Real estate and facilities represent a major expense on the profit and loss line of the budgets of corporates and often involve long term commitments. As such, in Nigeria in particular, the annual rental rate is the key unit of measurement and corporates and their appointed agents spend most of their time during lease negotiations discussing this line item. The annual rental rate however does not reflect the true total occupancy cost. Line items such as service charges, utilities, insurance, fit-out costs and facilities management that include reception, security, cleaning and catering all add up to reflect the total occupancy costs (TOC).
In addition to the TOC, the second part of the office cost equation is the lettable office space.
The TOC per square metre is spread across the total lettable office space to determine the total cost of the real estate space for a corporation. Hence these two sides of the coin are essential to determine and control the cost of real estate.
Over the last few years, there has been a paradigm shift in the way corporates view their real estate assets, given the fact that real estate cost is a major expense, second only to staffing. Corporates are now beginning to realise that the quickest way to save money and reduce costs is to reduce their real estate footprints and adopt space optimisation strategies, especially during a period of recession.
For businesses looking to relocate to new premises, the starting point in reducing their real estate footprint is to understand how the current office space is utilised over time. To achieve this, they can conduct a space utilisation study which scrutinises how well workstations, offices and meeting rooms are used over time. This assists corporate occupiers in determining exactly how much space they utilise in their offices. The study examines three key occupational behaviours namely:
- someone present
- unoccupied, no signs of use
- temporarily unoccupied, no one present but signs of use such as personal items or documents.
From this study, businesses will be able to challenge existing assumptions on space utilisation and more accurately calculate the actual square metres of office space required by the business.
Another way of looking at the real estate footprints is through the office density – the space per workstation. Typically for commercial office spaces, the industry standard is one workstation per 10m² net internal area. This figure typically includes normal amenities within a general office but can vary based on special needs such as extra-large conference rooms or storage requirements. A higher office density means less space per workstation, and a lower density means more space per workstation.
Measuring utilisation rate as well as office density helps to identify a benchmark for office efficiency. With this accurate data, corporations can then look to design and adopt appropriate strategies to adequately reduce their footprints. The two key strategies common in today’s workplace for reducing real estate footprints are: adoption of flexible working and open plan offices.
There are many terms used to describe different types of flexible working, but in essence flexible working is ‘offering the choice of where, when and how to work’ to employees. It incorporates non-standard working patterns, remote connectivity (within and outside the office), access to and sharing of alternative work settings, and the non-ownership of space, particularly offices and workstations.
The end result is a reduction of fit-out costs, as well as flexibility and adaptability of the spaces to fit employees’ needs. Generally speaking, flexible working is associated with a better quality workspace and a wider range of work settings. In addition, in return for reduced fit-out costs more amenities like collaborative work spaces and quiet rooms can be introduced.
The ways in which we utilise office space to conduct business has received much attention in recent times, especially with the elimination of cellular offices and adoption of open plan offices. The open floorplan has been embraced thanks to the flow of information and interactions that occur due to the open floor designs. Sustainability benefits such as easy access to natural light and air-flow has also led to the increased adoption of this solution. There is also its impact on costs – the approach reduces the amount of space per employee which in turn affects the costs the company needs to pay for.
Interestingly, for most global corporates the reason for adopting flexible working and open plan offices is far beyond the cost-savings. There are several multiplier effects that impact the lives of people. For instance, the belief is that if these practices result in less space being required then, theoretically, fewer buildings will need to be built, cooled and maintained. If home-working is introduced, there will be reduced travel. Mobile workers who need to meet face to face may choose to meet at a location that is more convenient to them than the office, again saving on travel. The carbon emissions saving can be calculated based on the reduced space requirements and reduced travel. As a result, sustainability has become one of the key benefits and drivers for organisations to adopt measures geared at reducing their real estate footprint.
Contributing author: Gideon Adesiyan