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Need more office buildings? Not likely, U.S. told

Corus Entertainment’s new waterfront headquarters in Toronto features an open-concept plan designed to enhance collaboration. Swing-out tables, for example, allow for impromptu meetings.

Richard Johnson/Corus Entertainment

It's doubtful that most in the commercial property sector have ever envisioned a world without new office construction. The need for more offices is sure to remain strong, right?

Think again, concluded a panel of experts and academics convened by the Building Owners and Managers Association at Georgetown University in Washington, D.C., last month. They debated a simple, yet contentious, question: Does the United States really need any more office space?

The experts agreed that, with the exception of a handful of core markets such as New York and San Francisco, the country's existing property supply likely already offers more than enough room for its white-collar workers.

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In other words, the United States has effectively reached peak office demand – an assessment that should spark interest for commercial property market insiders in Canada.

"We don't need another office building," says Martha O'Mara, a symposium panelist, lecturer at the Harvard University Graduate School of Design and managing director of Cambridge, Mass.-based commercial property consulting firm Corporate Portfolio Analytics Inc.

"Our traditional idea of an office space and the idea that as the number of office jobs increase, it will lead to an increase in demand for office space, just doesn't hold any more."

The reason, according to Dr. O'Mara, is that most companies already occupy about 50 per cent more office space than they actually need, while technology has drastically changed the post-war work model. Fifty years ago, working from home was simply not an option.

But the shift to a largely information- and services-driven economy and the ubiquity of Internet-based communications has drastically changed that model.

"The idea of people working in a closed office or cubicle in an office doesn't really work any more," Dr. O'Mara explains. "I think the understanding about how to efficiently use real estate is only beginning to become obvious in information work."

Panelists stressed, however, that the U.S. commercial property market will not die if their predictions play out – quite the opposite.

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In their view, future activity in most American property markets will shift from new construction to the refurbishment of existing office properties as companies reconfigure their spaces to suit the drastically different needs of Generation Y and millennial workers who are said to prefer working in smaller workstations in light-filled, open-concept, collaboration-driven environments.

But the question remains: if the panel's pessimistic predictions about demand for new product in the U.S. office market are correct, could the same scenario play out in Canada?

Not likely, says Ian Thompson, a Toronto-based senior research analyst with commercial property services provider CB Richard Ellis Canada. As he explains, a relatively buoyant economy and strong national immigration rates have resulted in a near constant influx of new Canadians into both large- and medium-sized markets across the country. That net positive immigration, he says, will maintain demand for new office construction for the foreseeable future.

In spite of extreme uncertainty in the current economic climate and general economic malaise in the United States and abroad, for example, Canada's office market fundamentals have remained relatively robust.

Consider national downtown office vacancy rates, which dropped significantly in the fourth quarter of 2011 to 6.1 per cent from 8 per cent a year earlier, as well as average Class A net office rents, which have held steady year-over-year hovering at $23.65 per square foot in the fourth quarter, according to CBRE data.

Another reason new office property construction will likely continue in Canada, says Colin Ross, senior vice-president and manager for office leasing at DTZ Barnicke in Toronto, is the relative lack of speculative building – and thus less oversupply – compared with south of the border.

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"In Canada, we have a very conservative, largely pension fund-owned model and wait until a new downtown-core office building is 70 per cent leased [before starting construction]" Mr. Ross explains. "There's a lot of speculative building in suburban markets, but not in the downtown core areas."

He says the one clear similarity between the United States and Canadian office markets is in the drive by companies to improve space utilization and reduce their overall real estate portfolio. Mr. Ross says that most companies are reducing their footprint per employee from about 200 square feet to 140 square feet on average. They're achieving that goal by reconfiguring their spaces and using fewer offices for executives or managers, while introducing smaller but more effective employee workstations.

As Susan Steeves, a partner at Vancouver-based SSDG Interiors Inc., explains, office furniture designers are now producing workstations that serve multiple functions – including swing-out tables that allow for impromptu meetings, for example – as well as low walls between workstations to give workers the chance to discuss ideas with ease and maximize light penetration throughout an office.

Facilitating this sort of change will require a major overhaul of existing office buildings, or an increase in new, purpose-built spaces, she says.

"To a large degree [the traditional towers]are going to be gutted," Ms. Steeves says.

Mr. Ross points out that while some companies will opt to retrofit existing spaces to suit their needs, others, such as Corus Entertainment – which recently constructed a new open-concept office complex on Toronto's waterfront replete with meeting rooms, an abundance of naturally lit spaces, employee-friendly amenities and close proximity to public transit – will still focus on constructing new, flagship offices from scratch that reflect the characteristics of their brand.

But for the most accurate snapshot of the office of the future, Ms. O'Mara recommends walking around a university campus today and watching how students interact. "People will be working in settings that drive behaviour rather than individual workplaces," she predicts. "There will always be certain jobs that will require people to have a fixed workstation and that should always be provided, but the majority of people will be mobile."

Bye, bye cubicle

– Teleworking: From home, or even different countries. People don't want to sit in their cars, companies [and the planet]can't afford for people to sit in their cars.

– Collaborative spaces: Favoured by companies such as Google. It believes one never can tell when the next spark of genius will occur, that's why it wants its workers to be together with colleagues.

– Generational change: By 2025, about half of the baby boomers will be out of the workplace. Younger workers are more comfortable using technology to blend work and home life.

Source: BOMA foundation

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