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The Hidden Costs of Open Office Plans

According to most estimates, about 70% of US offices use an open space 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

Jo-Ann Mann, Serraview

By Jo-Anne Mann

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.

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