Office Space- Efficient vs Expensive? Productive vs Price?

Posted on June 30, 2016

Julie Berreth with Architectural Nexus wrote the below article in the May 23 issue of The Enterprise.  We’re seeing more and more groups (not just “millennial tech companies”) spend a lot of time and money in designing office space that creates value.  As Utah’s commercial real estate continues to grow, you’ll likely see more and more value placed on these items Julie outlines below.

“A company is successful and must grow. New office real estate is needed. The goal is to find Class A space at the lowest possible lease rate, right?

Perhaps not.

It is widely accepted that workspace environment can significantly increase metrics of employee satisfaction, such as employee productivity, creativity, engagement, office morale and the ability to attract and retain key talent, while reducing healthcare costs and absenteeism. For decades, studies have shown that hospital architecture can greatly improve healing, and school design can significantly improve educational outcomes.

Employee performance is harder to isolate than post-operative recovery times and academic test results, but it is clear that the effect of office architecture on enhanced employee performance is just as strong.

Let’s start with something as simple as views of the outdoors. Work environments that provide natural daylight and access to views of the surrounding landscape are more pleasant to occupy and consequently have been shown to significantly increase employee satisfaction with their working conditions.

One analysis of a university building in Oregon indicates that workers on the greenery-facing side took 19 percent fewer sick days. A study of workers in a Sacramento municipal customer service call center found that having a better view out of a window was consistently associated with better overall worker performance. Workers were found to process calls 7 percent to 12 percent faster when they had the best possible view versus those with no view. Another recent study showed that computer programmers with views spent 15 percent more time on their primary task, while equivalent workers without views spent 15 percent more time talking on the phone or to one another.

Way beyond wonderful views, there are many design features and enhancements that improve employee satisfaction and, therefore, performance. Speculative office buildings along the Wasatch Front are being designed with generous daylighting, dynamic glass, fitness centers and walking trails, HVAC that allows personalized thermal comfort, acoustic comfort, fast elevators, gracious restrooms, outdoor common areas and artwork-filled spaces that encourage connections and collaboration. I like to call this Utah Class A-plus space, as opposed to Utah Class A space (which might be considered Class B-plus in more sophisticated markets).

Such office space is likely to cost an additional few dollars in rent, but we can do a simple analysis to demonstrate the tremendous ROI of that expanse.

Let’s say that Firm X is an architectural firm with 100 employees ranging in pay from $17.75 per hour for student interns to $200,000 per year for the president and directors. Let’s say that the average cost per employee is $75,000 per year including full benefits. Firm X needs 30,000 square feet of space, including enclosed and open offices, a large community meeting room, several conference rooms, kitchen amenities and large printing and design lab spaces. That’s 300 square feet of space per employee. Companies spend about 10 times the resources on employees compared with what they spend on building operations and maintenance. Firm X is considering leasing space in two buildings, one a very nice Class A space for $25 per square foot per year and the second a fabulous Class A-plus space at $30 per square foot per year. Multiplied by 30,000 square feet, the first will save $150,000 per year compared to the second and seems like a prudent choice.

A $75,000 per year average employee cost divided by 300 square feet average employee area means an average employee cost of $250 per square foot per year. The difference in cost of the two spaces is $5 per square foot per year, or just 2 percent of $250, the cost per average employee. If the more expensive option increases employee performance, such as employee productivity, creativity, engagement, office morale and the ability to attract and retain key talent while reducing healthcare costs and absenteeism by a modest 10 percent, the associated value of the space is $250 times 110 percent, or $275. Another way to look at it is that’s five times the return on investment of the $5 increase in lease rate.

So, can a more costly space really deliver a 10 percent return on employee performance? Absolutely. Consider the value of retaining employees versus the expense of finding and training new hires, or the creative spark that opens up new possibilities or the engagement among employees that leads to innovation. How about the vision that can be sharpened by attracting the best and the brightest new talent?

Dig deep into most any organization and find that there is a strategic agenda to drive innovation, customer service or speed to market. All of these require teamwork and creativity. Selecting the right office environment for your firm is a critical decision. Look beyond the lease rate to the measurable and immeasurable benefits that come from working in inspiring space.”