Reviewing Your Opportunities to Generate Savings

Published on Saturday, 28 December 2013 11:35:01    Written by Marc
If you manage a number of leases for your company, you are probably under the same level of stress for finding savings as any other department or business unit these days. It seems that the more difficult it is for companies to increase revenues, the more pressure they tend to put on some of their departments to find ways to reduce costs. In addition, since cost of real estate is a significant one, it is no wonder companies are taking a hard look at their real estate needs.

Generate SavingWhenever a year ended, I always tried to take some time to go over the leases we had to see if there were any upcoming potential for some savings. Depending on the number of leases, it can take a few days but at times, you can find interesting savings simply by going over your portfolio of leases and brainstorming a little. Items potentially to look for:

  • Do you have options to terminate in some of your leases? If so, you could use them to consolidate some of your operations into another site. If this is not possible, perhaps you could consider informing your property owner that you are shopping around for a new site in order to reduce your lease costs. Some property owners will prefer to give you some kind of rent reduction in order to keep you at their site, so providing you with a lower rent in exchange for your option to cancel your lease. I have used this often-in previous leases and it is a reason why I always try to add an option to terminate a lease even when I do not think we will ever need it.
  • Do you have leases coming up in the coming months? This is probably the first thing to look for. Although you need to do this on a regular basis, sometimes it is good to take some specific time at the end of the year to see what is going to happen during the next year and plan some of your more important moves. In a previous blog, I wrote about the importance of planning your office moves well in advance, “ 10 Things to Remember When Moving an Office Space,” if you can take time at year end to have a global overview of things to come next year, it will help you plan things and possibly have you come up with some ideas for generating savings.

    For example, if you have two leases that are coming up next year and know that both operations are similar in nature and geographically close to each other, you might want to propose a merger of sites at one point during next year. You might consider doing this even if for this you need to extend one of the two leases for a few months or have one of the two groups of employees moving into a new site earlier than the other group. The idea is that you can often generate some savings by grouping two or more spaces together because you can eliminate redundant spaces such as lobbies and other common spaces, which are not always fully occupied. Whenever I noticed that I we could potentially merge two or more sites together, I would do a simple study to outline the main elements of the idea and provide a rough estimate for real estate savings and then discuss the idea with the people in charge of the departments or business units. This process triggered many projects over the years because as people search more and more for savings, they tend to become more flexible and open to new ideas, especially if you can show them that your ideas helps to save money.
  • Do you have options to take more space in your leases? If so, and if the cost of the spaces in those leases happens to be lower than other leases, especially other spaces where the lease is coming up soon, this might be another way to consolidate some of your sites and generate savings.
  • Do you need to plan for leasing additional space because your activities growing? Perhaps you could have a look at some of your sites, which are not fully occupied. In some cases, the sites, which are not fully occupied, can act as a buffer to host more people for a few months, even from another business unit or division, in order to give you some extra time to plan for a new site or to find a larger site that could host everyone. Doing this could help you avoid leasing a site in a hurry simply to accommodate your immediate growing needs.
  • Did you do a lease audit on all of your major leases during the year? If not, you take the time at year end to plan for doing lease audits on the major (and maybe even some smaller ones) leases you skipped this year.
  • Do you own buildings? If the answer is yes, you know that looking at the amount of municipal tax you pay is an ongoing ritual. But you should take some time at year end to look at each of your properties and see if you think there are some which could be evaluated higher than what they should be. It might be that the building is getting old and its municipal evaluation should be reduced. It might be that over the years the city increased its value faster than the average local market. In any event, if you think that you have a chance at seeking a municipal evaluation reduction, you could start preparing yourself for this. Getting the city to re-evaluate your building (to a lower evaluation of course) will generate savings by reducing your municipal tax bill. In addition, the beauty is that the savings are immediate (once the city approves the lower evaluation) with little or no work to do afterwards. If you plan to do the evaluation contestation yourself, start gathering the data you will need and the types of negotiations that you need to be prepared for. As cities are always reluctant to reduce your evaluation, so you will need to come armed with strong data. If you plan to outsource this service, you should provide your consultants with sufficient time to do his/her homework for you before going to battle with the city.

With some brainstorming, you will find that there are many ways to generate savings from real estate. While some ideas will simply not be possible to implement, others, with some planning, could generate interesting savings. This is why taking some time to look at your leases at year-end and plan for what is coming up next year is always good to do.