Office Space Advice
Executive Suites Leader Makes 2010 Predictions
Published December 17th, 2009 by Jennifer LeClaire
What’s ahead for the U.S. serviced office industry? Will 2010 see the same growth as the economy begins its expected recovery? Or will entrepreneurs and companies of all sizes look for mega deals with long-term leases on office space from coast to coast?
aBetterOffice.com caught up with Joe Wallace, CEO of Carr Workplaces, to discuss these and other questions about alternative office space trends. In part two of this Q&A, Wallace moves beyond what he expects for Carr Workplaces after its new branding effort to discuss his overarching thoughts on executive suites providers in 2010 and beyond.
Do you expect to see consolidation in the U.S. serviced office industry?
I don’t think there will be significant additional consolidation in the near term. The industry already is highly consolidated in the major markets. In general, consolidation occurs in mature industries where economies of scale are persuasive in bringing down costs, and entry barriers are really high.
I think the serviced office industry will avoid material consolidation for two reasons. First, I think we are far from mature. In fact, I would argue that we are very immature. We expect the pie to grow. Secondly, there just aren’t enough economies of scale in the near term to make a persuasive case that “big” either trumps or produces “good.” In fact, it’s tempting to take the opposite side of that proposition.
What do you expect to see as the economy recovers? Will the serviced office industry lose the momentum its building or do you expect this lift we’re seeing to continue?
We see the momentum continuing. The impact of this recession will have a significant effect on how businesses negotiate office leases more than any recent downturn we’ve experienced. The result will build momentum and demand in the alternative workplace market.
The historic model of large, long-term leases for companies provides them no flexibility in the event of a downturn, upturn or the growing need among their employees for shorter commutes and satellite offices.
There is presently a huge number of square feet of sublet office space on the market in the U.S. That means businesses bought a lot more occupancy rights than they actually needed, and the published figure is low because it ignores all the unutilized space that doesn’t show up in the sublease market.
Every square foot of that sublease space is the tangible relic of a bad decision. So why was the decision-making so poor? Is corporate America filled with bad decision-makers? Of course not. The reason the error rate is so high is that it’s virtually impossible to forecast demand. And if you can’t forecast demand, you sure can’t accurately provision the resources you need to meet that variable demand.
Most of those space decisions were probably easy, obvious decisions at the time they were made. They just morphed into bad decisions as circumstances changed. When businesses stop focusing on attaining infallibility in their decision-making, and start focusing on containing the consequences of their inevitable fallibility, I think they will come to realize that the best assets are sometimes the absences of fixed liabilities.
Flexibility trumps scale. Just ask General Motors.
Alternative workplaces have the potential to grow as a result of this new thinking among companies. Right now, we estimate our industry to be about .3 percent of the commercial real estate market. We envision it growing to three or four percent in the next ten years.
Periods of slower or stronger job growth will impact the pace of this growth, but we think the direction will be strongly up. This is a nation of small—under 5,000 square feet—space users. The value of our services improves as client space requirements shrink. So overall, we are very positive about the future.
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About the Author
Elizabeth Sanchez December 17th, 2009 at 12:00 pm
I think these are solid predictions for the serviced office industry next year and beyond. I read the last piece that featured Wallace. I like his style and this bodes well for Carr Workplaces. They’ve got a visionary leader at the helm of their executive suites push. Not everybody in the industry gets it. But Wallace does. It’ll be interesting to see how closely his predictions pan out.
Bill Brookshire December 17th, 2009 at 12:24 pm
Wallace is optimistic and futuristic. That’s a good combination in a relatively young industry with a relatively new brand. His forward-thinking approach to workplaces should win the respect of real estate professionals looking at the serviced office industry and if he executes on his ideas is should get the attention of the office renting public. Part two was just as good as part one of this Q&A. Thanks!