How Employee Productivity Impacts the Open Office Investment Trend

By Scott Henley

If your company decides to densify its office space by putting more employees into fewer square feet, make sure you’re in an industry suited to open office plans. The latest research from Newmark Grubb Knight Frank shows that savings achieved as a result of densification may easily be wiped out by a decline in employee productivity. 

While reducing the square footage occupied per worker appears to be an easy way to cut costs, it’s critical for companies to be aware of this potential negative impact. NGKF notes that just a 2% decline in productivity can wipe out any costs savings—and in six out of the 10 major metropolitan areas, including Atlanta, Chicago, and Los Angeles, all it takes is a 1% drop.

In the decade leading up to the recession, NGKF reports that U.S. non-farm business productivity increased at an average annual rate of 2.8%. But after the market crashed, that productivity dropped to a 1.3% annual increase. While there have been many theories as to why this happened, the start of the decline coincides with the widespread adoption of office densification and open office floor plans. According to the International Facility Management Association, 70% of U.S. employees today work in an open floor plan.

There’s plenty of evidence that work environment has a significant impact on job satisfaction and overall employee well-being. Noise and lack of privacy from an open floor plan can be viewed as a negative, while more natural light and air can be viewed as a positive. While shifting to an open plan has been a boon to many companies’ bottom lines, Gensler’s annual survey of workplace performance has shown workers’ overall satisfaction with their office environments had dropped 6% between 2008 and 2013.

However, NGKF’s research also found that if the space has attributes of a trophy office—such as prime location, access to top-notch amenities like WiFi and fitness centers, LEED certification, and appealing common areas—it could lead to an increase in employee productivity. While it’s difficult to move to a space priced at the top of the market, the cost of upgrading to best-in-class space can often be recouped—in eight of the 10 markets, by only a 3% gain in productivity.

These statistics don’t mean that open floor plans can’t be effective. It’s made sense in many industries, such as accounting and consulting, NGKF points out. But what companies and corporate real estate advisors have to be wary of is over-densification in the quest to achieve cost savings, as overcrowding will directly impact employee happiness—and ultimately retention.
As the job market continues to improve, attracting and retaining top talent is of the utmost importance and should be among the company’s top priorities. With all other factors being equal, NGKF notes that work environment could very well tip the scale for an employee’s decision whether to stay or accept a new position. The best options for employers are best-in-class space with an abundance of natural light, flexible options for sound privacy, and a convenient and highly amenitized location.

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