The “Lag Effect” on office space:  In an ideal world we would have just enough office space so there was plenty for office tenants to occupy and expand into but not so much that landlords were carrying costly inventories of vacant space.  In an ideal world, tenants would lease precisely the amount of space required for the entire term and their business model or the economy or their local business environment would not change during their entire leasehold.  However, we have the concept of “reality” which affects office realty … Companies merge their companies or downsize during their term, surprises like dotbombs or subprime meltdowns cause space usage to dramatically change for some industries in unexpected ways.  The “Lag Effect” is the time between the actual cause of change, i.e. subprime meltdown and the resulting effect, i.e. financial institutions laying off tens of thousands of office workers.  This lag can be anywhere from near-immediate (i.e. at least a few mortgage brokers shut their doors within months of last summer’s subprime meltdown) or it can take several years to take effect, when business units are sold, transitioned elsewhere, employees are given severance or optimistic management thinks recovery is just around the corner when it isn’t.  Thus the office market will continue to soften even after our recovery begins.  There is also a ramp-up lag once businesses are certain we are out of the financial woods – business plan budgets need to be approved before workers need to be hired and at some future point, office space is once again in demand, vacancy rates begin to fall and effective rents start their inevitable upward climb …  

“Telepresence videoconferencing gains popularity as fuel prices go up … Telepresence systems differ from traditional videoconferencing in that they require specially designed rooms with multiple cameras, sound-dampening equipment and high-definition video screens.  They simulate the sensation of two groups of people at identical tables facing each other through windows.  Participants appear life-size and more smoothly, there is little or no lag time, documents can be shared, and people in more than two locations can participate in the same meeting.  The equipment can be costly, ranging from $200,000 to $500,000, but Marriott and Regus Group are installing this system at a number of their locations to appeal to small and midsize businesses,” San Francisco Chronicle (5/12/08).  

“Telecommuting offers huge gas savings potential and, according to a recent Robert Half survey, is the second-best recruiting inducement after salary.  An estimated 1.35 billion gallons of gasoline could be conserved annually if every U.S. worker with the ability to telecommute do so 1.6 days per week, according to a report by the American Electronics Association,” San Francisco Chronicle (4/22/08).  

“Mandatory ‘lights out in office buildings’ at night law was recently proposed for San Francisco, with fines for each floor left on that increase with each subsequent violation.  Also, businesses undergoing major renovation would be required to have automatic sensor devices that shut off the lights when nobody is in a room,” San Francisco Chronicle (3/26/08).  

“After months of steady decline, the economic outlook can now only be described as bleak.  Speaking at CFO’s annual CFO Rising conference last month, veteran finance chief Jerry York said, ‘It’s going to be a very bad recession, perhaps the worst I’ve seen in the 46 years I’ve been working.’  More than half of finance executives say the United States is now in a recession, and another quarter say the country will be in a recession by the end of the year … 60 percent of CFOs have postponed expansion plans,” CFO (April 2008).  What this means for office tenants – if you’re not already, you soon will be solidly back in the drivers seat as office vacancies continue to slowly increase – however, not all landlords may want to aggressively court your tenancy, so the more flexible you are in terms of renew vs. relocate, the better your bottom-line negotiations.

“Offshoring has become a fact of life for Corporate America.  According to a new CFO survey, 36 percent of financial executives say their companies use offshore outsourcing.  That’s twice as many in 2004.  Among companies with annual revenues of more than $1 billion, the number of offshorers rises to 49 percent.  Meanwhile, research firm Gartner estimated the size of the market for offshore IT and business process outsourcing at nearly $35 billion in 2006, and forecasts a market of $70 billion to $100 billion by 2011,” CFO (March 2008).  That means a lot more back-office space may be vacated if offshoring is expected to double or triple in just five years … 

A year ago I use to read children’s books to my five-year old daughter, Madison, at bedtime and she would get drowsy and begin to fall asleep.  About six months ago, I taught Madison how to read using simple books and then giving her increasingly more difficult books as her skills improved.  She is now reading at a 2nd/3rd grade level and as I usually get up well before 5 a.m. to start my workday it is not unusual for Madison to be reading and I end up falling asleep … (she wakes me if she gets stuck on a new word).  Last month our 10 year old son, Jordan, joined me in Washington D.C. and we had a blast visiting Congress, the various Smithsonian museums, the International Spy Museum and the newly opened Newseum.  Jordan’s Little League team, The Red Sox, is 14 and 1 with the playoffs just around the corner.  I have been coaching my daughter’s girl’s softball team, The Red Hot Chili Peppers, and recent photos of all the kids past two months adventures can be seen here.  Just a few weeks ago I chaperoned my son’s 5th grade elementary school class on a three-day trip to Yosemite and another dad and I were lamenting that in less than six years all the kids would be driving, and in eight years if we had done our parenting right, our sons would be out of the house living at college.  I truly love my job in representing office tenants in their lease renewals and relocations, but as much as I’m passionate about “work” (sometimes hard to call the fun of commercial brokerage “work”) I’m ten times more passionate about our quality of family life.  Oh, to have an 850 hour week instead of the measly 168 hours we actually have!  May your spring be rewarding both business and personal, and may whatever path you are currently following lead you to your desired destination!  Thank you!