Office Space Efficiency is Key Component to Minimizing Overhead Costs
“You don’t really need that much office space”, these are words you do not expect to come out of an office leasing broker’s mouth all that often. Today in a softer office market where you can typically negotiate more attractive lease terms, most companies’ primary strategy in regards to their office space is to minimize occupancy costs by reducing the rental cost per square foot.
Ultimately there are only two ways to control or reduce your real estate occupancy costs:
- You minimize or reduce what you pay in rent on a cost per square foot basis
- You reduce or minimize the volume of space leased or occupied
I realize this is not a revelation for any business person who is responsible for the P&L statement and they are keenly aware of the impact of office space on overhead costs. However, when working with companies for the first time I am often surprised with how many are leasing office space that could be much more efficient without sacrificing comfort, quality or that would require a radical change in their current office layout.
Many, tenant representation brokers tend to focus on the cost per square foot side of the equation and their ability to identify structure and negotiate great lease terms when proposing their services to prospective clients. While, having the resources to identify the best options and negotiate the most favorable terms are without question very important factors, those skills will be mitigated by leasing office space that is not required.
The total cost of office space on a per square foot basis is dictated by location and building selection as well as the inherent negotiating leverage a particular company may have and how that can be positioned to maximize their bargaining power with building owners.
An Efficient Office Layout is an Effective Way to Reduce Overhead Costs
Market conditions will limit the ability of what total cost savings are attainable even in what is perceived as a “tenants market”. There is only so much a building owner will offer even to companies with the most leverage and even the most skilled lease negotiators representing them. In most cases trimming 10% or 15% of unnecessary office space offers greater financial benefit and impact on occupancy costs than what can be realistically negotiated. A thorough evaluation of office space needs and current office layout should preclude any market evaluation of specific building opportunities. I have in many cases demonstrated to my clients that they are leasing more space than required and more effective office layout is attainable . While sometimes business conditions dictate a smaller volume of required office space, even in a downsizing scenario what is actually needed is often less than what the client perceived they required.
Better Building, Lower Total Cost
I have on several occasions assisted clients in relocating to a considerably higher quality office building while also reducing their real estate overhead costs, and in today’s market with reduced real estate values that is not an unrealistic scenario for many companies. Selecting the right building and negotiating attractive lease terms are key objectives in the quest to control the total cost. However, maximizing your space efficiency with and effective office layout is every bit as critical to achieve top occupancy cost performance and minimize overhead costs.