John Hampton, Senior Vice President, Solutions Development, Jones Lang LaSalle (Aug/Sep 09)
With the global recession in full swing, I asked several executives I know to comment on the cost of commercial real estate in the current business environment. Not surprisingly, their remarks were colored with a range of emotions from anger to resignation.
"We signed a 10-year lease to secure a reasonable price when rates were at their peak," says the COO of a global consulting firm. "Now we are locked in for eight more years, while sales are about 60 percent of what they were two years ago. With revenues down, we've had to let go of some good people, so we are paying for empty offices."
The executive vice president of a well-known technology firm laments, "I have three people working full time to sublet unused office space at several sites. This will recoup some of our losses, but not all, because rental markets have softened so much."
Finally, an executive at a national investment company offers his perspective: "One of our greatest ongoing challenges is matching our real estate needs with the organization's ever-changing employee base. This has resulted in a large amount of under-utilized space."
What interested me most about their remarks wasn't the fact that many executives feel victimized by the economic crisis. Certainly, every business is dealing with some uncomfortable choices as a result of the recession. What surprised me was the notion that there are no alternative business models with regard to leasing office space - that being "locked in" to a conventional, multiyear lease is the only game in town. Fortunately, for the thousands of enterprises that need to position themselves for growth on a shrinking budget, several viable options exist for reducing facilities expenses and capital expenditures while alleviating the burden of underutilized office space.
Align Real Estate with Business Requirements
One of the great lessons learned from a recession is that markets rise and fall unpredictably, driven by forces beyond our control. Having weathered a few downturns personally, my mantra is "establish and maintain optimum enterprise agility." To stay in the race, we must be able to quickly adapt to change: changes in the marketplace, changes in client needs, new economic realities.
This need for agility has given rise to a number of innovative workplace models that are saving companies 60 to 80 percent on facilities costs while aligning their expenses more closely with business demands. In lieu of long-term lease agreements that can sink the bottom line, many corporations are adopting blended real estate strategies that address the requirements of an increasingly mobile and distributed work force while maximizing productivity, professionalism, and service quality.
For example, the global consulting firm whose COO is quoted above invested heavily in office space, furniture, technology, and administrative staff, some of which the organization no longer needs but is paying for anyway. Overhead expenses now limit the company's ability to invest in business development, creating a "catch 22" situation. Going forward, the organization could choose a more cost-effective option: transitioning to a flexible network of workplaces with onsite administrative and technical support, and paying only for the space it uses for as long as business dictates. With more flexible agreements, the company will be able to scale up or down on short notice, while conserving capital for critical operations. Imagine, for example, having a workplace "passport" that provides on-demand access to office facilities around the world. Each location would offer a state-of-the-art, Fortune 500 corporate setting complete with existing infrastructure for Internet, telephony, and video communications.
In a just-released study, SupportSoft Inc. says that, in addition to supporting a central office, two-thirds of information technology (IT) departments are also supporting remote and mobile workers across a range of environments - satellite offices, home offices, and customer sites. A technology connection is only the first step in supporting these workers, however. Many employees still require, at least some of the time, a physical point of presence to collaborate with colleagues on projects or to meet with clients.
What if, instead of establishing additional offices, a company could provide remote and mobile workers with the same resources of a centralized corporate campus, without expensive capital expenditures and overhead such as IT and telecommunications equipment? Enterprise workplace solutions are now available that offer access to individual and group workplaces and meeting rooms based on a company's needs - so that sales professionals, consultants, and executives can continue to seize new opportunities around the world without costly real estate liabilities. By enabling businesses to have a physical presence just about anywhere business gets done, this network of professional workplaces makes gaining a competitive advantage more affordable.
Business travelers needing drop-in access to a business-ready environment can also take advantage of workplace networks. For a fraction of the cost of investing in traditional real estate, corporations can ensure that their teams have a private, secure setting in which to meet with clients, prepare presentations, and check e-mail. With solutions customized to an individual's or company's requirements, such arrangements can be a significant cost savings - and they sure beat working from coffee shops and airports.
Shifting the Paradigm for Big Savings
It wasn't so long ago that I had to drive to a music store and pay for a CD with multiple recordings, just to listen to a single song that I liked. More than once my time and money were wasted, because I didn't care for every song I had purchased. Today, my teenage daughters can download the MP3 file of a favorite song for a dollar, in a matter of minutes. To them it is only logical - they pay only for what they need, and they get it on demand.
So it has become with commercial real estate. Even the largest multinational corporations are undergoing a paradigm shift with regard to where and how their employees work. By utilizing a network of business-ready offices available at flexible terms, corporations are putting people on the ground whenever, wherever and for however long it is profitable to do so, while cutting down on wasted office space and eliminating up-front capital expenditures. With a variety of workplace models at their disposal, they are using real estate as a flexible tool that supports their needs in any economy - and some are realizing multimillion-dollar savings.
As always, the quest for business agility requires a fresh look at conventional wisdom. What can be done differently to accelerate growth, given the challenges we now face? These are tough questions in tough times, but the answers will result in more resilient, more efficient, and more profitable enterprises going forward.
John Hampton is vice president of Enterprise Solutions for Regus Americas, a global provider of flexible workplace solutions. He is responsible for leading the organization's Corporate Accounts division and consulting with Regus' largest clients to help them optimize their real estate portfolios. For more information, visit www.regus.com.