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  • Writer's pictureMark Bradshaw

Real Estate Leases : An Opportunity or Liability?

It’s no longer a rumour that we are in an economically challenging environment.

We’re in uncertain times as inflation drives up costs, influences consumer spending and the threat of a recession still looming over us all. These factors are high on the Boardroom agenda in most organisations.

To thrive in this difficult period businesses are looking to make efficiencies in terms of how they trade. Caring employers, keen to retain their most important asset, their people, look to their ‘toolkit’ in terms of processes, technologies, and environment for savings.

The rise in remote working means that many offices are underutilised, and that the current design no longer effectively supports how employees work.

The challenging economic situation has affected the real estate sector also, with many believing that there will be a continued reduction in leasing activity, other than for those seeking to consolidate / reduce their requirements.

“there are ‘warning signs that leasing in 2023 will be more subdued as some economies move into recession.” [i]
“New requirements are starting to trend down or become contractionary…plus a ‘slowing of momentum is becoming evident in the office market’.” [ii]

As the impact of the pandemic fades away and the new, more flexible ways of working become the new normal, organisations are starting to explore their future real estate needs.

As leases have trended towards shorter periods, with greater flexibility, over the past 10 years, there are a significant number of organisations who are going to be able to exercise an option to exit from their lease within the next 2 years.

In the USA alone, 900M SF of office leases nationwide is set to expire before 2025. (JLL)

This may sound like a daunting, potentially disruptive, and costly prospect given the economic uncertainty. It is, however, a great opportunity for companies to consider their future needs, reduce overheads, and adjust their work space to support more flexible or hybrid ways of working.

This process will benefit from careful and timely planning. In our experience the time necessary to develop requirements, explore options, scenarios and implement them is around18 months, sometimes longer for larger, more complex requirements. The earlier organisations start to explore their options the greater the opportunity and benefits will be.

If your organisation has lease breaks within the next 2 years, now would be a good time to draw up a plan of action.

We have set out some key thoughts and considerations that might guide your plan of action:

  • Plan well ahead

The decisions that are necessary when presented with a future lease event need to be considered many months before the event occurs. If the decision is taken to exercise a break, or to leave at the end of a lease, there are a range of activities necessary to put into place such as relocation of your business operations, and potential liabilities such as dilapidations. The earlier you start to consider these aspects the better informed you will be and more likely to agree better terms with the landlord.

  • Engage with your business

When looking to determine your future office needs, it is worth considering that how your people are working today may not be the right model for the future. The pandemic forced new working arrangements on each business, and as we emerge from those forced conditions, many companies have adapted and retained some level of flexibility, yet the workplace design still reflects traditional, pre-pandemic working arrangements. The way we work will continue to evolve over time and the work place environment plays a significant part in driving our behaviours. The key to success when moving forward is to engage with all key stakeholders across your business, understand their views on how the space supports them and what needs to change, and capture quantitative data regarding their preferences for activity by location and their needs for collaboration.

  • Leadership

While the process needs to be led from the top of the business to drive the process, the Board will benefit from qualitative and quantitative data for decision making, and needs to be informed by the voice of the employees, including the D&I networks. Being flexible and prepared to adjust initial real estate and office design expectations to meet the changing needs, will help keep the process aligned to the business’s needs.

  • Data driven modelling

Using up to date data to inform the decisions that need to be made will provide the evidence needed to gain Board approval to the investment needed.. Understanding cost metrics is important however, data extends to many other metrics regarding the way that employees use the space, how this impacts on their performance, attrition and ultimately the success of the business.

  • It’s not all about space and new furniture

A change in workplace also has an impact on organisational behaviours, culture and happiness. A relocation or reconfiguration of the workplace is like any change programme, employees need to be engaged, supported and trained, particularly where new working arrangements come into play. Adjustments to the policies and processes within the business may also be required to reflect the changes.

  • Technology is an enabler.

There has been a proliferation of new technology that claims to support hybrid/flexible working, so careful research, is necessary after understating your people’s needs, and testing any products in live pilot project situations will help reduce risk and user acceptance on implementation. Once the technology has been chosen, it is important that employees are supported and trained regularly so that it is integrated into working processes.

  • A trusted advisor may help.

Getting the right support from the right experts to help develop the solution, whether driving a workplace change or engaging in lease negotiations, can reduce the programme significantly and improve the overall outcome.

And Finally….

Whilst a relatively simple concept, implementing a change in working that comes from reconfiguring space or a relocation, can be anything but. The process requires careful coordination of real estate,, technology, FM, and HR workstreams, and the development of new protocols. As a result, the process can often face resistance and a misunderstanding of what it really is, particularly when ’funky’ furniture solutions are thrust upon an unsuspecting workforce.

This is where an experienced, trusted advisor can help. Their role will be to co-ordinate and manage activities so that they are aligned across all workstreams and achieve an informed and desired outcome.

When successfully delivered, the benefits to the organisation can be significant, not only leading to a reduction in the overall real estate footprint, but also benefits linked to the workforce and wider business. These include reduced workforce costs (recruitment / attrition and absence), increased productivity, greater wellbeing and increased cross organisation collaboration.

We’re here to help, contact us to chat through your next lease event planning.


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