Too much real estate and outdated usage

Broadly, there are several factors pushing down the demand for physical workspace per employee and leading to waste. Older work paradigms no longer make sense in many cases, as work has become more mobile, technology-enabled and collaborative. Mobility: Work is increasingly performed outside of the traditional office—70 percent of office workers work from alternative locations on a regular basis with 22 percent visiting the office only once a week. Collaboration: Firms from Silicon Valley start-ups to more traditional organizations are exploring new workspace designs that foster collaboration between employees resulting in fewer traditional offices, more open, reconfigurable work spaces, and higher-density work environments. Space efficiency: At the same time, many firms are taking a leadership role in leveraging new workspace models, such as hoteling for highly mobile workforces and reconfigurable space. This trend of doing more with less also contributes to the decrease in demand for space per worker. Other factors beyond the secular decrease in demand for space are also at play in creating the real estate hangover conditions: Mergers and acquisitions (M&A): Mergers, acquisitions and divestitures are a normal part of the business cycle.

However, because few firms take a strategic portfolio approach to managing their real estate footprints, decisions to consolidate redundant locations often fall to local and regional managers who may be more motivated by individual employee preference than by the global portfolio impact. Idled/mothballed facilities: Production capacity and headcount can be more easily relocated than physical assets, but most firms are hesitant to immediately close or downsize square footage, preferring to mothball capacity in order to save it for a rainy day if that capacity or that headcount returns. What might seem like a prudent, short-term decision is often overwhelmed in the longer term by the impact of the ongoing operating and maintenance costs, which could easily eclipse the total cost of selling unneeded assets at the time that they become underutilized and purchasing new space when needed (often with better capabilities, etc.).

Business cycle volatility: The “Great Recession” serves as one example that illustrates how violently business and economic cycles can alter demand, impacting corporate headcount and capacity in turn. While employee headcount rises and falls with the ebbs and flows of the business cycle, real estate is much less fungible and flexible, and psychologically, shedding real estate seems more “permanent.” For these reasons, despite business cycle volatility, total space on corporate books tends to go in one direction—up—contributing to general over-supply. Declining demand for space, along with corporate business cycle and restructuring activity, have converged to create the oversupply and mismatch between existing real estate portfolios and space needs.