News & Research Archive

Reduce Real Estate Costs and Increase Productivity by Consolidating Office Space

Jan 04, 2012

 

Garcia Architects & Advisors assists companies assess their commercial real estate portfolios to determine how to gain efficiencies. Companies with a lot of office space usually also have a lot of wasted space which they may not be aware of. This presents an opportunity to reduce real estate costs. Once the extra space is identified, it can be determined if it can be subleased, or if a "restack" of one or more buildings allows for giving back some space that is up for lease renewal in the near future.

The most simple type of consolidation is when a single location is partially empty or underutilized due to employee or technology contraction. These days, many employees are mobile and not everyone needs a designated office or large workstation anymore. "Hotelling" offices or smaller workstations have become common. A layout can be reconfigured in order to create space that can be subleased. Not only is this an opportunity to design a more efficient layout that responds to the company's current needs thus increasing productivity, it's an opportunity to bring in additional revenue.

Of course, there are some upfront expenses to creating a separate sublease space. A demising wall must be constructed, the electrical and mechanical systems must be separated, and the required exits must be added. A permit must be obtained. Even for the smallest of projects, the minimum cost to accomplish this is about $10,000. Keep in mind that these costs can be depreciated. Spending the money to create a separate suite is a risk. A subtenant may not be found for many months after construction is complete. Why not wait until a subtenant is found before the costs are incurred? This is possible, however, many tenants, especially subtenants, are looking for space that is immediately available and the timeframe to permit and demise the space can take anywhere from one to three months depending on the city.

It is also possible to sublease space without creating a separate suite if security is not an issue and tenants are willing to work within the same suite. However, this drastically reduces the possible rental rate and the number of prospective tenants. It's important to check your lease to determine if a subtenant is allowed, and what the limitations are.

A more complex scenario is a company that occupies multiple locations or a very large building. Instead of assessing each location separately, it's important to look at the system as a whole. If 15 out of 50 locations each have a little bit of wasted space, groups can be rearranged and consolidated to create one or two large sublease or give-back opportunities. But it's important to understand how each group works, what their needs are, and who and what they should be adjacent to. Productivity must be evaluated along with real estate opportunities.

There are many factors that affect productivity. The time it takes for groups to travel between collaborating groups' locations should be calculated to determine if any additional time spent travelling will cost more than what is being saved in real estate. Some employees might leave the company if their office is moved and their commute increases. Moreoever, some clients may be lost due to an office relocation. Often, having a "vanity address" is important for a company's brand. Also, it is common for a company to own some of their locations, and lease other locations, and this becomes a factor in deciding which spaces or buildings to dispose of. It's typically desirable to give back the leased space and consolidate into the owned properties. However, we have also helped some companies free up their owned properties that were in high-rent neighbhorhoods in order to lease out the owned properties and maximize revenues.

The larger the portfolio, the more complex and time consuming the assessment is. The assessment phase of a one million square foot restack we managed for Bank of America took about 6 months. Department heads must be interviewed to not only determine their known needs, but to fully understand their work process and determine possible improvements they may not have considered. It's our job as professionals to vet out the hidden potential. There are always ways to improve a company or individual department's productivity through rearranging space.

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Written by: Garcia Architects

E-mail: Elisa@garciaarchitects.com


Starboard TCN is posting this article on its website and blog with the approval of Garcia Architects.

Garcia Architects specializes in commercial interiors & construction management.

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