Economic or Operational Changes Prompt Changes in Space Use

Your company is enduring changes to its economics (good or bad), and/or real estate costs have escalated to be too costly; either are affecting operations. The business is either growing or retracting and margins are flat or thinning too much. Payroll, FF&E, and real estate costs are being reviewed. If change could be required, now is the time to determine how, when, and how much it will cost to implement. This is the best time to take a detailed financial and qualitative review of your business operations for the next 12, 36 and 60 months. Assess the occupancy cost ratio and identify options to accommodate the changes you’re enduring.

MF global teamStaffing. If your staffing needs are changing, will you have too much or too little space to seat them? Approx 100sf per person is ample (executives may need a bit more), plus 20-25% for people movement. Lease office space so you reach your occupancy limit at about 2/3 or 3/4 of the way through the term (Smith, 2017, Feb. 27). Leasing too much space and cash flow can be hobbled by an excessive rent payment and under-utilized space, too little space and staffing growth will be limited (Fennie, 2005, Jan). Space issues affecting 20 or more permanent staff are cause to re-evaluate space needs. Your COO should be guided by a space planner about the carpetable space optimal to meet staffing and workflow needs.

finan-modelingOccupancy Cost Ratio (OCR): Ratio of Real Estate Costs to Revenue. The rent to sales (revenue) ratio (a/k/a Occupancy Cost Ratio) measures the impact of the cost of leasing commercial real estate space (Smith, 2015, April 23). Measure with gross space costs in mind (e.g. rent, additional rent, utilities, CAM). Space too small could inhibit production capacity and revenue growth. Space too big could be cutting margins enough to prompt cost cutting. Your COO and CFO should be collaborating to identify the correct amount of space to foster productivity, at a defined OCR.

Cmcl Leasereal-estate-deedHolding Period (Lease or Owned). How are business cycles affecting the holding period for space taken? Holding period is affected by the location needed to operate from, projected annual revenue, staffing costs, and the FF&E needed for production. Ensure your tenant rep and real estate attorney collaborate to negotiable acceptable exit clauses from leased space. Owned property should include space to rent until needed or vacant land to expand the building footprint and height as needed.

Ofc Flr PlanFlexibility of Space. The three items above will affect how flexible your space should be. The office landscape as we know it is changing and the mobile working revolution is helping third spaces race to the top of wish lists (Moufarrige, 2018, Jan 30). Flexibility translates into expansion or contraction clauses in your lease, buying a building larger than is needed to expand into, or buying the right size building with extra land to build on later. Expansion space can be delineated and rented until recapture is needed. Commercial real estate landlords should already be thinking about offering more flexibility, more amenity, more community and a customer service experience to avoid empty or underused real estate (Moufarrige, 2018, Jan 30). In general, technology companies, that are often open long hours, are pushing the collaborative, flexible and sustainable work environment into other industries rapidly. It’s decreasing the amount of space per person and how flexible space design is.

Obs Ofc SpOpenSpace-crop-1600-900Condition of Space. If the business is operating from a space for more than 10 years, it may be becoming obsolete (design, function, technical, aesthetics) because workflow, market dynamics and work culture have matured. It’s not uncommon for established companies to move to position productivity for the next 10-15 years ahead.

 

 

Corp AdvisorSteering Committee. The COO should call a meeting of department heads or managers to identify how space and its costs are affecting daily operations. A lead time of two weeks or so should be sent out for the meeting to enable participants to assemble facts and qualitative content of the meeting’s agenda. The meeting should be substantive, honest, reveal facts and subtle chatter about space use. Once facts are shaped to paint a tangible picture of space status, it’s recommended to hire a space planner to assess the space, then draft a 3D plan of what new space could look like; a timeline to build and buildout costs should be estimated. Decision support for your COO, CFO, and CEO should come from the steering committee. The space secured for use is decided upon and signed for by the CEO and COO. The CFO guides them how occupancy costs and expenses will affect financial statements and tax returns.

 

To recap, successful space changes occur through careful evaluation and preparation to begin a space search. You’re likely to get the acquisition terms your business needs by guiding your endeavor with objectives for the space change. If your COO is interested in evaluating options to change the commercial space for the business, please ask your COO to fill out “Request a Consultation” at the base of About Us in this website. Enter “Considering Change” in the subject line, then paste the email signature of their executive assistant the message body. I reply within 24hrs to arrange an exploratory conference call within their calendar. ###

References

Fennie, N. (2005, Jan). Space Planning: How Much Space Do You Really Need?, The Space

Place, Retrieved from https://www.thespaceplace.net/articles/fennie200501a.php


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Smith, N. (2017, Feb. 27). What is the average square footage of office space per person?,

Austin Tenant Advisors, Retrieved from

https://www.austintenantadvisors.com/blog/what-is-the-average-square-footage-of-

office-space-per-person/

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Smith, N. (2015, April 23). What Should Your Annual Rent to Annual Sales Ratio be When

Leasing Commercial Real Estate?, Austin Tenant Advisors, Retrieved from

https://www.austintenantadvisors.com/blog/what-should-your-annual-rent-to-annual-

sales-ratio-be-when-leasing-commercial-real-estate/

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Moufarrige, M. (2018, Jan 30). Changes In Commercial Real Estate Are Rewriting Landlord

Rules For The 21st Century, Forbes, Retrieved from

https://www.forbes.com/sites/forbesrealestatecouncil/2018/01/30/changes-in-

commercial-real-estate-are-rewriting-landlord-rules-for-the-21st-

century/#1e2ee32441ad

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