How to make your CFO happy with your portfolio
Optimizing the use of office space could save as much as U$1 million in annual operating expenses in a three-million-square foot portfolio.
With today’s fluid workforce and unpredictable markets, it is becoming increasingly difficult and at the same time important for companies to understand the ideal office size required for their day-to-day operations.
Given that labor and real estate are the two largest expenses on most of our organizations’ balance sheets, a less-than-optimum office space will not only lead to wasted space and rental cost, but can also affect productivity levels—ultimately, hurting the bottom line.
So what can you do to trim down the excess and report back your improved numbers to your CFO?
According to Jeremy Doherty, Regional Manager of Occupancy Planning at JLL Asia Pacific, portfolio optimization helps provide the right space at the right time to serve a company’s changing and ongoing needs.
Based on JLL calculations, optimizing the use of office space could save as much as U$1 million in annual operating expenses in a three-million-square foot portfolio. By properly undertaking occupancy planning, some clients have signed leases with space reduced by up to 20 percent from what they had initially planned, says Doherty.
The definition of the optimal amount of space is different for all companies due to varying work patterns and behaviors. The modern workforce is also fluid due to alternative workplace strategies such as work-from-home arrangements, co-working and flexible working hours. Longer-term events such as mergers and acquisition, divestitures and expansions will also affect space requirements.
Your people are at their most productive with the right mix of work setting at their disposal. A cramped space can be detrimental to productivity while too much space can evoke a lethargic, diminished output.
Amid rapid technological changes, the ratio of space per full-time employee is no longer an adequate metric for today’s workplace. “Understanding the optimum space required is not just about square meters per person or the number of workstations that can fit on a floor—it is also about what you do with that space; how to demarcate work zones; and accurately assign the number of workstations provided versus alternative work settings,” Doherty explains. The same principles apply to meeting rooms—how rooms are used and by how many people at any given time, he adds.
To determine the right amount of space is to understand the needs and goals of your business. A top-down information gathering process should begin at the C-suite level. Any initiative that doesn’t include intelligence from the highest-level risks fails due to information gaps. For example, a site restack, or a reconfiguration of the workspace to enhance collaboration, may not be prudent if a consolidation exercise is being planned.
Besides C-suite and corporate real estate (CRE) executives, portfolio optimization requires a planning core that includes stakeholder groups such as business units’ representatives, human resources and the finance department. The involvement of the relevant stakeholders will help ensure that developed strategies reflect the needs of the entire organization.
Occupancy planning solutions should not be derived solely from current requirements. Companies should also assess business goals and ways to support staff if headcount grows or retracts. This strategic planning will help you avoid additional costs and overheads, as well as minimize employee disruption.
When embarking on occupancy planning, note the supply and demand of factors involved. Supply is your owned and leased real estate space while demand is measured in people, tools and the processes utilized to perform work.
Engaging an experienced occupancy planner will simplify this process as they will be able to assist in the collation and validation of the following data sets to develop scenarios, which allow you to make faster, more confident portfolio decisions.
Supply* data includes
- Capacity, population and vacancy information
- Utilization reports on how space is known to be occupied
- Projects already in progress that will affect current specifications
- Lease expirations and renewal options
Demand** sources include
- Intelligence on upcoming business initiatives collected from the C-Suite
- Day-to-day business insight from local business units
- Budgeted headcount data from the finance organizations
- Current recruiting information from human resources
With the above data, you can develop different space scenarios with explanations and action plans covering:
- Breaking point on a site’s capacity
- Cost saving/cost avoidance exercises
- Potential optimization projects
- Conservative to aggressive strategies to accommodate forecast changes.
By utilizing best practices and maintaining up-to-date population and space data, you can accurately undertake scenario planning and identify opportunities for consolidation and optimization exercises.
Portfolio optimization should be an ongoing process. “As data becomes more readily available in multiple forms, it is being applied intelligently through both quantitative and qualitative influences,” says Doherty. “This effort enables corporates to shape their portfolios to fully support the objectives of the business and at the lowest possible cost.”
* Supply is the company’s owned and leased real estate space
** Demand is measured in people, tools and processes utilized to perform work