FOURTH QUARTER 2014 How Coworking Can Improve Flexibility ... · As the war for talent drives...
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But the other 80 percent of your rooftops still need to be procured. Resources still need to be deployed to negotiate leases, to build the spaces out and to maintain them. Be honest. You and your corporate real estate (CRE) team probably spend the bulk of your time managing locations smaller than 2,500 to 3,000 square feet, since these typically account for the greatest number of locations. Ironically, these locations also account for the smallest proportion of the total square feet and total annual cost (see Figures 1 and 2). And the amount of time it takes to procure a small location doesn’t necessarily correspond to its size. In fact, it takes just as much time to secure as large locations. At the same time, due to the way your CRE organization procures, designs and builds out locations, your group has a tangible impact on the company’s cost structure, culture and level of employee engagement. Add to these considerations the rise of a distributed work force, the desires of the Generation Y or Millennial workforce (those born in the early 1980s to the early 2000s), which include — among other things — creative and engaging workspace, and you have an environment where multiple forces are pulling in different directions. You and your team struggle to deploy the right balance of quantitative and qualitative criteria to satisfy your stakeholders and customers, and to maintain flexibility within your portfolio management capabilities. As the war for talent drives decision- making for real estate location, a dilemma arises when businesses are faced with the reality of placing a fixed location to house a shifting talent pool. A distinct lack of flexibility presents itself as a challenge to the business as it seeks to provide fixed How Coworking Can Improve Flexibility, Reduce Costs and Increase Employee Engagement Corporate Solutions Strategy & Innovation FOURTH QUARTER 2014 Accelerating success Imagine this scenario: You are the Director of Real Estate managing your company’s portfolio. You typically employ the 80/20 rule: 20 percent of your rooftops are responsible for 80 percent of your cost. You focus plenty of energy managing that 80 percent cost and have gotten it (largely) under control. 0% 5% 10% 15% 20% 25% 0 20 40 60 80 100 120 140 160 0 - 2,500 2,501 - 5,000 5,001 - 10,000 10,001 - 25,000 25,001 - 50,000 50,001 - 100,000 100,001 - 250,000 More than 250K SF % of Total Annual Cost # of leases per bin Size of Lease in SF # of Locations Pro-Rata Share of Total Annual Cost 0% 5% 10% 15% 20% 25% 30% 35% 0 20 40 60 80 100 120 140 160 0 - 2,500 2,501 - 5,000 5,001 - 10,000 10,001 - 25,000 25,001 - 50,000 50,001 - 100,000 100,001 - 250,000 More than 250K SF % of Total SF # of leases per bin Size of Lease in SF # of Locations Pro-Rata Share of Total Annual Cost Figure 1 - Number of Leases by Size and Pro-Rata Share of Total SF Figure 2 - Number of Leases by Size and Pro-Rata Share of Total Annual Cost 1 How Coworking Can Improve Flexibility, Reduce Costs and Increase Employee Engagement | Fourth Quarter 2014 | Corporate Solutions Strategy & Innovation
Transcript of FOURTH QUARTER 2014 How Coworking Can Improve Flexibility ... · As the war for talent drives...
But the other 80 percent of your rooftops still need to be procured. Resources still need to be deployed to negotiate leases, to build the spaces out and to maintain them. Be honest. You and your corporate real estate (CRE) team probably spend the bulk of your time managing locations smaller than 2,500 to 3,000 square feet, since these typically account for the greatest number of locations. Ironically, these locations also account for the smallest proportion of the total square feet and total annual cost (see Figures 1 and 2). And the amount of time it takes to procure a small
location doesn’t necessarily correspond to its size. In fact, it takes just as much time to secure as large locations.
At the same time, due to the way your CRE organization procures, designs and builds out locations, your group has a tangible impact on the company’s cost structure, culture and level of employee engagement. Add to these considerations the rise of a distributed work force, the desires of the Generation Y or Millennial workforce (those born in the early 1980s to the early 2000s), which include — among other things — creative and engaging workspace, and
you have an environment where multiple forces are pulling in different directions. You and your team struggle to deploy the right balance of quantitative and qualitative criteria to satisfy your stakeholders and customers, and to maintain flexibility within your portfolio management capabilities.
As the war for talent drives decision-making for real estate location, a dilemma arises when businesses are faced with the reality of placing a fixed location to house a shifting talent pool. A distinct lack of flexibility presents itself as a challenge to the business as it seeks to provide fixed
How Coworking Can Improve Flexibility, Reduce Costs and Increase Employee Engagement
Corporate Solutions Strategy & Innovation
FOURTH QUARTER 2014
Accelerating success
Imagine this scenario: You are the Director of Real Estate managing your company’s portfolio. You typically employ the 80/20 rule: 20 percent of your rooftops are responsible for 80 percent of your cost. You focus plenty of energy managing that 80 percent cost and have gotten it (largely) under control.
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1 How Coworking Can Improve Flexibility, Reduce Costs and Increase Employee Engagement | Fourth Quarter 2014 | Corporate Solutions Strategy & Innovation
rooftops for shifting talent, even in small markets and locations.
What CRE organizations require are options to match the way we work today with spaces that provide benefits to the enterprise, its resources and its human capital. The business has options, and one tactic in particular can take advantage of the rise of coworking while providing significant savings in cost, organizational effort and resource.
CRE organizations and employees are looking for spaces that:
> Are culturally aligned with the organization and the work produced;
> Are social environments that promote creativity, engagement and productivity;
> Are on demand;
> Provide flexibility within the portfolio to address shifting talent location;
> Reduce overall lifecycle facility costs;
> Reduce the time and effort necessary to procure.
Leveraging the growth of coworking networks to replace your small locations could be the tactic that answers these requirements.
Traditionally, organizations evolve from a core set of strategically important production facilities, and spread outward
geographically, taking market positions in both an opportunistic and planned fashion. These “outposts” typically support deployed field sales organizations or are required to obtain legal entity status in other countries. Inevitably, as enterprises grow, small locations make up the majority of the total portfolio. And, according to the British Property Foundation’s IPD Lease Events Report (2013), the term lengths of these leases mirror the five-year-plus term lengths that other size classes of space are averaging . With greater term length comes less flexibility.
Cultural Alignment: Cultural alignment reflects the company’s values and the ways in which space supports the business needs of an organization. Space that is flexible, agile and innovative in its use and design delivers a competitive advantage to the business and its customers.
Today’s knowledge workers require both collaborative (public) and focus-oriented (private) space, and these spaces need to provide the connection between function and the culture it is meant to embody. If designed effectively, the workspace can lead to improved engagement scores, increased productivity and higher work product quality.
Related to cultural alignment is the need to support distributed work. It is estimated that over 80 percent of work is done is some form of collaborative environment. This number will continue to rise with the increase in distributed regional and global work, in addition to technology options that facilitate virtual team environments.
As the “open plan vs. cubicle” debate over workspace continues (and regardless of the outcome), practitioners of distributed work still require space (if not home-based) in which to work. With this space requirement is the psychologically hardwired requirement for human interaction, socialization and connection.
Social Environment: Small offices are considered uninspiring, often lacking the dynamism of larger hubs (“It’s dead in here”). A well-established body of academic research (Becker and Sims of Cornell University, and Haynes of Sheffield Hallam University, among others) and
“ It is estimated that over 80 percent of work is done is some form of collaborative environment.”
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commercial surveying (HOK, Gensler, Steelcase, Haworth, among others) supports the hypothesis that a diverse environment cultivates innovation and productivity. These environments, coupled with policies that encourage self-directed research, lead to a number of innovations and inventions. Companies like 3M, for example, allocate 15 percent of their engineers’ time to projects of their own choosing. In exchange, the engineers host a show-and-tell session for colleagues to hear about concepts, their progress and challenges — all with the hope that innovative connections are made.
A similar strain of research also says that the Generation Y or Millennial workforce desires creative and engaging work environments that are technologically connected and diverse. This generation is the first to be raised with mobile technology and social media, and this is a key driver in their social and work well-being.
On Demand: The concept of the servicedoffice solution — on-demand offices and conference space available through a variety of service providers — is not new. These traditional office environments typically allocate single offices on a one-to-one basis and, as a general rule of thumb, offer little to no interaction between users. These are on demand, often acting as a substitute for a small location.
The concept of coworking is also not new and has seen tremendous growth in the past several years. Coworking is
both a style of working (individuals or small groups working independently of one another but having access to one another’s critiques, opinions, ideas, etc.) and the physical space where a coworking community exists. Especially popular among independent contractors and startups, coworking offers fledgling enterprises flexibility in their use and commitment to space without tying up much needed capital to a lease obligation. Again, these spaces are used on an on-demand basis.
For the past several years, some entrepreneurs have begun breaking down the walls of their executive suites in order to provide communally shared space, regardless of company affiliation or
“ The concept of coworking is also not new and has seen tremendous growth in the past several years.”
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seniority. In effect, they have created a coworking space.
At the same time, these firms (PivotDesk, for example) have also partnered with businesses to market via the Internet their structural vacancy to people and businesses that require them on an on-demand basis. In a fashion similar to the way Airbnb matches travelers with extra rooms in people’s apartments in cities around the world, or the way Uber connects you immediately to a shared car service, these online portals provide real-time access to space availability in North America and are now evolving into global footprint opportunities. They allow users and providers to find space, share space — internally, with customers and/or vendors —and to hot desk when in a different city. These firms enable work-from-home employees to have an office environment whenever it is required.
A typical scenario looks like this — not a sublease, per se, but a seat license:
Company A has structural vacancy within its buildings in Cities X, Y and Z. Company B, an expanding company testing the market in these cities, requires office space for a small sales group. Company B will purchase a seat license from Company A’s excess space using the service. Depending upon the arrangement, Company B is free to use the
excess space in Cities X, Y and Z when it needs to. Company B has the desk space it requires, while Company A captures income on space sitting vacant.
Cost Savings: The opportunity now exists for CRE organizations to leverage the growth of coworking networks in order to replace the small-location requirement. Not only will CRE organizations provide more culturally aligned and socially dynamic space, they will also provide space that is on-demand and preferred by Gen Y. These organizations will free up their own CRE internal resources to be deployed for higher value work, and this tactic will result in significant cost savings.
Building on our previous scenario, Company B would have built its own small locations across the nation and the globe. Generally, due to standard fit-outs, buildout inefficiencies and standard office building designs, these locations would have yielded 200 to 250 square feet per employee and averaged around 1,000 square feet. Table 1 shows the cost difference between using the traditional model and the coworking office solution. Using the same number of small locations as shown in Figure 1 and an average full-service gross rent of $20 per square foot, the traditional model yields a cost of $3 million annually. However, using a coworking office solution cost of $350 per month, the same 600 employees can be housed wherever and whenever they need to be for approximately $500,000 less per year. In addition to the build-out, rent and operations expense, Company B saves on technology infrastructure, furniture, amenities and remediation costs.
This solution may not work for every company in every situation, but finding flexible options reduces expense and provides space that fits the culture of the organization, provides a competitive advantage, is socially engaging and on-demand.
ihttp://www.bpf.org.uk/en/files/bpf_documents/commercial/IPD-MSCI-LeaseEventsReport-_FINAL.pdfiihttp://www.deskmag.com/en/the-coworkers-global-coworking-survey-168
TABLE 1 - TRADITIONAL OFFICE COSTS VS. CO-WORKING OFFICE SOLUTION
ASSUMPTIONS Average Occupants/Office 4Number of Offices: 150 Average SF/HC 250Average SF/Office: 1,000 Total HC 600
TRADITIONAL MODEL FLEXIBLE OFFICE SOLUTIONTotal SF 150,000 Total Headcount 600Average Annual Rental Rate $20 Average Cost per Month $350 Average Annual Cost $3,000,000 Average Annual Cost $2,520,000
ANNUAL SAVINGS $480,000 % Annual Savings 16%5 Year Average Savings $2,400,000
“ The opportunity now exists for CRE organizations to leverage the growth of coworking networks in order to replace the small-location requirement.”
4 How Coworking Can Improve Flexibility, Reduce Costs and Increase Employee Engagement | Fourth Quarter 2014 | Corporate Solutions Strategy & Innovation
Copyright © 2014 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
About Colliers International
Colliers International is a global leader in commercial real estate services, with over 15,800 professionals operating out of more than 485 offices in 63 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world.
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PREPARED BY:Ron ZappileManaging Director Strategy & Innovation | Corporate Solutions Cell: +1 646 894 [email protected]
CONTRIBUTOR:Chris ZlockiExecutive Managing DirectorStrategy & Innovation | Corporate Solutions Cell: +1 313 595 [email protected]
