Ranked #7: Occupancy & Construction Costs
The importance of Occupancy & construction costs, which ranked seventh in Area Development's Corporate Survey, varies according to facility function.
Lawrence Moretti (Aug/Sep 06)
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The Project's Place in the Corporate Real Estate Portfolio
estate is a significant balance sheet item and a major contributor to
enterprise costs. After labor costs, occupancy costs are often the next
biggest bill. Many opportunities to cut real estate costs are
overlooked. It is essential to take a total portfolio perspective when
selecting a site. Consider the following portfolio cost-reduction
Optimizing capacity: Does the company have
surplus, appropriate space in its property portfolio? Review the
trade-offs between using existing space versus greenfield solutions.
work placing: Can you leverage technology? Hoteling and telecommuting
can often reduce space requirements without reducing headcount.
space allocation: Are space standards consistent across the
organization, and can square footage per person be reduced without
compromising the work environment while promoting team collaboration?
Is the configuration efficient or a waste of rentable space?
asset value: Sometimes the market value of a property is significantly
greater than book or utility value. Selling the site and moving the
operation can then be a source of cash.
Other financing techniques, such as a sale-leaseback arrangement, can also reduce upfront cash outlays.
summary, the relative importance of occupancy and construction costs as
a site selection factor depends on the situation. While nearly always
an obvious and visible component, real estate may be the most variable
of the major cost categories of site selection, being an afterthought
in some situations.
The efficiency of how organizations make
decisions also comes into play. In highly decentralized organizations,
business units, rather than corporate real estate departments, may
spearhead location projects and site selection decisions. The
centralized corporate real estate team may eventually have to face a
hodgepodge of inefficient space and long-term commitments. Inefficient
planning, use, and administration usually result in underutilized
properties and excess real estate costs. Companies that align location
facility decisions with broader corporate strategy and enterprise cost
management objectives represent the gold standard. In these
organizations, business unit leadership works hand in hand with the
corporate real estate and workplace team to plan and implement location
strategy and project-specific site selection.
Moretti is a senior team member of Deloitte's Global Location
Strategies and Corporate Real Estate practices. He has over 20 years'
experience working with corporate clients on workplace location and
facility portfolio issues around the world.