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Feb 11 2015


One of the panels at the 2014 Kellogg Real Estate Conference discussed the topic of the changing use of office space. The panel participants were:

  • Moderator: Bill Bennett (2006) - Founder, Level Office and Lecturer, Kellogg School of Management

     

  • Seth Singerman (2005) – Managing Principal, Singerman Real Estate

     

  • Carl Muhlstein – Managing Director, Jones Lang LaSalle

     

  • George Kohl (1989) – Chief Operating Officer, Sterling Bay
Mr. Bennett started the conversation by asking the panelists their opinions of the trend towards more open workspaces in formerly industrial properties. Mr. Muhlstein highlighted the fact that as office spaces continues to move in this direction, lenders are going to need to get comfortable with the new, higher prices of these formerly lower-rent locations.

Mr. Kohl noted that this trend is largely due to millennials looking for variety and energy within the workplace. He explained that Sterling Bay’s approach is to find overlooked buildings and enhance them into something current while continuing to honor the original intent of the architect. Specifically, technology firms and startups tend to occupy these spaces. He stated that, “Tenants want their building to be an extension of what they’re doing in their space.”

Mr. Muhlstein argued that the millennial impact extends beyond the workplace and into the areas in which they are located. Stating that there is a passion for neighborhoods, what is commonly thought of as the millennial office space design can be seen throughout the commercial real estate industry – in hotels, restaurants, and other public spaces.

In terms of the impact on the leasing market, Mr. Singerman reasoned that there has been minimal growth and that the current climate is akin to running in place. For while these firms are seeing an increase in the number of employees working for them, square footage usage on a per employee basis has shrunk due to the increase in shared workspace.

Speaking to how firms view office space, Mr. Kohl believes that workspace is viewed as a communication and productivity tool and as such, that is what is currently driving how space is configured. Mr. Muhlstein took it a step further when saying, “Work is no longer something you do, it is something you go to.”

Asked if the trend towards open space will eventually end, Mr. Kohl noted that it is already changing. He mentioned that in these open spaces, there is a lack of conference and meeting rooms. As a result, firms are seeing their employees spend too much time simply looking for a place to meet. Furthermore, he noted that it is important that firms provide their employees places to take a break from the shared space citing the need to nurse, nap, or make phone calls as examples. Mr. Singerman agreed, mentioning that of those organizations that have adopted the shared space model, the pendulum is inching back towards a hybrid of the two, with an increase in breakout offices. He also mentioned that open space isn’t for all firms by pointing out that law firms’ office space demands are not going the direction of Twitter or Google.

Mr. Bennett ended the discussion by asking each of the panelists what market they would like to be in right now. Mr. Singerman’s preferences were “diverse demand generators” such as Minneapolis, Nashville and Portland. Mr. Kohl, sticking with what Sterling Bay does best, argued the West Loop neighborhood in Chicago still provides much opportunity. Mr. Muhltstein said getting as close to the shores of the Pacific Ocean is the place to be, mentioning Seattle, Portland, San Francisco, and San Diego.

About the Author

This article was written by Mike Pomerantz '16.