A Historical Review of Space Densities
After the “Web 1.0” market corrections of the early part of this century, investors in venture capital-backed technology firms no longer wished to see a large portion of their early stage investment fund non-core expenditures such as real estate. Accordingly, the trend in space requirements for tech firms became 1) built space (sublease or direct), 2) in “move-in” condition, 3) available for terms of less that five years and 4) configured in a high-density layout/ seating plan.
With the recent advent of cloud-based infrastructure and the subsequent reduction of ramp-up costs for technology startups, these criteria have changed. Today’s growth companies are looking for built space in move-in condition, but available for terms of less than three (3) years and in even higher density seating plans.
The concept of density, with regard to a space’s layout is the ratio of the rentable square footage ("rsf") divided by the headcount (based on a seating or furniture plan). In historical markets for commercial space, leasing opportunities that would meet the initial three criteria (i.e., economical, turn-key and short-term subleases) were often eliminated from consideration by a relatively low-density layout.
It is possible to improve a space’s density, but it is accomplished most efficiently when addressed in the pre-construction or planning stage. The easiest method for increasing density is by substituting workstations for private offices wherever possible or by substituting smaller workstations for larger workstations. Historically, a traditional office environment with a mix of individual offices and workstations and common areas averaged anywhere from 225 to 375+ rsf per employee.
The higher metrics tended to represent lavish executive or law office installations while the lower numbers represented primarily open, sales or bullpen-type environments. A rule of thumb for space requirements was to use 250 rsf per employee and multiply a firm’s headcount by that number, i.e. 40 employees equals 10,000 rsf. That number changed as open-plan or call center environments called for layout at densities under 200 rsf/employee.
Today’s technology client has lowered the standard even further, however, as many firms, even with expanded communal and meeting room areas, are nearing a standard of 100-125 rsf per employee. These densities are accomplished primarily by utilizing “benching” style seating arrangements, which often are communal tables with multiple employees on laptop computers. The era of the workstation, at least for technology companies, has all but ended.
Advantages & Disadvantages
The economic benefits to these substitutions are obvious: less square footage reduces base rent costs. However, there are other benefits to an open-plan or high-density environment such as higher levels of employee communication, camaraderie, cooperation and creativity. Similarly, an open plan environment tends to be less hierarchal and can improve and accelerate decision-making processes. The primary detractions of open-plan space, though, are loss of privacy and a potentially negative impact on recruitment of senior executives or others accustomed to a private office environment.
Most firms that create a high-density environment, however, offset the lack of privacy and personal areas with communal-type amenities, such as conference or “huddle” rooms, cafeterias, phone “booths”, lounges, even game rooms.
In 2006, an Internet marketing firm’s original premises had a seating plan of 5,000 rsf for approximately 40 employees = a density of just under 125 rsf/employee. Their growth necessitated a move to larger quarters. The challenge was to find suitable, existing open-plan layouts with acceptable densities. The solution was to find an existing sublease installation in Hudson Square with the combination of a high-density, open-plan environment with multiple communal areas. The resulting space density came in at just under 225 rsf/employee.
Today, that requirement would look like this: a growing tech firm (currently at 12-20 employees) needs to find 5,000 rsf of office space to house 40-50 employees, but for only a two (2) year term.
For comparison purposes, I revisited a white paper written during 1999-2000. During this period, the average rentable square foot (“rsf”) per employee for the “New Media” industry was 246 rsf. This was low by comparison to the traditional office occupancy standards of 350 to 400 rsf/employee, but still higher than today’s trend, mostly due to the generous allotment of lounge and recreational common areas – think “foosball tables”. However, at that time, like today, in the "bootstrapping" phase of growth it was not unusual to see firms reach average occupying standards of 100-150 rsf/employee consistent with today’s densities. This was typically during the prefunding phase and achieved by “doubling up” workstations and offices.
Doubleclick was a prime example of the density trade-offs of this era. They achieved an efficiency of 280 rsf per employee (at 450 West 33rd Street) while including a full size basketball court, gymnasium, large “park” area, break out rooms, lounges and other common amenity areas.
To conclude, like in 1999, today‘s technology firms are able to use internal expansion and fluctuating densities to accommodate growth and to offset the economic impacts of a rising real estate market. The key difference is a much more economical approach to both space design and leasing decisions. While communal areas are required to offset an open-plan environment, they do not have to be extravagant or playful. On the supply side, while the market is competitive, there is less of the “land grab” mentality of 1999 in the leasing commitments made today. Instead, the key drivers for implementing aggressive densities are 1) more flexible layout and furniture systems, 2) greater mobility and flexibility in employees, 3) flatter hierarchical structure and 4) the addition of amenities to offset loss of space and privacy.