The Hidden Costs of Open Office Plans

According to most estimates, about 70% of US offices use an open plan office layout. This type of office design has grown in popularity as companies look for ways to save on real estate—despite the documented open office disadvantages.  

According to some estimates, you can fit 3-5 times as many employees in an open office plan, compared to a traditional office.

In other words, if you had a traditional office layout with private offices for five employees, you could—in theory—convert that into an open office plan and comfortably accommodate 15 to 25 employees. Or you can reduce your current space by as much as one-third and still have room for your current workforce.

Corporate real estate rates vary, but it’s easy to estimate how much money any business can save by transitioning from a traditional layout to an open space office layout.

Open plan office environments also—in theory—foster communication, collaboration and productivity. But in practice, as shown by many studies, productivity and collaboration are negatively impacted. The challenge many companies face is quantifying these “soft costs” and accurately comparing them to the hard costs of the real estate savings.

The Downside of Open Plan Offices

Let’s try to help with that. We’ll look at two of the biggest negative effects associated with open office layouts and run the numbers in some imaginary scenarios. 

To keep numbers as simple as possible, let’s start with a hypothetical start-up in Manhattan, New York City:

  • 100 employees in a traditional office layout, with private offices
  • Total office square footage is a roomy 22,500 square feet (based on 2010 averages)
  • Rent is $5/square foot/month (a little below New York’s average)
  • Average employee salary is $105,000/year
  • Total annual real estate expenses: $1.35 million (to keep this simple, we won’t worry about utilities and other costs for these scenarios)
  • Total employee salary expenses: $10.5 million (we also won’t worry about benefits and perks here)

Cost Comparisons: Moving to a Smaller Office

First, to save on real estate expenses, the company’s leadership decides to move to a smaller office space. They choose a building in the same neighborhood with similar amenities, so the cost per square foot is the same, but it’s one-third smaller, bringing the square footage per person down to 150—the 2017 average. 

Now they’ve got 100 employees in an open office layout that’s just 15,000 square feet, so the annual real estate expenses are $900,000.

Real estate savings: $450,000

Ignoring moving expenses, the leadership team almost immediately notices changes to their employees’ productivity.

The employee experience of the workplace makes a difference—here’s how.

There are plenty of open plan office concept studies that demonstrate how they can be detrimental to employee productivity and engagement. One commonly-cited study showed that employees in open office plans experienced a 15% decrease in productivity. It’s challenging to tie “productivity” to revenue or other KPIs, so we’ll use employee salaries for this part.

If we assume that in the old, traditional office, all the employees were as productive as they could possibly be and the company is getting a solid return on their annual $10.5 million salary expense. However, in their new open plan office, the employees are achieving just 85% of what they used to, so 15% of that salary expense is essentially wasted.

Loss in potential productivity (measured in salary expense): $1,575,000

That alone is a powerful argument against the open office plan. But it goes further. Another study found that employees in open plan offices take 62% more sick days each year than their colleagues in private offices. According to the office for National Statistics, employees averaged 4.1 sick days in 2017.

Let’s assume that our tech startup is made up of mostly healthy people, and in their old office, they only averaged 2.5 sick days per year ($1,050 in salary per employee, for a total annual cost of $105,000).

But based on the study, in the new open plan office they’ll be taking 4.2 sick days per year. That brings the company’s costs for sick days up to $176,400.

Loss in productivity: $71,400

So each year, those real estate savings are offset by over $1.6 million (potentially) in lost salary. And that doesn’t even go into the negative effects open offices might have on employees’ overall well-being, engagement, and satisfaction. Our hypothetical startup could also be looking at increased turnover rates and other unforeseen costs.

Learn how well-designed workplaces can address employee well-being.

Luckily, there are other options that don’t require going back to closed spaces. Activity-based working addresses the disadvantages of open floor plans by providing task-oriented spaces, like phone booths for calls, designated “quiet zones,” a variety of collaborative spaces or soft seating options—whatever type of spaces employees need. Employees are also given the control and freedom to choose where they want to work each day (or move around throughout the day) based on what they need to get done.

Learn more about activity-based working and what you need to transition your workplace—download Creating an Activity-Based Working Strategy today.


What to Consider When Accommodating Multiple Generations in the Workplace

The ability to adapt to different work styles and personalities isn’t something only HR professionals need to worry about, it’s become a bigger topic for corporate real estate (CRE) leaders as well. The way people work, collaborate, and react to new technology all affect workplace productivity, workplace design and office space utilization.

In today’s modern world, there’s a chance that a company could have five generations in the workplace all at once. They’re categorized as Traditionalists, Baby Boomers, Gen X, Millennials, and Gen Z. They vary in age ranges, habits, and ideals—all of which can affect the working environment.

As you might guess, this raises a few challenges due to older traditions meshing (and sometimes conflicting) with newer platforms and processes. For example, the advent of AI-based technology and other technical advances simply weren’t around during the Traditionalist, Baby Boomer, and in many cases, Gen X generations. One of the best ways CRE leaders can maximize space utilization while speaking to the general needs of each group is to understand varying work styles and learn how to adapt to each.

Understanding the Work Styles of Different Generations

As of 2018, millennials (born: 1981-1996) make up more than one-third of the U.S. workforce. Gen-Xers (born: 1965-1980) are right behind at 33%, followed by Baby Boomers (born: 1946-1964) at 25%, Gen Z (born: 1997 or later) at 5%, and Traditionalists (born: 1945 or earlier) at 2%. Each group is generalized by certain traits that affect how they interact with others in the workplace. While employees are individuals, it’s important for CRE and HR to know these traits and how often they actually do or do not apply to each group.

For example, an in-depth report conducted by CBRE broke down common stereotypes of the millennial audience. It challenged the notion that those born between 1981 and 1996 expect to be always digitally connected, blurring work/life distinctions. It also determined they are collaborative workers both in terms of workplace and working style. 

However, research from the CBRE study also showed only one-third of millennials expressed interest in a collaborative working environment or open-plan offices. They are more endeared to activity-based work setups that provide flexibility. Conversely, Baby Boomer employees are 50% more likely to want a private office than a millennial.

It’s likely those from the Baby Boomer generation have more managerial experience and are higher on the employee hierarchy based on years of experience alone. Their role may require more process-driven focus and less ongoing collaboration. Which begs the question: does age really matter? The answer is: yes and no.

Age can be indicative of years in the workforce and specific industry. It also speaks to the cultural norms a person is used to. A person who grew up in the age of the Internet may have a greater chance of adapting to technology than someone who never used a smartphone as a teen or young adult. But when handling different generations in the workplace, it seems working styles have more to do with industry expectations, work culture habits, and workspace preferences than how old someone is.

Learn how to attract top talent by catering to what matters most to millennials.

Industry Expectations

Banking institutions are generally more traditional in their cubicle and private office setups than tech companies who often embrace open space concepts. Yet these days, the titans of Finance, with their vast global campuses, are honing in on their workplace environments as key tools in the race for talent. While many institutions are stuck in the days of cubicle farms, others are now joining the cream of Silicon Valley on the leading edge of Activity Based workplaces, and flexible environments.

Work Culture Habits

During the age of Baby Boomers, multitasking was less of a priority. With the later generations growing up with mobile devices, they are used to working on multiple systems and applications at once. It’s not uncommon for a Millennial or Gen Z employee to be working on a laptop and simultaneously responding to communication on his or her smartphone.

However, each group can still identify with the need for balance between multitasking and quiet focus. Anyone who has been in back-to-back meetings understands that while collaborative interaction is taking place, actual, task-oriented jobs are likely not being completed. Each person, regardless of generation, must embody several different working styles per day depending on the role and task at-hand.

Generational Workspace Preferences

CRE leaders focus on how to save on cost while still making the majority of employees happy. To achieve this, the questions become more employee-centric and less based on the categorized preferences of different generations. For example: 

  • How much do job roles play a part in space planning? Do certain departments need to be seated together for easier communication? Who has private offices and are they all fully utilized?
  • Does remote working make more sense for certain generations than others? Or, is this more personality-based?
  • Is a fully open-space concept the way of the modern world or do activity-based seating environments make more sense?

One way to start to break down what kind of environment works best is to survey employees and welcome specific feedback. To complement that data, enable office space utilization software that can tell you how much of your current space is being used and how. For example, if data shows a lack of collaboration among employees, decide if more space should be allocated for smaller, informal meetings. Additionally, identify if there are enough spaces that speak to employee needs, especially the majority millennial audience, like break areas and quiet spots.

It’s safe to say that with the possibility of five generations in the workplace at any given time, there’s a multitude of things to consider. By identifying work style expectations, habits, and preferences, it can begin to shed light on how to design and optimize the workplace to meet the evolving needs of employees.

To learn more about creating a smart workplace strategy that accommodates changing business needs and retains top talent, download our guide on Best Practices for the Modern Workplace Environment.