Real estate costs is one of the fixed costs that located organizations have to deal with, these include expense such as rent, leasing costs and service charges. A recent survey by British Council for Offices found that real estate can take up to 15% of an organization’s total operating costs.
For a long time, the standard belief was that an occupier’s main concern is to minimize cost. However, recent trends in the job markets such as the increasing competition for top talent, technology and collaboration have had an impact in changing the perspective of occupier’s towards real estate markets.
For instance, a recent survey conducted by real estate firm Knight Frank on global real estate leaders, found that less than 10% of those surveyed have cost saving targets in excess of 10% per annum in the near term.
The result shows that today, increasingly, real estate decisions are ceasing to be driven mainly by the desire to reduce costs. According to the report, this is attributed first to the fact that ‘real estate costs are now assessed in relation to overall business operating costs. In reality, direct real estate costs- rent, service charges and property taxes- represent only a relatively small proportion of the total.’
Comparatively, property costs are almost four times less than staff costs which are easily the largest costs to business. A more explicit illustration is the fact that the cost of losing a member of staff to a business is up to ten times greater than the cost of accommodating them. Leaders who appreciate this dynamic, understand that the true cost of real estate lies in its impact on the more sublime issues of staff attraction and retention.
The study also highlights the fact that post the global financial crisis, business leaders have shifted the objective of managing real estate costs from cost scrutiny to more ‘investment in lease management systems, which, in turn, supported lease renegotiations, exits, reduced run-costs and the limiting of capital expenditure as real estate teams played their part in repairing the corporate balance sheet.’
Most business leaders have been able to increase costs by focusing on a broader definition of ROI, which takes into account the relationship between real estate costs, overall people costs and wider strategic goals.
In addition to retaining a reasonable level of control on real estate costs, firms are looking to other areas such as investments in new technologies, capabilities or staff to leverage property costs in the competitive operating environment. In essence, successful occupiers are seeking to enhance productivity rather than standard real estate cost reduction procedures.
Density of occupation is not the important metric it used to be, as markets have shifted towards a ‘continued flight to high-quality workspaces within global markets and the active use of space to drive increased circulation and collaboration to deliver greater innovation, creativity and productivity.’