Thanks to the lingering effects of the pandemic and the Great Resignation, corporate real estate optimization has never been more of a priority.
Companies have always wanted to spend less on real estate. This is one the main reasons why so many are now committing to hybrid work. But more and more companies are also seeing that with the right tools and strategy, they can use their real estate portfolio to improve employee experience, too.
When they leverage a wide variety of tools and data points to better plan their corporate real estate strategy, companies can expect a range of downstream benefits. These benefits include increased productivity, and easier talent attraction and retention.
In this article, we explore corporate real estate optimization in our ‘new normal,’ covering how to optimize your entire portfolio (and why you want to).
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Real estate portfolio optimization has always been about lowering costs without lowering standards, both in the short and long term.
Corporate real estate (CRE) tends to eat up an outsized portion of a company’s expenditures. Consider that in New York, the average yearly cost per employee is $14,800, for example.
So not surprisingly, optimization tends to hold an outsized position among the concerns of many in the C-suite.
Now, as hybrid is quickly becoming the default new workplace strategy, companies have the opportunity (and often the onus) to reexamine their square footage and real estate footprints, in an effort to keep all stakeholders happy. For example, the majority of OfficeSpace clients are looking to improve and/or strengthen their commitment to hybrid working in the coming year. Most plan to see employees in the physical office two to three days a week.
Physical office use is on the decline. But new strategies like activity based working (ABW) and agile working are on the rise. This is reimagining how physical spaces can better impact the work that employees do in them.
Not surprisingly, many companies are hoping that by embracing activity based workspace design and other hybrid workplace best practices, they’ll also be able to reduce their overall real estate holdings. Or be in a much better position to make much better data-informed decisions when the next lease is up.
Indeed, gathering the right data should always be front and center when it comes to any real estate decisions or other optimization strategies.
“Our mantra is ‘better space, but less of it.’”Andrea Goertz, TELUS Human Resources
“Our mantra is ‘better space, but less of it.’”
Yes, embracing hybrid work can lead to fewer employees in the office on any day. This, in turn, can lead to less demand for physical space. But even simple office renovations can cost up to $290 per square foot. And actually reducing the real estate footprint comes with its own costs and risks, making it inherently more challenging.
The fact that companies are typically locked into leases for certain time periods compounds these challenges.
Any planned real estate optimization will therefore require long-term strategic planning. Not only will decision makers need to take into account issues like space optimization, ideal occupancy rates and office density, leases, facility management maintenance, and the overall real estate market. They’ll also have to ensure that any consolidation efforts don’t negatively impact workplace experience
“The amount of time you need is really calibrated to the type of decision you’re trying to make,” says Kathleen Williams, OfficeSpace Senior Product Manager. “If you’re trying to decide if you’re closing your headquarters, you probably want a lot of historical data to be able to make a high confidence decision, versus when you’re trying to decide if you can turn off the air conditioner for a day.”
Of course, the ultimate goal should always be to improve workplace experience and engagement.
That means that companies must back up real estate optimization with lots of real-time data. Advanced workplace analytics will be key here. Planners will need to make data-driven decisions that benefit all stakeholders, while still ultimately improving the bottom line.
Specifically, decision makers will need the right workplace data to understand what’s happening in the workplace. By measuring new and evolving metrics, they’ll have better insights for better corporate real estate decision-making.
“As a rule of thumb, I’d say the bigger the decision and the higher the stakes, the more you’re going to need more confidence in your data,” says Kathleen. “You’ll need multiple data sources and more time to view the data and feel good about the trends you’re seeing.”
Given the costs associated with corporate real estate, real estate portfolio management is always important for companies. And optimization with an eye towards cost savings is simply smart business.
Considering that, prior to the pandemic, offices only used an average 60% of their office space (and sometimes a lot less), it’s not hard to see why so many companies are hoping to optimize in an effort to free up cash flow.
But, like we’ve explored, corporate real estate optimization and strategic space management can have many more long term benefits, beyond reducing expenses.
For example, when TELUS consolidated offices to accommodate new workplaces strategies while also moving to a new location, the company enjoyed a 5% jump in productivity, representing over $7 million in savings each year.
And that’s not counting the 25% increase in the perception that the workplace supports new idea generation. Or the 20% increase in the belief it will help attract and retain employees.
Specifically, companies can expect to see a variety of benefits from optimizing their spaces, including:
In short, smart leaders aren’t just optimizing their real estate to save money. They’re doing it to dramatically improve the hybrid workplace experience, too.
Even when there’s no immediate plans to optimize in the near term, companies should always be collecting real estate analytics. This way, they have them to use should the need arrive.
“The more dynamic your workplace is, the greater the need for more data,” says Kathleen. “It’s hard to keep a pulse on what’s actually happening across different locations and distributed work without advanced data analytics.”
Given the benefits of creating a more optimized space (and, on the other hand, the drawbacks of neglecting property management), facility managers (FMs) and decision makers should always be ready to tackle a workplace transformation.
And tackling any workplace transformation requires the right CRE data, as discussed.
Having both real-time and historical data at your fingertips is ultimately the best way to ensure you’re able to maximize your real estate budget. Both now and into the future.
In the past, it was things like mergers, acquisitions, and divestitures that often lead to real estate optimization. Today, FMs are just as likely to be the ones implementing the right types of new workspaces to accommodate a new hybrid schedule or flexible seating plan.
That said, while there’s almost always a business case to make for optimization, there are three times when it’s essential:
There will always be growing companies that need to expand their real estate footprints. Even traditional companies that are not providing hybrid options may need to add space to their portfolios. Beyond this, companies may need more space for a variety of reasons.
For example, many companies are still embracing social distancing in the office. This safety strategy typically requires at least six feet between workstations. Companies may therefore use a social distancing planner (sometimes backed up with workplace health checks) to help create safer spaces.
Meanwhile, companies looking to add more gathering and collaboration spaces and/or new work environment types may find they need more space, too.
With the rise of hybrid work and the many benefits of working remotely, fewer people are working in the physical office. That means we can expect to see lots of companies looking for ways to cut their portfolios. And therefore, their budgets.
For example, many OfficeSpace clients are using occupancy data to determine where they can shut down offices without impacting their teams. We can only expect to see more of this type of optimization as teams are spread out across more (and wider) geographical locations.
And note that if you’re planning to reduce your real estate footprint, you’re not alone. In fact, according to recent CBRE research, 52% of American businesses plan to reduce their physical office space in the next three years.
Finally, more and more companies are waking up to the impact that the physical workplace has on in-office work. Like Ghassan Khoury and Maria Semykoz write for Gallup, companies have to adapt to new technologies and workplace trends “or be swept aside.”
Employees today are demanding a flexible work environment, which trickles down into many of the new strategies we’ve already covered. Like David Cocchiara, OfficeSpace Software CEO, writes in Forbes, “companies need new ways to create a better place for everyone based on their culture, operations and comfort level.” Embracing this amount of workplace agility is now inarguably the future of work.
OK, so your organization has embraced hybrid working, and everyone is on board for optimization. Now what? What is the process of optimizing a portfolio of assets?
Remember that optimization is about reducing costs while improving how people use space, at the same time.
In other words, it’s no easy task. But it is a task that can dramatically improve with a data-informed approach. Specifically, the following steps will be essential for any changes to corporate real estate.
Like we’ve covered, companies need to collect real-time data from a variety of sources. This includes employee badge data, occupancy sensors, desk and room reservations, wifi logs, and employee surveys.
But it’s not enough to collect detailed data on office use.
All that data needs to be pooled together to create a meaningful picture of true office use. This should include breaking down any existing data silos to understand where space could be improved. For example, only by combining lease and usage data can you get the true cost of your locations.
“With the office becoming more complex, people need more from their data. They need to be able to look across their information silos and break them down as much as possible.” Kathleen Williams, OfficeSpace Senior Product Manager
“With the office becoming more complex, people need more from their data. They need to be able to look across their information silos and break them down as much as possible.”
“My advice to companies is that you can’t rely on just one source of data,” says Kathleen. “Unstructured data won’t cut it anymore. You need to bring your large datasets together to truly solve business problems.”
Collecting all this data can play another important role in corporate real estate optimization. Namely, given the role that real estate management ultimately plays in meeting your business goals, it only makes sense to benchmark metrics against competitors, like you would with other key data like revenue and market share.
Occupancy costs are dramatically complicated by new ways of working today. So companies need a better way to understand where there might be better investment properties.
This starts with normalizing lease costs to get a truer understanding of real estate spending.
Centralizing lease management into the same system that normalizes lease costs and tracks key data points like cost per employee, occupancy, and operational costs, makes it much easier to understand your existing portfolio, along with where it can (and maybe should) be going. Better still if this lease management system integrates with other software you use for enterprise facility management.
Gone are the days of MFs and real estate professionals keeping track of their portfolio in endless Excel docs. Today, space and asset management can be dramatically simplified with space management software.
The right platform should be able to collect and synthesize data, centralize lease management, and assist with space planning. Having things like usage trends and space allocation dashboards at your fingertips simply makes it much easier to make decisions.
Ideally, the software will also simplify office stack planning and scenario planning, further helping space planners determine how best to use (and change up) their spaces.
Finally, while hard data should be at the forefront of corporate real estate optimization, companies need to remember the people who will be using the spaces, too. Employees are critical stakeholders in this process, and it’s wise to treat them as such.
“It’s best to conduct employee surveys and focus groups regularly, and then adjust based on that feedback,” says workplace strategist Angie Earlywine, Senior Director in the Total Workplace division of Global Occupier Services at Cushman & Wakefield. “If I reduce real estate because I don’t think we need as much, all of that is a potential risk with significant costs associated. The antidote to figuring out how to reduce risk is in ensuring you’re aligned with employee sentiment and the company’s vision for supporting a hybrid work environment.”
Before making any major changes to your real estate portfolio, Kathleen asks an important question: how reversible are the decisions you are being asked to make?
“The more impactful they are, the more you want to have both high confidence and longer views of the data,” she says
She also highlights that optimization should be a test and learn feedback loop.
“The reality is you might not get things right the first time,” she says. “That’s why, instead of getting rid of company headquarters, you might start with subletting a few floors.”
That’s why one OfficeSpace client decided to use the first six months of their return to the office strategy to simply collect meaningful data about new office use. Employees there are allowed to set their own hybrid schedule, but they were asked to book physical desks for the first six months out. At the end of the six months, the facilities team will be comparing expected office use with actual office use, and using that to create better recommendations for leadership.
Corporate real estate optimization has benefits for all the stakeholders involved. Facility managers get streamlined facilities that are easier to run and keep safe. Companies can lock in savings and create more sustainable portfolios. And everyone across the board benefits from physical spaces that create more engagement, enjoyment, and productivity.
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