CoreNet: JLL Says Tenants in Smart Growth Phase

As more employees share space or work from home, companies are finding they need fewer physical square feet. With U.S. companies in the United States on the forefront of such alternative workspace strategies, it should come as no shock that JLL predicts a negative net portfolio growth in the U.S. corporate real estate market over the next three years.

CHICAGO – Jones Lang LaSalle’s 2011 Corporate Real Estate Survey suggests that the economic recovery is leading corporate tenants out of retrenchment. Instead of hoarding their cash, companies are beginning to focus on smart growth initiatives that will maximize the productivity of every square foot in a corporate portfolio. The findings were released by JLL in a media conference at the 2011 Chicago CoreNet Global Summit.

“Companies are embracing all sorts of measures that will enable their talent to be highly productive, highly creative, and highly collaborative,” said Kenneth Rudy, international director of corporate solutions at Jones Lang LaSalle. “It is no longer about that space behind the four walls.”

The research, which reached out to 504 companies in 36 countries (185 in the Americas), found that 79 percent of companies have either already implemented mobility programs or are in the process of creating such programs. This move will allow the existing workforce force to achieve maximum productivity without necessarily adding on square feet.

As more employees share space or work from home, companies are finding they need fewer physical square feet. With U.S. companies in the United States on the forefront of such alternative workspace strategies, it should come as no shock that JLL predicts a negative net portfolio growth in the U.S. corporate real estate market over the next three years. The combination of more collaborative spaces, virtual commuting and a shrinking c-suite has JLL predicting that the amount of average space per employee will drop from 220 square feet down to 50 square feet by 2016.

While the economic outlook for the remainder of 2011 looks favorable for growth, JLL does point out that recovery has been quicker in some sectors than others—the addition of jobs has been limited to technology, commodities and gateway markets. Companies are still cautious about taking on new talent, and have only recently begun hiring temp workers brought on during tail end of the recession. The firm’s 1Q11 U.S. Office Occupier Report points out that while corporate profits are up over 18 percent from a year ago, the change is largely due to cost cutting measures. That strategy has, however, given companies some cash to play around with now that fears of a double-dip are gone.

“Cash is not earning a lot for these corporations. They have got to deploy it,” Rudy said. “They haven’t done it yet because they have been fearful about whether the economic recovery is truly underway. We are now seeing signs of confidence returning to corporations, and they are going to start deploying this cash. Companies are starting to reinvest in infrastructure, technology, software and people.”

The trend of investing in talent is visible when examining U.S. Department of Labor statistics. The unemployment of people 25 years and older with a bachelor’s degree was down to just 4.4 percent in March. Compare that to a national unemployment rate of 8.8 percent and it is clear that there is a war for talent. Google Inc. recently increased the starting pay for computer science graduates by $20,000. JLL is not alone in their notion a corporate growth trend that maintains a leaner real estate portfolio. Richard Kadzis, vice president and editorial director at CoreNet Global, validated JLL’s findings with results from CoreNet’s fourth annual State of the Industry Report.

“We saw the numbers that JLL produced and they are very consistent with our findings,” said Kadzis. “Seventy-four percent of companies have turned to service providers for innovative solutions. While people are working with less space, they are getting a better quality environment to work in with more collaborative space and less assigned space.”