Office Space Demand Analysis1) Estimate/forecast growth in office-using jobs over the period of analysis using forecasts by competent economic forecasting firms. Which are the office using sectors? According to Schmitz and Brett (2001) the private sectors that utilize to great extent office space (defined in 1987 Standard Industrial Classification system) include, Transportation, Communications, wholesale trade, FIRE, Business Services, Motion Picture Production and Distribution, Health Services, Legal Services, School and Educational Services, Membership Organization and Engineering and Management Services. 2) Multiply office-using employment growth forecast with the projected office space per employee over the period of analysis. If square feet per employee projections by each office using sector are available then we multiply with the respective employment growth. If we have a projection of the average square feet per employee for all office-using sectors then we multiply this with the forecasted employment in all office using sectors. Great caution is needed in terms of the square feet per employee figure used in this step in order to estimate office space demand over the period of analysis. Obviously we can err in both directions. If we use a high figure of square feet per employee then we grossly overestimate office space needs over the period of analysis.
a) in a growing economy firms tend to rent more space per employee in anticipation of future growth b) in a declining economy space per employee in new leases should reflect the lack of growth expectations and a smaller number of square feet per employee. In trying to determine what square feet per employee figure to use the analyst should have in mind the following: a) office space per employee differs by industry; for example, legal service companies utilize different square feet per employee than engineering and management services. b) Carn, Rabianski, Rackster and Seldin (1988) suggest that office space usage differs also by occupation. In particular, they indicate that managers and professionals occupy more square feet than clerks and secretaries A 2007 study of office space usage in office buildings included in the IPD database, reported that the public sector typically operated at around 150 square feet/employee, while the private sector at around 120 square feet/employee. The square feet per employee figure typically refers to the space occupied by companies and therefore it refers to the net rentable area of an office building. Therefore, in order to calculate the gross office space needed we need to take into account and average efficiency ratio which is calculated as the ratio the net rentable area of a building over its gross area. Therefore, in order to convert an estimate of office space demand into gross area needed to be build we need to divide with the efficiency ratio. For example, if the efficiency ratio is 85% and we have an estimate of office space demand needs of 50,000 square feet then we can estimate the gross office space needs as: Gross office space needs = 50,000/0.85 = 58,823 square feet.
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