The Cost of Wasted Space

The first half of 2022 has seen a strong pick up in leasing activity, suggesting a positive outlook for office space use — However the numbers of employees returning to the office in 2022 is still proving to be a challenge for many companies. Our research shows that over 85% of companies are planning to retain hybrid work practices, with most companies landing on 3 days per week in the office and 2 days working from home.
23 Sep
Studio DB

As workplace strategists look for new ways to optimise operations and cut costs, real estate is an obvious place to start. Commercial real estate costs are rising year over year and this is especially true in New Zealand where the cost of construction is under pressure due to supply chain and labour market challenges. Given the average utilisation currently sits at 20%, it is no surprise that the latest trends in corporate real estate include infrastructure upgrades to maximize use of space, the addition of technology in the workplace to support hybrid and flexible work, and companies demanding flexible lease terms or the provision of serviced office as part of the building amenities.

With the growth in hybrid and flexible work, companies have begun to realise the impact of unused or under-utilised spaces on the bottom line. If employees are not using spaces as they were before, where should those funds be reinvested? How can spaces be reimagined to serve the needs of employees today, not employee needs and expectations from two or three years ago? Since trends and employee behaviours will continue to change, it is important for businesses to implement strategies that allow them to adapt with confidence. Companies can explore options like movable walls and multi-purpose spaces to stay flexible for the future.

The cost of poor space management can be exorbitant, especially for companies that do not have a definitive workplace management strategy. When facility managers, people operations teams, and leadership teams work together, they can improve the workplace to provide a better employee experience while reducing overhead costs on an exponential scale.

Let us consider what the situation look like for the average medium size New Zealand company:

Based on our research we can outline the following data points for office utilisation (on a work point basis):

  • Average meeting room utilisation: 12%
  • Average collaboration space utilisation: 65%
  • Average dedicated desking utilisation: 18%

The typical space allocation for each type of work point is generally as follows:

  • Meeting room allocated area: 10%
  • Collaboration space allocated area: 15%
  • Dedicated desking allocated area: 60%
  • Support, circulation forming the balance: 15%

If we compare the utilisation relative to the area occupied by each type of space it gives us an overall average utilisation of 22%. Now if we look at the real estate average cost per employee (We will consider A grade premises):

  • Average space allocated per head count: 15 sqm
  • Average rent cost: $650 per sqm per year
  • Other workplace costs (Electricity, maintenance, IT, insurance, cleaning, other facilities cost): $120 per sqm per year
  • Fit out depreciation: $250 per sqm per year
  • Total: $1,020per sqm per year or $15,300 per headcount per year

If we consider the utilisation data we can draw the conclusion that wasted space represents in this scenario 78% of the annual spend of $11,934 per headcount per year. Now it is important to consider that 100% utilisation is probably not achievable however we can surely do better than 22%.

Ways to Uncover Wasted Spaces and Associated Costs

To ensure every square meter of office space is being used and appreciated by employees, companies need to have a strategy for analysing the use of space and adjusting that strategy over time. If workplace space management conversations only happen once a quarter or once a year, employee behaviours and preferences can change leaving strategy decisions to lag.

Here is how workplace strategists and facilities managers can discover areas of the office that are not being used effectively and find out what the impact looks like to the company budget and bottom line.

Leverage spatial intelligence

Spatial intelligence data reveals both active and passive occupancy rates in specific locations in corporate spaces. By installing heat mapping sensors and gathering data now companies will be able to use this data to inform their next iteration of design and ensure that only the spaces that are actually being used are forming part of the office footprint to avoid wasted space.

Analyse utility costs

Workplace attendance patterns are changing. Without analysing utility costs, you may be paying for services that are not used by your employees. Review Wi-Fi usage, energy and lighting, and other utility costs over time to reveal areas where you can cut back.

Compare employee satisfaction and turnover data across locations

Hiring and retention are employers’ top concerns in a competitive job market, and turnover costs are extremely high. It can cost up to twice an employee’s salary to replace them. By reviewing offices and their turnover and employee satisfaction data, you can see where high-performing buildings have the best ROI, and which ones need to be updated or removed.

Explore serviced office as a solution

Serviced office can be a great way to optimise your real estate portfolio. It allows for on demand consumption of workspace rather that on a fixed lease. It creates a great alternative to regional offices to cater for smaller headcounts and also is a great way to provide a professional environment to work from for these employees who prefer to work from an office but cannot justify the commute.

Employee preferences for the workplace will continue to evolve and present challenges for facilities managers and workplace strategists. However, with the right data and space management plan, companies can create right-sized, efficient office spaces that work for employees, improve the bottom line, and help protect the environment.

For more info get in touch with us, we’d love to chat.

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