Whether U.S. businesses are still on a staffing pause due to the recession, or feeling optimistic about the economy, there is a new trend reshaping office markets across the country: rightsizing. And while this term doesn’t always imply a decrease in space, that has certainly been the case with most businesses, especially law firms.
In fact, a recent report from Chicago-based real estate services firm JLL found that law firms, on average, shed 17 percent of their space upon relocating in 2014 – up from 14 percent in 2013 – with many moving administrative functions off-site and, in some cases, adopting open-office floor plans that allow them to further reduce their real estate expenses. While this trend has most commonly been associated with the legal sector, other industries are adopting a similar strategy as they seek to maximize efficiency and facilitate collaboration in the workplace, according to Chicago-based Amata Office Solutions.
“A smaller footprint saves businesses from having to relocate to an older building or less desirable submarket that could be inconvenient for clients and employees,” said Ron Bockstahler, CEO of Amata, which operates six shared office centers in downtown Chicago and provides office brokerage services to companies requiring as much as 10,000 square feet of space. “But ‘rightsizing’ isn’t just a play on words. In many cases, businesses truly don’t need the space they’re cutting and, as a result, don’t miss it when it’s gone.”
Although each company’s circumstances are unique, most “rightsizing” moves are made for one of the following reasons, according to Amata:
1. They overleased (or underleased): When a business is just getting off the ground, it can be difficult to determine how much space to lease due in part to a lack of historical data. “Companies need to find that sweet spot between too much and too little space, both of which could hamper growth,” said Bockstahler. “If a business rushes through the leasing process or simply doesn’t grow as planned, ‘rightsizing’ allows them to correct the situation.” Sometimes this means leasing more space, not less. “When most people hear ‘rightsizing,’ they think it means a reduction of space,” said Bockstahler. “That’s true in many cases, but the term can also apply to companies that underestimated their real estate needs.”
2. They want a more collaborative floor plan: Fully open floor plans can create challenges for any business, especially lawyers, accountants and other professionals that require a certain level of privacy for their day-to-day operations, but a growing number of businesses are warming to non-traditional office configurations that offer a mix of private and collaborative workspaces. “We call this hybrid model ‘coworking 2.0‘ because it offers the same benefits as an open coworking space without sacrificing employee privacy,” said Bockstahler. “Employers are starting to realize that with coworking 2.0, they don’t have to go ‘all in’ on collaborative floor plans. Instead, they can reduce their space, and their rent, but without grouping employees together in one giant room.”
3. They want Class A space in a Class A location: As noted in the JLL report, law firms have historically gravitated to central business districts where clients, public transportation and other urban amenities are easily accessible. That may be changing as they and other employers seek out young talent in “fringe CBD” areas, but most businesses still want an office at Main and Main. “Space in the best buildings isn’t cheap, and with limited new-construction options available, rents have continued to trend upward,” said Bockstahler. “Even if businesses don’t feel they have an excess amount of space in their current location, they may need to move to a new office that, while smaller, is better suited to their needs.”
4. They’ve gone digital: The adoption of cloud-based file storage has rendered most file cabinets and storage rooms obsolete, leaving tenants with excess space. “Many established businesses have updated their technology, but that doesn’t always carry over to their lease,” said Bockstahler. “In some cases, they’re paying for the amount of space they needed five or 10 years ago when, in reality, that number should be much lower.”
While the circumstances for “rightsizing” vary, the outcome is the same. “With ‘rightsizing,’ it all comes back to cost,” said Bockstahler. “By taking a close look at their operations, companies can take the guesswork out of leasing and ensure they’re paying only for the space they need, making it easier to rein in expenses over the long term.”
