Its all about efficiency

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From Ben Breslau
Managing Director
Americas Research

Leasing volumes were down 20% in 2012, and down 30% in Q4 year over year. Gross leasing activity has likely bottomed and will stabilize thi year, with better economic growth (as the year progresses) offsetting the continuing efficiency for tenants.

Tenants are taking less space on average and becoming more efficient. This trend is becoming more widespread and across industries. In our agency leasing portfolio, the average size for leases was down about 12%. In a recent study Jones Lang LaSalle conducted on bank and law firm relocation transactions, tenants were on average giving back approximately 15% of the space they occupied when moving to a new location. This trend will continue in the market for the next several years as we are only about 20% through the efficiency trend. 

Corporate real estate executives are using space utilization, SF per person, workforce mobility and hoteling to drive better space use and cost metrics, while pushing to try to use their space to drive productivity and enable collaboration in the workplace. 

One byproduct of increasing densities by tenants is that building systems are being pressed past the designed limit. HVAC, elevator, restrooms, and parking capacity have all been more carefully looked at by tenants packing people in the space. 

Flexibility  is clearly still a focus for tenants across industries. One indicator of this is that average lease term in our agency leasing portfolio is down slightly. Tech firms often can’t plan past 6 months, but they are asked to sign leases for 5-7 years.  They need flexibility with regard to expansion options, cancellation options, pocket space, etc., and are often willing to pay a premium for it.

-Ben

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