The Rethinking the Office Market panel at the ULI Fall Meeting dovetailed nicely with an article I wrote for Urban Land in August about the office market. The takeaway quote of this panel is “we don’t need any more office space.” Those were the words uttered by Chris Macke, principal at General Equity Real Estate and presenter at Re-Thinking the Office Market. While that may be dire, admitting this may be the first step in the road to recovery.

Phil Mahoney, Executive Vice President at Knight Frank indicated cost is secondary to value right now.
“It’s more about my competitors and how I can recruit and keep the best employees.” Much of the discussion was on the media and tech industries, which have a strong presence in healthy markets like Silicon Valley and South of Market Street (SoMA) in San Francisco.

Joaquin de Monet, President and CEO of Arden Realty, noted office space requirements have shrunk to just 105 square feet per employee some places. Part of this increased office density is open floorplans. It isn’t restricted to just the tech industry, said Phil Belling Managing Principal at LBA Realty, who noted AAA wanted an open, collaborative floorplan in their new office space. But it also has to do with economics, as companies have tried to cut expenses since the recession.

Also worth noting is LEED has become much more commonplace in the past five years, and now is a requirement for a number of office users. Office environments must be exciting, collaborative and productive, and be located near transit and where people want to live. This is increasingly true among Gen Y, the fastest-growing portion of the workforce, according to John Kilroy, President and CEO of Kilroy Realty Corp.

One unfortunate aspect of the session was all five panelists were well-versed in west coast markets, but there was no mention of market conditions elsewhere in the country, save for a glancing blow to Des Moines indicating developers may want to pass that market over.

Yet, one could look past this and infer that those places where industry clusters have formed, as tech and media companies have in both the Silicon Valley and SoMA, for example, were healthy, very few other office markets are performing well. The U.S. has only gained back 14% of the jobs it shed during the recession. Combined with all the pressures of providing green and efficient offices with different layouts, and less net demand for space, office developers and investors have their work cut out for themselves in the coming years.