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Why Every Building Before 2007 is Obsolete

New York Office

Condé Nast is moving into its consolidated, 1.2M SF digs at 1 World Trade Center. Engineering giant AKF Group merged two offices into 57k SF at One Liberty Plaza. They're just two of the many high-profile tenants lately finding savings in new, efficient space. And if your old floor plan can't accommodate, you're going to be left behind.

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Next year, the GSA will reduce its office space by 40% in NYC, moving from 26 Federal Plaza into 270k SF at 1 World Trade Center. It had already banked an impressive $24M by consolidating six leases into collaborative space at its DC HQ. GSA administrator Dan Tangherlini keynoted our first-ever Bisnow Office Leasing & Development Expo at 4 World Trade Center Thursday. (Real estate powerhouses from across the nation descended on New York for the event.) He says 80% of his office is now hoteling space and, because GSA is pushing its systems to the cloud, over 85% of its employees have teleworked. "Guys don't need to set aside offices to be powerful," he said to the crowd of more than 300, all of whom suddenly felt more powerful.

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GSA's next goal: reforming its leasing program, including using web-based technology to reduce paper shuffling, Dan told moderator Eric Johnston, co-founder of LeasePipeline.com. "We need to be faster," he says—and the program, which has been rolled out to 11 cities so far and will triple, has cut the leasing process by six to nine months.

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Transitioning to collaborative space may be expensive, but the second tenant to come along will be cheaper, says Piedmont Office Realty Trust SVP Brent Smith (left, with Morgan Stanley co-head of US real estate acquisitions Lauren Hochfelder Silverman, moderator Patrick Healy of Zurich and Keystone Property Group CEO Bill Glazer). "The winning formula is building collaboration," Bill adds. "You'll see investment targeting that. Everything prior to 2007 is obsolete." Besides core CBDs and gateway cities, investing in markets where tech and energy are leading the way makes sense, Lauren says. She and Brent are bullish on Texas; Bill says Pennsylvania's Marcellus Shale hasn't caught a lot of investor interest yet, but demand is there.

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WPP SVP of real estate Bruce MacAffer (right, chatting with moderator Bob Fox, founding partner of CookFox) says the advertising and PR giant is growing 3% to 4% per year, yet it's cut 40% of its space every eight to 10 years. It now has fewer workstations than employees, and space is down from 240 SF to 120 SF/person.

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AKF Group partner Robert Gibson (left, with NBBJ principal Suzanne Carlson and IAC VP of real estate Christian Bryan) says the new digs at One Liberty Plaza are collaborative, and he's now sitting next to someone fresh out of college. Desks at media firm IAC (parent of Tinder, Match.com, Daily Beast and other top names) are 5'x3'; Christian says that oddly, you're more likely to be disrupted at your desk than you are on one of IAC's common-area couches, which have become the "me" space. Suzanne says it's critical to have a mix of open and private spaces, as we're not meant to work in either all of the time. Her company encourages walking meetings, with suggested routes in the lobby based on how much time you'd need.

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Tenants' focus on efficiency makes this cycle different from other growth markets, according to JLL president of the NY Tri-State region Peter Riguardi. They're keeping their run rates up, then moving to better space and keeping the leasing market active, he notes. "This market is stronger and more sane." New space is important in attracting and retaining talent versus renewing to keep costs down; he and other panelists say tenants are asking what the costs are per employee versus costs per square foot.

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It's a different financing environment this time around, says Colliers national office research manager Andrea Cross (with CBRE vice chairman Greg Tosko). In San Francisco, where she's based, $57M in venture capital is out there—still less than half of the last growth market—and IPOs are down. While people are talking about a potential bubble there, the market is more conservative this time, she says. Greg says it will be interesting to see how long the overall densification trend will last—as Millennials mature and get promoted to higher positions, they want space where they can be more focused, he says.

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Newmark Grubb Knight Frank executive managing director Alan Nager (with View the Space CEO and moderator Nick Romito, rocking his Movember 'stache) says the search for talent is now global. The problem, though, is forecasting head count, especially with the competition out there, he says. Collaborative environments could have as much as 30% to 50% excess space, and most tenants won't invest in restacking until leases are up.

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At BOLD, we don't just talk about collaboration. Here, attendees partake in our popular speed networking. Stay tuned for even more event coverage in tomorrow's issue.