IBM’s Corporate Diet Includes Reducing Its Excess Real Estate : Downsizing: In the past three years, the company has vacated nearly half its U.S. office space to help stanch the flow of red ink.

Lee Dayton was anxious.

It was early 1993, and IBM was bleeding red ink. Dayton, IBM’s manager of real estate, ordered his staff to slash expenses for office space. They quickly responded, moving four employees into one wastefully big office.

His.

“I told my team that we’d better make an example of ourselves,” the manager recalled, grinning. “They came up with a plan which required me to evict myself.”

Dayton’s transfer to a smaller office in Stamford, Conn., was symptomatic of a change that is reshaping IBM and parts of corporate America.

In the past three years, International Business Machines Corp. has vacated nearly half its U.S. office space--21 million square feet.

How much is that? Picture all the office space in downtown Pittsburgh, Seattle or Phoenix--empty. It’s like casting off nine Empire State Buildings, or three Pentagons.

The shrinkage, of course, reflects IBM’s particularly sharp decline in the highly competitive, DOS-eat-DOS era of personal computers. IBM has shed one-third of its U.S. employees in the past three years.

But IBM is not alone. Now that companies have “downsized” their staffs, many are looking to do the same to their office buildings.

For example, Dayton’s group, in addition to pruning IBM’s space, has done consulting work for American Express Co. and KPMG Peat Marwick on cutting their office space. Corporate giants from AT&T; to Aetna have embarked on space-reduction programs.

In a recent Arthur Andersen & Co. survey, nearly two-thirds of 700 corporate executives said they had recently shrunk their office space, or planned to.

“Over the last three years, they (companies) have been shedding workers like crazy. That has caused them to reassess how much space they need,” said William Wheaton, director of the center for real estate studies at the Massachusetts Institute of Technology.

Some firms, he noted, have gone so far as to “re-engineer the work space--so they need less space per worker.”

With corporate behemoths shedding offices like old skins, you might expect a further decline for the depressed U.S. commercial real estate industry. Analysts say that’s unlikely, since smaller, growing businesses are moving into the empty space.

But some cities have been hit badly. Take White Plains, 25 miles north of New York City, where IBM has vacated five buildings. A thriving corporate center in the mid-’80s, it’s now dotted with silent glass-and-concrete shells. More than one-fourth of its office space is empty, one of the highest rates in the nation, says ONCOR International, a real-estate services firm.

That has hurt both the city’s tax base and the electricians, plumbers and other workers who catered to the gleaming office complexes.

“You can’t even give away space,” lamented Mayor Sy Schulman. “They don’t need it.”

IBM’s case is striking because of the amount of space it’s shedding and its attempt to go beyond merely disposing of offices occupied by departing workers. It’s trying to squeeze every penny out of its real estate, in what Dayton calls “a fundamental change in thinking.”

“You have to very matter-of-factly explain that having a private office or a given office size is not an entitlement,” he said.

At IBM, rank used to have its privileges. Ask Linda Bodden. In the old days, the 34-year-old branch manager would have had a personal “branch manager’s secretary.” There was a “branch manager’s desk”--”bigger than a marketing manager’s desk,” she said.

“To be a branch manager in the old days was to get the big corner office,” she said. “That was a big deal.”

These days, Bodden works out of clients’ offices, assisted by a car phone, beeper and a laptop computer. When she checks into the Cranford, N.J., IBM office every two weeks, she shares a small cubicle in an open space.

It was, she said, a “cultural change.”

Perhaps a more important change affected desk-bound employees. These days, many IBM workers are doubling up in offices. They’re sacrificing classrooms and meeting rooms. Some conference rooms, once idle, now see more traffic than a New York tanning salon in January.

IBM motivated managers to give up space by allowing them to “transfer” it--on paper--to IBM’s real-estate department. The managers could then subtract the rental cost from their tight budgets.

Like a giant jigsaw puzzle, the vacated offices were put together in some buildings. Employees were consolidated in others.

Rick Bause, a 42-year-old public relations executive, was one of 400 employees moved from four locations into IBM’s sprawling gray-and-blue building in White Plains. He went from a private office to sharing a slightly bigger one.

“To me, it’s not a big deal,” he said.

Not everyone agrees. But one IBMer, speaking privately, said there were few complaints from employees: “They’re happy to have jobs.”

The problem now is disposing of the emptied office space, most of which is leased. IBM has gotten rid of about 5 million of the 21 million emptied square feet, and subleased another 3 million, Dayton said.

Some local real-estate professionals believe IBM may eventually go so far as to sell its hilltop headquarters in Armonk, N.Y. For now, though, the company says it has no plans to do so. In fact, it’s moving more employees into the building.

Some real estate analysts note that companies typically cut office space during a recession, and expand when the economy grows. What is new, Dayton said, is the intense global competition that has forced companies to scrutinize every expense.

“A couple of years ago I would have been somewhat skeptical whether this would last,” Dayton said. Now, he said, “In IBM and other companies I talk to, it’s permanent.”