthat maximizeproductivityandinnovationratherthanmerelyminimizingspace. Modernworkplacesneedmodernpaymentmodels.Insidetenantsuites,this maymeanenhancedmeteringanddelegatedvendormanagement.outsidethe suite,workersallbenefitfromcommonareas,andtenantswithmoreworkers benefitmorethantenantswithfewerworkers.propertymanagerscanget creative andperhapsevenradical inallocatingcostsbasedonusageor headcountratherthansquarefootage. Technologyischanginghowindividualworkersinteractwiththeirworkplaces. Online,mobileFenabledtoolssuchasComfy,CrowdComfortandLaneallow workerstoaccesscommonamenities,bringissuestomanagement sattention andevenrequestbriefperiodsofwarmorcoolairdirectlyfromthebuilding automationsystem.densificationimpliesgreateradoptionofsuchtools, democratizingtherelationshipbetweenofficeworkersandbuilding management.ownersandmanagerswithamindsetof workplacemanagement ratherthan propertymanagement willbeatanadvantage. Contemporaryworkersareusingspacedifferently,demandingachoiceofwork modesandworkstations.manytendtousepublicorcommonareasfor impromptumeetingsorindividualworkawayfromdistractions.evenlobbies androoftopareascanbecomealternativeworkplaces.inadditiontotoucheslike comfortableseating,semifprivateareas,naturallightandrockfsolidwireless Internetconnectivity,workerswouldbenefitfromactivelyprogrammed

6 amenitiesinthesecommonareas.buildingsthatoffermaximumflexibilityand comfortwillbemoreattractive;ownersandmanagersthatanticipateand accommodatethistrendphysicallyandoperationallywillbenefit. AsithasalwaysdoneinresponsetotheevolutionoftheCREindustry,BOMA Internationalwillcontinuetoprovideeducationalcontentandbestpracticesfor itsmembers.resourcessuchasboma stenant(leasing(densification(checklist canhelpbuildingownersandmanagersdeliverbestfinfclassserviceinthe contextoftransformingworkplaces. 6

7 ADDENDUM' 'Densification'and'Opportunities'for'the'BOMA'Federation' ByPhilMobley,Principal,KoineCommunications January2016 Densification and,indeed,thebroader workplacetransformation trend presentsbomainternationalanditsaffiliateswithatremendousopportunityto fulfillthefederation straditionalroleofindustryandprofessionaleducation. Membersneedreliableguidance.Theyneedtoknowwhatquestionstoaskand whatdatatocollect.theyneedtounderstandtheimpactahighmdensitytenantwill haveonbuildingoperations,andtheyneedtonegotiatecostallocationaccordingly. HereareafewsuggestedwaysforBOMAtohelp: BOMA sownmembersareitsreadiestsourceofbestpractices.resourceslike theforthcomingtenant&leasing&densification&checklist,compiledbyboma s researchtaskforce,willhelpmembersasktherightquestionstodensifying tenants.bomashouldseektounderstandwhatothertoolsmembersalready usingtoaddressdensification. How&dense&is&too&dense?&What&positive and&negative experiences&have&tenants& had&after&transforming&their&workplaces?abomamsponsoredresearcheffortto answerthesequestions,identifyingcriticalthresholdsandrelatingthemto tenantoutcomes,wouldarmmemberswithinsighttoservecustomersbetter. Forexample,awordofcautionmaybeinordertotenants especiallysmaller oneswithoutinmhousecorporaterealestateexpertise whoaremerely followingahottrendwithoutconsideringthepossiblenegativeimplicationsof transformingtooradically.manyrelevantstoriesarealreadyoutthere;boma cancollecttheminasystematicwaythatmemberscantrust. BOMAcanfurtherresearchtransformedworkplacestosetprogramming guidelinesformemberstosharewithtenants.suchresearchcouldanswer questionslike: & o What&is&an&appropriate&target&ratio&of&space&types&(focus,&collaboration,& learning,&leisure,&etc.)?& o How&does&the&ideal&layout&change&by&tenant&size,&industry&or&location?& o Are&large&suites&more&efficient&than&smaller&ones?&Are&they&more&effective?& o How&important&is&office&design&relative&to&other&factors&(industry,&building& location,&etc.)&in&engaging&employees?& o What&is&the&relationship&between&density&and&health/wellness&at&the&office?& 1

8 BOMAcanquicklyproduceacatalogueorresourceguidethatcompilesand definesthelatestmobiletoolsthatallowofficeworkerstoengagedirectlywith theirbuildings.thereareappsthatallowworkerstoreserveconferencerooms, adjusttemperaturesettingsandexplorelocalretailamenities.awarenessof suchtoolswouldbenefitmembersandtheircustomers.& 2