A row of empty offices and vacant cubicles are not only bad for morale, they’re even worse for the bottom line. Today, as a result of the current economic cycle many companies find themselves with a significant proportion of their office space not being utilized. That can be even more frustrating, if locked into rental rates that are much higher than current market rents, as rates in many major markets have dropped considerably in the past year. While it’s hard to get out of leases entirely, there are some ways to mitigate the financial cost of office space.
Lease Administration: Many companies don’t even have all their lease documents in one place. Lease management can pose a challenge, both financially and administratively, for companies with widespread operations. The cornerstone of a strong real estate program is reliable lease information. Clear, concise and complete financial data and critical dates are a key to solid strategic planning, taking advantage of market opportunities and the reduction of risk.
Blend & Extend: Companies with good credit that have two years or less left on their lease may find the opportunity for better terms if they agree to extend the lease for three to eight years, In doing so, they can usually opt to either get better rates per square foot or pay slightly above-market rates to shed some of their space. “Many, Landlords in today’s economic environment are willing to work with creditworthy tenants to stabilize their buildings, “but it’s a give-and-take. If you cut space, they’ll build in some premium to the rent to offset it.”
Space Disposition: Subleasing or negotiated lease terminations are viable options for many companies. New or smaller companies are often looking for sublease opportunities, because of the perceived cost savings associated with subleasing space. Lease terminations are often more costly, but in some cases make good economic sense. In some cases Landlord’s may have another tenant to absorb the space which if properly negotiated can mitigate the termination cost.
Outsource: A growing number of firms are handing over the corporate real estate and facility management function — to outsourcers, who can handle more than just lease negotiations and provide a variety of real estate and facility management services.
Alternative Office Strategies: One option that may be particularly appealing for at least a portion of your workforce is too look at alternative office strategies. Telecommuting or Hoteling may be a suitable alternative for some of your functions particularly the sales force. In other cases re-evaluating your space design may yield significant space reduction. Moving to a higher density cubicle based environment or eliminating rarely used support spaces may yield significant space reduction. Every organization is different but re-examining you layout may result in significant cost savings.