Many buildings will be at a competitive disadvantage because of their design. Further, changing office density (workers per square foot) is becoming a heavy drag on a stronger recovery in the office market. Business are finding ways to fit more people into less space. This is not your father’s recovery. Companies are shrinking their per-employee square foot requirements while demanding more collaborative space. Even as tech and media companies hire, other companies continue to shed employees. The net result is a slower office recovery than in previous cycles. We have seen this manifest in continued high tenant improvements and free rent even in strong markets like the Santa Monica. Business are demanding and getting the latest and greatest tenant improvements. With vacancies still over 10% in most markets, Landlords are forced to comply or they comply to maximize contract rents.
In today’s Los Angeles Times (October 13), one broker explains:
One big reason this office market recovery is much slower than others is that many firms are packing more workers into less space.
The ho-hum recovery has hit downtown Los Angeles especially hard, said broker David Kutzer of Newmark Grubb Knight Frank. Law firms, banks and other corporate businesses have been cutting back on private offices and workers’ cube space. Open floor plans are becoming the norm.
“There is far less ‘me’ space and more ‘we’ space,” Kutzer said.
See: Los Angeles Office Market’s Ho Hum Recovery
In Los Angeles and San Francisco, the market is driven by tech and/or media tenants who desire creative spaces. These tenants want more power, flexible lease terms, open and high ceilings, less offices, more conference rooms, bigger kitchens, and non-corridor entries. The new density is creating a special problem for Los Angeles office buildings. Businesses now need parking that most buildings do not have. Businesses now need more than 3 spaces per 1000 square feet as their density skyrockets above 4 employees per 1000. The success of Hackman’s Hayden Place and the Reserve and Hercules campuses in Playa Vista can be attributable to their creative design and plentiful parking.
You can read the full article below.
How Will Older Office Buildings Compete in the New Workplace? – CoStar Group.
One might argue moderate recovery like moderate rental increases prove healthier long term for the office market then we saw in the 2000 spikes in rent then the collapse of tech. Competitive design disadvantage may prove healthy as open space supply in LA eventually dwindles as it has in gateway Cities such as San Francisco. Landlords may be forced to accommodate tenant needs in design.