Nine ways to
real estate costs
Maximize your cash on hand and position your business for post-pandemic success
The economic impact from COVID-19 has given businesses an opportunity to reinvent themselves and boost performance. But as companies work to realign spending and improve agility for long-term success, many are overlooking a huge opportunity to cut costs using their second-largest expense: their real estate.
By taking advantage of short and long-term opportunities, you can save approximately 25% on real estate costs, helping you position your business for post-pandemic success. Read on to discover opportunities that can work for you.
1. Reduce your leasing costs:
Space and sublease vacancy continues to grow as many Americans continue working from home, giving tenants the opportunity to negotiate more favorable terms in their lease agreements. For instance, you could negotiate a “blend and extend” through early lease renewals, where you extend the length of your lease in return for a lower rental rate, additional capital improvements, fewer rentable square feet or other concessions.
2. Renegotiate your lease:
Rental rates in many markets have fallen and landlords are eager to retain paying tenants, giving tenants the opportunity to compare their leases to current market rates. Using portfolio analytics tools, you can uncover where your property leases are above, below or at current market rates to renegotiate rents to fair market levels. Conducting an audit of landlord building expenses—such as energy and other utilities, maintenance, facility management and more—may also uncover expense recovery opportunities.
3. Review your lease agreement for hidden opportunities:
There are ways to protect future flexibility in your lease and uncover opportunities you may not even remember having. If you worked with a commercial real estate expert on your original lease, chances are they negotiated termination options, in case you decide to leave; rights of first offer on adjacent suites; and even contraction rights, if your needs change and you’re using less space.
4. Reduce excess space (sublet):
Subleasing part of your existing space can help protect your flexibility for the long term while freeing up capital. However, certain elements will make your space more desirable in a market currently oversaturated with subleases. Think separate—separate entrance, separate break room, separate IT room—to maximize your pool of prospective subtenants. And make the space plug-and-play: The easier it is for a subtenant to move in and get to work immediately with little or no capital expenditure, the greater chance you’ll have to find a match.
5. If your lease is expiring, renew—rather than relocate—and make minor renovations:
Renewing a lease and renovating your space can be less costly than relocating the office. Renovations, which are typically minor, allow you to make modest changes without requiring a lot of capital, whereas reconstruction work can be much more cost prohibitive. In fact, most transactions completed in 2020 were lease renewals—In Q4 alone, renewals accounted for 68.7% of transactions, according to JLL’s Q4 2020 United States Office Outlook report.
1. Leverage location analytics for site selection:
Selecting the right location for your office helps you attract and retain top talent to better drive innovation, provide access to valuable resources such as investors and economies of scale, leverage incentives such as tax relief, direct grants and employee training, and more. Today’s analytics tools can help you develop a much more proactive strategy. They can help you boost the speed and accuracy of your search by visualizing multiple location criteria to compare potential sites and deciphering critical details. They can also help you explore potential locations virtually, overlaying macroeconomic data, tax incentives, workforce profiles and other data to inform a cost-effective, strategic location decision.
2. Understand and benchmark your occupancy costs:
Understanding total occupancy cost creates a baseline for measuring savings. For example, you can review your historical occupancy cost data to find out whether costs are trending upward, flat or falling. While there’s an opportunity to save dollars per square foot on utilities or rent, there’s likelihood to save even more with productivity potential. By knowing how you use your office space, you can better plan it out to help improve employee satisfaction, performance and productivity. You can also more easily accommodate for social distancing requirements or shut down quickly amid a virus resurgence.
3. Determine the cost-effectiveness of leasing vs. owning:
Buying or leasing space each has its own advantages and disadvantages, depending on your business and how you intend to use the space. For instance, a new business might be better off leasing, as it eliminates risks that come with property ownership and allows for increased flexibility. However, leasing also requires budgeting for rent increases. A more stable business with capital to invest, on the other hand, might be better off owning, as property typically appreciates in value over time and eliminates the additional costs that can come from rent increases. However, with ownership comes the cost of maintenance, taxes and other expenses.
4. Consider a sale/leaseback:
If you own your building, a sale/leaseback lets you sell the property but lease back the space you need to operate. It’s also more likely to secure more money in a deal than a vacant building, as a building with tenants, on average, attracts more investors and fetches a higher price.
A sale/leaseback also can help you:
- Unlock “hidden” equity on your organization’s balance sheet
- Alleviate risks that come with property ownership
- Right-size your portfolio
Now’s the time to take advantage of cost-saving opportunities you might have overlooked pre-pandemic. The right partner can help you uncover and act on the opportunities that will best help you realign spending and build resilience for the long run.
Ready to find out where you can save money with your real estate?