According to popular accounts, the corporate workplace is changing, seemingly reducing demand for office space. The square footage per employee is shrinking due to the increased prevalence of the open-plan office format. As a result, tenants now require less space than they previously needed.
The open-plan office format has been increasing in popularity since the recession, as many tenants viewed it as a way to reduce their real estate costs. Moreover, in theory, this format increases employee productivity through easier collaboration.
The reality, however, is different from this portrayal of the market. Not only is the reduction in square footage being overstated, the benefits these formats supposedly offer are failing to materialize, resulting in worse outcomes for office space users.
The myth of incredible shrinking square footage has its origins in the 1980s. Back then real estate data was difficult to obtain. However, New York, the largest market in the country, had respectable-quality data, even by 1980s standards. The average square footage per employee in New York was approximately 250 sq. ft. With the absence of good-quality data in many markets, people focused on the New York statistic and the 250 sq. ft. per person figure became etched in their minds.
However, data shows that New York was not representative of the nation. Not only was the square footage per employee far lower across the country than in New York, but it was actually trending up while New York was trending down. In recent years the square footage per employee has been declining, but only slightly. There has not been the massive implosion that people have been led to believe. Measurement problems notwithstanding, why is this so?
The answer lies primarily in the nature of open-plan space. The square footage of individual worker spaces has been decreasing. This is what many observers have seized upon. However, the reduction in individual worker spaces is being re-allocated to common areas, often with euphemistic names such as “brainstorming space,” “breakout space,” along with conference rooms, quiet rooms, coffee bars, even bathrooms. The net result is that while worker space is declining significantly, overall space is not shrinking much.
The downside of open space
Moreover, there are problems associated with this type of space. First, it is often pitched to tenants by landlords as a way to save money, usually through the perceived reduction in square footage. However, anecdotal evidence shows that this space is roughly 10 percent to 15 percent more expensive to build out due to higher-end finishes in some parts of the office (e.g. coffee bar), noise dampening technology to reduce background noise, etc.
Second, many tenants have signed on to this idea because of the belief that in these open-plan formats, workers will be free to share ideas and collaborate, leading to higher productivity. Often, these workers are from industries, including financial and professional services, where they are used to more traditional workspaces with offices and cubicles. This is different from technology companies, which often rely on open-plan layouts. Research indicates that this type of space is loathed by workers who are not used to it—the noise, the lack of privacy, etc. are causing them to feel less comfortable and they are consequently less productive. Our own research and conversations with clients suggested this, but a paper by Jungsoo Kim and Richard de Dear that was recently published in the Journal of Environmental Psychology, “Workspace satisfaction: The privacy-communication trade-off in open-plan offices,” confirms what we have been hearing—the costs likely outweighed the benefits. Workers unused to this format do not thrive in these conditions.
The third complication stems from crowding workers together and increasing density. This has the potential to increase the spread of disease. Although some proponents of open-plan space often claim that better HVAC and air circulation systems are healthier for people, they cannot explicitly prevent the transmission of airborne illnesses in close quarters. The best way to prevent an ill person from transmitting diseases is to quarantine them. Open-plan formats are virtually the antithesis of that idea.
Moreover, in many companies, workers do not have dedicated desks in these formats, and often share them on a first-come, first-serve basis. The sharing of phones, keyboards, chairs, desks, etc. is also an excellent way to transmit disease. Unless all of the equipment is being disinfected on an everyday basis, which is highly unlikely, this poses another risk. A definite way to further reduce productivity is to have many employees ill at the same time.
Lower costs and higher productivity make these formats seem like the Shangri-La. But like Shangri-La, there is more myth to this idea than reality. Employees are likely tolerating these arrangements because there is still so much slack in the labor market. They have relatively few options so they are not vocal about their dislike of these spaces and unlikely to leave for another company. However, slack in the labor market is not permanent. As the labor market continues to strengthen, employees will have more opportunities to leave. Are employees unhappy with their workspaces guaranteed to leave? Absolutely not. There are many other aspects to their decision. However, all else being equal, the probability that workers will leave because they are unhappy will almost certainly increase. That could be the highest cost associated with open-plan office formats.
Ryan Severino is senior economist, Victor Calanog is head of research and economics and Brad Doremus is senior analyst with New York-based research firm Reis.
