How to Reduce Your Corporate Real Estate Costs

Published on Wednesday, 17 September 2014 17:30:47    Written by Marc
If you are like most companies that either lease or own real estate for your operations, chances are the idea of trying to find ways to reduce your costs is always somewhere in the back of your mind. Year after year, it seems costs are constantly going up. You have the cost of the space itself, then the upkeep, then energy, water, waste, and let’s not forget tax, tax, and more tax (city, school, municipal or any other type of tax).

How to reduce your real estate costsIn the end, the total cost of having real estate can be a major expense for your company, and the cost is only getting worse each year.

Previously, we enumerated, on this blog, some ideas on how a company can reduce their real estate costs. Ideas, such as, making sure that you use (by leasing or purchasing) only what you really need. Forget about the "extra space" needed for the legendary future growth (which never seems to come), reorganizing your office layouts (if your space is an office one), and keeping an eye on the market for better opportunities that come along. These might include new sites on the market, a desperate seller or landlord, lower cost subleases, or a site a little off the beaten path.

In the end, it comes down to two metrics: The cost per area (dollars per square feet), and how much area you use (lease or purchase). If, everything is equal, you can reduce one or both of these metrics, and chances are you are reducing your real estate costs. Of course, with the increasing costs outlined in the beginning of the text, it may mean that even if you reduce on of the key metrics, you might feel you are running at a standstill. However, consider what would have happened if you did not initiate cost saving measures. These metrics would have increased.

While many of these cost reducing ideas above are valid and can help reduce your real estate costs, some may be more difficult to implement than others. Decisions such as reducing the size of an office space might mean that some employees will go from a closed office to a cubicle. This will not be the most popular decision, obviously. However, decisions like this are needed for the company to stay afloat. The same thing applies when moving from a "Class A" building with direct metro access to a "Class B" building with the metro entrance across the street, or two streets down. Take away some benefits you might think are minor to the employees, and you might end up needing riot gear.

In the end, managers must often balance between the savings that their idea will bring to the company; and, well….everything else.

Reducing your real estate cost is not only about taking bold/drastic decisions to force every one into small cubicles in a half basement of a "Class C" building. Especially, where the landlord that closes the lights in the lobby and the corridors to save energy. It is about making smart decisions that you can live with in the longer term. That means without reducing productivity.

However, not all decisions seem to have kept long-term productivity in mind.

For example, we tend to see more and more office layouts where the closed office concept is giving way to open aired offices. While my personal feeling would be that this is usually a cost saving measure (you can cramp more people in the same space that way), the "official" version that we hear often is that employees will be able to collaborate more. However, when we see how many of these employees are now wearing ear buds or headsets to listen to music while they work, completely isolated from the rest of the world, one can only ask how the supposedly increased collaboration is happening that way. There are other ways to reduce real estate costs without compromising the efficiency or productivity of the employees.

While the ideas outlined above constitute the more "traditional" methods of reducing the real estate costs, we are starting to see new opportunities of cost saving to emerge. For example, just walking through office floors, we commonly see offices that have anywhere between 25% and 50% of vacancy during a typical day, something that was perhaps not so obvious only 10 years ago. As more and more people are allowed to work remote either from their house, from a shared office, or from another place, companies often forget how much they are paying each month on that space. There is now substantial potential saving to be captured by simply having people, which are allowed to work remotely, to share offices. If given the choice to an employee of either being able to work from home a few days a week, but having to share his or her office with a colleague, or staying at the same "five days a week at the office" ritual, many employees will gladly accept the compromise of sharing an office space for the flexibility of being able to work remotely.

I was always intrigued when (in one of my past lives) I noticed that some people which were allowed to work part-time remote, also had multiple closed offices in different buildings we leased, simply because they had some confidential documents (think HR for example) and had private meeting with employees. Two arguments that can easily be answered with some locked cabinets (for the confidential documents) and access to private meeting rooms (which can be shared by all).

When you calculate the cost of keeping two or three closed offices in as many different buildings for someone who only comes to the office three days a week, you start to question the logic and add up the costs. If companies have the will to save costs in real estate, there are always numerous ways to do it without much downside.

Managers in charge of finding ways to reduce their cost of real estate can and should capitalize on the new realities of the job market, such as employees working remote, to find and implement cost reduction initiatives. This, combined with more traditional cost reduction ideas, even if they can be somewhat unpopular at times, can help reduce your cost overall.