Real Estate - The Great Optimization!
It is no longer a rumor that we are in an economically challenging environment.
As real estate leases expire, opportunities for optimization arise.
We’re in uncertain times as inflation influences consumer spending, offices are less than half full, and the threat of a recession still looms over us all. These factors are high on the Boardroom agenda for most companies.
To thrive in this difficult period, businesses are looking to make efficiencies in terms of how they trade. Caring employers, keen to retain their most important asset, their people, look to other options for finding savings.
As the impact of the pandemic fades away, more flexible ways of working have become the new normal, office occupation remains well below pre-pandemic levels as they no longer meet employee’s needs, organizations are compelled to consider their future real estate needs.
The challenging economic situation has affected the real estate sector with many believing that there will be a continued reduction in leasing activity, other than for those seeking to downsize their space.
“There are ‘warning signs that leasing in 2023 will be more subdued as some economies move into recession.” [i]
“New requirements are starting to trend down or become contractionary…plus a ‘slowing of momentum is becoming evident in the office market’.” [ii]
As leases have trended towards shorter periods over the past ten years, offering greater flexibility for tenants, there are a significant number of organizations who are going to be able to exercise an option to exit their lease within the next 2 years.
By 2025, 900M SF of office leases nationwide is set to expire. (JLL)
This may sound like a daunting, potentially disruptive, and costly prospect given the economic uncertainty. It is, however, a great opportunity for companies to consider their future needs, reduce overheads through optimization, and adjust their workspace to support more flexible or hybrid ways of working.
Optimizing real estate is going to be a key initiative for many CEOs in 2023.
This process will benefit from careful and timely planning. In our experience, the time necessary to develop requirements, explore options, scenarios and implement them is around 18 months, sometimes longer for larger, more complex requirements. The earlier organizations start to explore their options the greater the opportunity and benefits will be.
If your organization has lease breaks within the next 2 years, now would be a good time to draw up a plan of action.
THESE EIGHT KEY POINTS MAY GUIDE YOU
Plan well ahead
This may seem obvious, but decisions that are necessary to inform a lease event need to be considered many months before the event occurs. This is particularly the case if the current office is of traditional design and the new space is to be designed for new, more flexible ways of working. If the decision is taken to exercise a break, or to leave at the end of a lease, there are a range of activities necessary to put into place such as relocation of your business operations, and potential liabilities such as dilapidations.
The earlier you start to consider these aspects the better informed you will be and more likely to agree better terms with the landlord.
Engage with your business.
When looking to determine your future office needs, it is worth considering that how your people are working today may not be the right model for the future. The pandemic forced new working arrangements on each business, and as we emerge from those forced conditions, many companies have adapted and retained some level of flexibility, yet the workplace design still reflects traditional, pre-pandemic working arrangements. The way we work will continue to evolve over time and the workplace environment plays a significant part in driving our behaviors.
The key to success when moving forward is to engage with all key stakeholders across your business, understand their views on how the space supports them and what needs to change, and capture quantitative data regarding their preferences for activity by location and their needs for collaboration.
While the process needs to be led from the top of the business to drive the process, the Board will benefit from qualitative and quantitative data for decision making, and needs to be informed by the voice of the employees, including the D&I networks. Being flexible and prepared to adjust initial real estate and office design expectations to meet the changing needs will help keep the process aligned to the business’s needs.
Data driven modelling.
Using up to date data to inform the decisions that need to be made will provide the evidence needed to gain Board approval for the investment needed.
Understanding cost metrics is important, however, data extends to many other metrics regarding the way that employees use the space, how these impacts on their performance, attrition and ultimately the success of the business. Find out more here
It is not all about space and new furniture.
A change in the workplace also has an impact on organizational behaviors, culture, and happiness. A relocation or reconfiguration of the workplace is like any change program, employees need to be engaged, supported and trained, particularly where new working arrangements come into play. Adjustments to the policies and processes within the business may also be required to reflect the changes.
Technology is an enabler.
There has been a proliferation of new technology that claims to support hybrid/flexible working, so careful research, is necessary after understating your people’s needs, and evaluating any products in live pilot project situations will help reduce risk and user acceptance on implementation. Once the technology has been chosen, it is important that employees are supported and trained regularly so that it is integrated into working processes.
A trusted advisor may help.
Getting the right support from the right experts to help develop the solution, whether driving a workplace change or engaging in lease negotiations, can reduce the program significantly and improve the overall outcome.
Whilst a relatively simple concept, implementing a change in working that comes from reconfiguring space or a relocation, can be anything but. The process requires careful coordination of real estate, technology, FM, and HR workstreams, and the development of new protocols.
Without a thoughtful approach to change, the process can often face resistance and a misunderstanding of what it really is, particularly when ’funky’ furniture solutions are thrust upon an unsuspecting workforce.
This is where an experienced, trusted advisor can help. Not only to help define how much space you need and how it should be designed, but also their role in a change program will be to coordinate and manage activities so that the activities are aligned across all workstreams, and achieve an informed, and desired outcome.
When successfully delivered, the benefits to the organization can be significant, not only leading to a reduction in the overall real estate footprint (and therefore costs), but also benefits linked to the workforce and wider business. These include reduced workforce costs (recruitment / attrition and absence), increased productivity, greater wellbeing and improved cross organization collaboration.