Through the looking glass Featured

9:26am EDT March 23, 2005
Three primary drivers of change will affect how office space is designed, built and used in the future -- demographics, productivity, and technology. Each will affect the changing dynamics in demand and use of office space locally, regionally and globally with respect to where office space is built for front-office and back-office workers alike.

Demographics

Sluggish employment growth and an aging work force will soften the demand for new office buildings in many markets. Oversupply of office space in most markets will keep rents lower than needed to support new office buildings built at increasingly higher costs.

Routine jobs will be outsourced, off-shored or computerized, all of which will have a negative impact on demand for additional office space.

The effects of technology

Technology is allowing workers to become more mobile and flexible, so more workers in the future will use virtual offices, working in satellite offices and at home with connectivity, thus reducing the dependence on large offices for workers to go each day.

Office space per worker is and will continue to decrease, saving businesses money. Companies will strive to become more flexible with their use of office space, which equates to real estate savings and fewer square feet needed to support core operations.

The changing work process

Office space trends will continue to change how and where businesses choose their space to support their workers. Changing office space trends will present both challenges and opportunities for office space developers and managers, and for real estate services firms, which represent tenant-users, all of which must become more solution-oriented.

The back office was originally a central space through which transactions flowed from department to department and/or desk to desk until all relevant information was compiled and all processing tasks were completed. Microcomputers, in conjunction with mainframe computers, have completely transformed this process.

By defining a transaction by product line, one individual -- via a microcomputer with access to a database -- can gather and process the information necessary to complete a transaction. Where it once took numerous employees and multiple processing steps over a period of days to complete a routine process, it now takes one individual less than a day to receive, issue and complete important tasks to support business operations -- all via a terminal that is fully online to a minicomputer-based system.

Thus, the work process has been decentralized according to product line, but information previously spread throughout the organization has been centralized within information process centers.

Back-office locational patterns

At the same time that telecommunications technologies have enhanced the capacity to move information in, through and out of central-city office buildings, they have also been a permissive, although not a deterministic factor in the decentralization of back-office facilities. Trends in back-office location demonstrate that their location depends on factors that are essentially a function of three dynamics -- the size of an establishment, the economic dynamics of city and suburban locations, and organizational determinants.

As there are a number of factors that affect each dynamic, and the importance of these factors differs from city to city and firm to firm, the extent of decentralization of back offices varies considerably among industries and cities. A review of each dynamic and the major factors that influence it will show that future trends in back-office location will depend on the ability of different areas to effectively meet the dynamic demands of back-office facilities.

One thing is for sure -- for the office space developer, manager, service provider and particularly the end user, the future promises to be exciting as trends continue to change how office space is utilized.

Thomas W. Frank, SIOR, CCIM, is a co-founder of Summit Realty Group and a 30-year veteran of the real estate industry. He specializes in corporate real estate services, tenant representation and office space advisory services. Frank has been involved in more than 1,000 transactions, handling more than 5 million square feet for tenants and buyers of commercial real estate. He also serves as Summit's director of office services. Reach him at (317) 713-2104 or tfrank@SummitRealtyGroup.com.