Companies interested in leasing, subleasing, purchasing or selling office space in the Bay Area

Calculating And Containing Occupancy Costs

“I’d like to spend just a few minutes on an overview of this morning’s topic before introducing our distinguished panelists and getting into the heart of the program. Until recently, it’s been a tenant’s market, and how many of us, before, in a market with 30% vacancy through skillful and astute negotiations were able to lower rent costs, and of course take some credit for overhead cost reduction. Now rents are up across the country, and we have some markets up as much as 25 to 50% in just the past year or two. Calculating and containing occupancy costs will be an increasingly important topic.

Calculating can include benchmarking, financial analysis, comparative analysis, budgeting, tracking and a host of other measurement methods.

Containing occupancy costs can cover a wide gamut, from an item as minute and specific as turning off printers and PCs and workstation lights at night to as broad a category as should the entire operation be located in a less expensive location, or maybe, should some of the job functions be outsourced to really reduce occupancy costs.

Has your lighting system been updated to energy-efficient tubes and ballasts, and is your computerized building energy management systems operating efficiently?

Can your operation still function efficiently with 3 times a week janitorial instead of 5 times a week? Have you been as competitive as possible in shopping telecommunications carriers and systems and do you review these items on a regular and systematic basis? Are you prepared for the coming power wars as a number of jurisdictions allow competitive energy providers, and are your leases set up to allow you to take advantage full of this?

If you own your facilities are you maximizing revenue on rooftop antennae and satellite dish locations, and if you own multi-tenant buildings how are you enhancing bottom-line income if possible by charging telecommunications carriers for space and conduit usage?

In my dealings with software development firms, containing occupancy costs can be diametrically opposed to recruiting and retaining highly-skilled software engineers. Let’s face it, you might cut your occupancy costs to the bone by eliminating all private offices, team and conference strategy rooms, give-up the company maintained basketball court in the parking lot and maybe shut down the subsidized gourmet corporate cafeteria, and then after all your top software developers leave, you might be able to get occupancy costs down to 0 by closing down shop.

However, there may be items and strategies which would work within your particular industry and organization. Are your costs of churn too high – is constant change in your office layout being managed efficiently and effectively? Is there flexibility in your office design? More and more corporations are getting more productivity out of less space per worker through leveraged technology, through new ways of re-thinking furniture design.

I had one high-tech client who grew by leaps and bounds until they had well over 100,000 square feet of office space, and they were still using the local furniture vendor for all their new modular systems at 10% off retail. We shifted to a national account and went to wholesale pricing containing occupancy costs.

Containing occupancy costs – To what extent have you embraced or studied alternative office strategies, including office hoteling, moteling, telecommuting and virtual office? At 2 this afternoon, I’ll be leading a focus group round table on Alternative Office Strategies, so please come and join us. Do you have a few empty offices available for the occasional salesman or your marketing rep to use for the few minutes once or twice a week they are in the neighborhood, or is there simply a two foot counter with a phone, PC and modem jack so he or she can take care of business at a much lower cost?

Can you use the same cubicles over and over by multiple shifts as more and more firms are doing, thereby leveraging space, furniture and equipment two or three times over? Are there projects which can be modemed overseas and done at 20% of the cost, freeing up domestic space? Can some of our United States call centers be moved to a English-speaking workforce overseas at a fraction of the cost here at home.”

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