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The most important metric in commercial real estate is outdated and inaccurate

October 17, 2020
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The most important metric in commercial real estate is outdated and inaccurate

October 17, 2020
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Commercial real estate is regularly measured by the key metric: square feet per person.

The average square footage per U.S. office worker has been steadily declining as real estate costs rise and open offices are replacing private offices and cubicles.

In 2010, companies averaged 225 square feet per employee. By 2017, that average was 151 sq ft. Numbers for collaborative spaces are even smaller, as little as 60 to 80 square feet per person.

Tip: If you're in the market for commercial real estate, remember to add up to 20% to your immediate square footage requirements. This will address any future growth your company realizes (saving you from having to terminate a lease early, which is costly).

Why the square footage calculation is outdated

Square foot per employee is calculated with a simple equation: the usable square feet of space a company leases or owns divided by the number of employees assigned to each respective space: X square feet divided by Y employees.

Companies assign certain employees to the buildings, floors, or areas where their teams work. The more senior an employee, the more square feet they're (usually) designated.

For decades, this approach seemed to accurately measure the average space employees use (and need).

The problem is, the modern workforce is far more dynamic than in the past.

Employees from the same teams work remotely and collaborate across departments. Many employees don't come into the office every day — if they come into the office at all.

Some employees are on their feet, spending their days in and out of various buildings connecting with teams across the organization. Others are visiting clients and tracking down sales prospects in the field.

None of these use cases are predictable. The average office employee's work schedule (and habits) look far more flexible today than ever before.

A simple calculation no longer suffices.

What happens to the 'X square feet divided by Y employees' rule of thumb? The whole equation breaks down.

Inconsistent attendance and changing work patterns destroy the old method of calculating square feet per employee. No wonder 40% percent of global corporate real estate sits empty. This underutilization of office space is due in part to the rapidly changing way we work in offices.

It's also a result of inefficient and inexact approaches to how we calculate commercial space requirements.

Using data — not guesswork — to calculate space needs

Knowing how space is actually used can help you maximize your real estate portfolio and revolutionize your approach to office design.

Innovative workplace strategists use Density's historical and real-time data to analyze exactly how much — and what kind of — space each employee needs.

With data from Density, companies realize more value from their existing real estate portfolio, know when new office space is needed, and increase employee productivity and happiness.

Below are two examples.

Calculating how much space is actually used in a Fortune 1000 company

One of our Fortune 1000 clients operates nearly 288,440 sq ft of real estate and employs 1,800 people. When using the traditional calculation, they concluded that they allotted an average of 160 sq ft per employee.

That's in line with overall market trends.

However, they weren't satisfied with the guesswork approach of this calculation. So, they installed our occupancy sensors to get a data-backed measure of the actual amount of space used by their employees.

With Density, they realized the average square foot per employee was actually 603 sq ft (a difference of more than 150 sq ft per employee).

Our space utilization analytics revealed that only during brief peak times did the average square foot per employee drop to 310.

Measuring accurate space allocation in commercial real estate

Even then, the number was still 100% higher than their initial build-out. Using this data, our client was able to redesign their floor plan and optimize their existing space.

Measuring true space allocation in a tech startup

A startup company used Density to measure space allocation across its different teams. The teams were predominantly distributed by different floors ranging from 32,523 sq ft to 43,822 sq ft. Our data revealed that the company's sales team was inadvertently allocating 1,056 sq ft per employee while the engineering team was allotted 391 sq ft per employee.

Square Feet Per Person Metrics Separated by Team in Density's Dashboard

This discrepancy in the amount of office space used across teams can hinder workplace productivity.

An engineer testing product quality may need to take up more than the assigned sq ft allotted to her role.

Meanwhile, a salesperson may regularly take meetings in phone booths, conference rooms, or even offsite locations like restaurants or co-working spaces — meaning they may need less space than is allotted to them.

Our data helped our client make changes to their office layout to ensure a more evenly (and flexible) approach to space allocation.

The power of people count

Workplace managers use Density to make safer, more cost-effective decisions about their space. Our sensors gather real-time, accurate data about how employees use space, giving you the power to design and build based on data — not guesswork.

Citations

How do you manage the new, flexible workplace?

In "Breaking through the status quo of space analytics" we uncover the ways workplace teams can accurately measure the new, agile workplace.

Get the guide

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