Location alone can't retain today's workforce: as technology and demographics impact the competition for talent, top companies view workplace real estate from the perspective of not just what or where, but the design, amenities and flexibility it offers.

Stock market success and phenomenal growth aside, Google Inc. has flourished because the company is recognized for providing a unique work environment for its employees. From an array of gourmet cafeterias to rock-climbing walls and lap pools, to inviting meeting space and informal "open areas" that encourage impromptu collaboration and big-idea spawning, the Internet giant has created a workplace environment to attract and retain the employees it needs to continue growing.

Genentech Inc., a South San Francisco, Calif.-based biotech firm, is also acknowledged as an "innovator" in real estate design and usage. The company is well-known for offering its employees a work environment that promotes collaboration and knowledge transfer, both face-to-face and via e-communication, along with a culture that serves to enhance work/life balance for every employee.

Workplace environment is one of the top three factors influencing an employee's decision to accept or stay in a job--just behind compensation and benefits, reveals recent research by the American Society of Interior Designers (ASID). Thus, with attracting and retaining the right human capital among the most pressing concerns for senior-level executives, it's not surprising that more companies are taking a hard look at their workplace real estate from the perspective of not just at what it is or where it is, but how it is designed, what amenities it provides, how flexible the space is and how it fits into the workforce's growing desire for sustainability.

In a recent WorkPlace Forecast, the Society for Human Resource Management (SHRM) predicts that work/life balance will be one of the top 10 trends influencing the workplace in the next decade. The high premium placed by a growing number of employees on work/life balance has prompted many organizations to allow arrangements such as telecommuting and flexible work schedules. Such "perks" are prominently featured in retention and recruitment campaigns.

That's likely one reason why more laptops and PDAs are being utilized for longer periods in cafes and coffee shops the world over. The upside for employers of this growing "cafe workforce"--according to a global survey released earlier this year by CoreNet Global's Applied Research Center (ARC)--is that it allows corporations to reduce the size of their real estate portfolio. Cutting back on real estate spending also helps employers avoid cost-cutting in compensation and benefits, clearly two other critical issues for attracting and retaining employees.

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The CoreNet survey also reveals that working remotely is becoming quite commonplace. In fact, the physical location of employees on any given workday has become so fluid for some companies that 65 percent of survey respondents from Fortune 500 firms said they have stopped providing an assigned workspace to at least 10 percent of their workforce. In addition, 73 percent said they had introduced desk-sharing/unassigned workstations within the past year, and 60 percent had introduced or increased "drop-in" spaces for employees.

Besides real estate cost-cutting goals, several trends are driving the remote workplace. Firstly, technology is having a major impact on space needs far beyond the obvious fact that as technology shrinks, so does the need for physical space to house it. In today's global knowledge economy, rapid technological advances mean work can be done anytime, anywhere.

As a result, companies are rethinking the way they use space. They're focused more on how and when office space is being used, instead of how much space needs to be designated to a specific number of employees. Understanding how space is utilized and occupied throughout a typical workday is vital to a company's ability to adapt quickly to changing workforce needs and shifting business demands.

The other driver of this trend is demographics. The Bureau of Labor Statistics estimates that by 2008, more than 22 million workers aged 45 years or older--the Baby Boomers--will leave the workforce. Employers will look to workers from Generation X and Y to keep things running. Yet, as smaller generational groups, Generations X and Y cannot fill the void to be left by departing Boomers and the last handful of so-called "Silent Generation" workers (those born between 1925 and 1942). One solution to this dilemma is to keep retirement-age workers on the payroll by creating more part-time and consulting arrangements, which will further grow the need for telecommuting and the amount of unassigned/plug-and-play, drop-in and satellite office space.

Never in the history of business have so many generations worked together side by side, and the Gen Xs and Gen Ys view work and life in ways that are markedly different from their predecessors. For example, they reject--or don't even acknowledge--hierarchy dictated by office space (private offices for management vs. cubes for average workers) and typically don't exhibit the "winner-takes-all, work-is-life" attitude that defined the work ethic of many Boomers.

Instead, workers under age 45--and most particularly, those under 30--tend to prefer informal, unthreatening and collegial work environments, where they feel comfortable expressing their creativity and individuality. They believe in advancement based on talent and performance; prefer to work in close proximity with like-minded individuals and feel good about working for companies that are socially and environmentally conscious. Additionally, they find it extremely important to indulge regularly in activities for fun and self-improvement, hence the current trend toward building workplace amenities such as game rooms and yoga studios.

Noting these generational differences, leading employers are changing the physical workspace to address employee-retention issues by considering flexibility, informality and sustainability.

* Flexibility

More employers are embracing flexible workspace design to allow employees to move fluidly from working individually to working in teams, as projects dictate. From a workplace design perspective, the elements required include lightweight, portable furniture that gives workers the freedom to easily change their work setup and plug-and-play voice and data connections such as Wi-Fi and Voice over Internet Protocol (VoIP) technology.

A leading adopter of Wi-Fi and VoIP, as part of its "Future of Work" project, bank and credit card company Capital One Financial Corp. is providing a wireless corporate campus. Moreover, to nearly half of its knowledge workers, it's providing Wi-Fi-enabled laptops, portable printers and VoIP software phones.

Flexible work trends include practices such as "hot-desking"--also known as "location-independent working"--where workers are allocated workspace according to their needs and keep personal belongings in on-site storage when not at the office; and "hoteling," in which an employee must reserve a workspace in advance.

Hoteling is particularly popular in companies with employees who travel frequently; the practice can include remote offices or in-office space designed specifically for this purpose. Often, a "reservationist" handles such bookings and related tasks; others provide an online reservation system via the company intranet.

* Informality

Many leading employers are rethinking their workspace to enhance collaboration and interaction for when employees do spend time in the office together. A recent report by the Dallas-based International Facility Management Association (IFMA), Space and Project Management Benchmarks, Research Report #28, revealed that since 2002, the amount of office space devoted to conference, training and breakout areas has increased by more than 17 percent.

Meeting rooms are being designed to look less like the stodgy, formal boardrooms of the past and more like living rooms, with warm decor and plenty of light, cushy chairs, sofas and attractive artwork; some even feature fireplaces.

Some employers are approaching workspace design as if the corporate location were a small town or city with specific "neighborhoods" for work tasks. Workers focused on similar tasks or objectives are grouped in areas where they have semi-private workspaces, from which they can easily see and communicate with coworkers. These areas include "team space" for meetings and community areas for taking breaks so that employees don't have to go far from their group to engage in work or rest.

This open office arrangement--embraced by companies such as Capital One and Ernst & Young--provides a mix of unassigned workspaces that removes a sense of physical hierarchy and helps to create an air of informality and enable "visual access" to other employees. Another new design idea is the "boulevard" concept, where small groups of employees, or entire departments, can connect along the pathways they use while walking to common areas, such as the cafeteria and mailroom.

* Sustainability

Employers are finding that doing business in environmentally friendly buildings is not just a good way to cut energy costs. Going "green" can be a vital part of a company's employee retention and recruitment strategy. A recent poll conducted by Mortgage Lenders Network USA revealed that 94 percent of U.S. workers prefer to work in a building that is designed to be energy-efficient and ecologically sound.

The rise in the number of individuals who want to conduct a more "environmentally correct" life and seek to work for or do business with companies that share this value has helped to push the green wave throughout the country. The U.S. Green Building Council reports that its Leadership in Energy and Environmental Design (LEED) certifications for newly constructed green buildings has increased by more than 150 percent since 2003, and numerous real estate service providers have announced sustainability initiatives in the last year.

Green buildings promote practices such as energy efficiency, use of low- or no-toxicity materials and low emissions output. Features such as improved climate control, "daylighting," outdoor views, high indoor air quality and ventilation and noise control, can all have a significant impact on an employer's rate of worker retention.

The Families and Work Institute estimates that the cost of replacing a worker equates to 75 percent of his or her annual salary, and replacing those at the management level could amount to as much as 150 percent. Plus, a healthier work environment reduces employers' risk to lawsuits related to so-called "sick building syndrome," which includes various ailments frequently caused by flawed heating, ventilation and air conditioning (HVAC) systems.

Certain green building strategies, such as raised access floors and modular wiring, also can reduce the rate of "churn," the often-costly process of reconfiguring office spaces and relocating office workers as business needs change. In the 2002 IFMA report, the mean churn rate across surveyed organizations was 41 percent, and many companies reported rates of 100 percent or higher.

While churn cannot be eliminated completely--since it is a natural part of the business cycle--the costs, downtime and disorganization that it can cause can be reduced with an easily transformable workspace.

Perhaps the following statistic will resonate with finance executives: 20 years ago, the average executive office had 291 square feet; today, it is 241 square feet. By the end of this decade, this figure will likely be much closer to 200 square feet, and the savings to corporations are likely to be substantial.

Just because an employee's physical workspace is shrinking doesn't necessarily mean he or she is unhappy or any less productive. In fact, given the increased flexibility and mobility being built into many workspaces through advancements in technology and design, along with the ability for many employees to work remotely--whether in a cafe, at home or on an airplane--and the growing sensitivity among senior executives toward creating a sustainable work environment, employees are much more likely to be happier, even with less space.

DALE ANNE REISS is a member of FEI and is global head of Ernst & Young's Real Estate practice. MARK COSTELLO is the East Coast leader of the firm's Business Risk Services-Real Estate group. Both are based in New York.

RELATED ARTICLE: TAKE AWAYS

** Workplace environment is one of the three top factors influencing an employee's decision to accept or stay in a job--just behind compensation and benefits.

** Findings that work/life balance will be one of the top 10 trends influencing the workplace in the next decade has prompted many companies to design policies and real estate to accommodate telecommuting and flexible work schedules.

** Besides "location," changes in the physical workplace that address employee retention include: flexibility, informality and sustainability