If you are a business owner, services firm manager or corporate real estate director, you likely have some strategy regarding your real estate. That strategy could be to contain costs, or to encourage interaction and collaboration between employees, or to ensure that you have sufficient flexibility to grow, shrink or relocate as your business requires. In order to assess whether your strategy is working (and get buy in from the executive team), you need to determine which metrics measure strategic success and then start benchmarking those metrics over time internally and against your industry.
Which Metrics Should You Use?
There are a number of them that we recommend, including:
1) Square feet per employee: To determine this number, divide the total square footage your company owns or leases and actually OCCUPIES (exclude subleased space) by the total number of employees. A simple lease tracking system can provide you the square footage numbers. In the absence of such a database, the accounting people who pay rent or the attorneys who negotiate the leases usually have this data.
You can also determine this ratio for each separate location. This data can be used in several ways. Some of our service provider clients compare the overall portfolio ratio with each office’s individual ratio to identify those offices that are significantly above or below the average. Those offices may provide opportunities to right-size the space and improve portfolio efficiency.
Other clients use this number to compare themselves to their industry. Industry benchmarks for square foot per employee can be found in the International Facility Management Association’s (IFMA) annual benchmarking report or can be obtained from your real estate services provider. For instance, the IFMA average for insurance industry occupiers may be 200 square feet per employee. If you are an insurance company and you average 300 square feet per employee, the reason for the difference may be worth investigating and incorporating in your strategy. If your strategy then becomes densification, you can compare your square feet per employee at the end of next year to this year’s number to determine whether the strategic decisions you made improved this metric over the year.
2) Real estate cost per employee: It is the total real estate cost per employee divided the total number of employees. To make this number meaningful, you need to define real estate cost. It can include rent, operating expenses, utilities and/or taxes across the whole portfolio. To be meaningful, the components included should be the same year over year. The data can usually be obtained from the accounting department at your organization.
The real estate cost per employee is a great way to evaluate the relative cost of different locations. For example, a law firm leasing five thousand square feet in downtown Manhattan for ten lawyers may pay $50,000 per lawyer for space. If that same firm leases fifty thousand square feet in Birmingham for 100 lawyers, the cost per lawyer is $10,000. The square feet per lawyer (500) is the same in both offices. However, an improvement in the density of the Manhattan offices will produce an exponentially greater reduction in costs than that same improvement in Birmingham. The law firm can use this data to identify high value cost savings opportunities.
3) Internal vacancy rates (how many unassigned seats do you have?): To calculate this number, you need a seat count for each office as well as a headcount. The criteria for determining the number of seats should be defined. For example, it could be one seat per workstation or office. Conference and huddle room seats should not be counted unless they are used primarily as regular workspaces. IT can be helpful in determining seat count as they can usually tell you how many phone lines or handsets are deployed and how many of those have numbers/employees assigned to them.
Once determined, this seat count can then be divided by the total number of employees to determine what percentage of your seats are vacant. Depending on the volatility of a business and its growth plans, optimal vacancy rates may be as close to zero as possible or as high as 10-15% to allow for fast growth.
If you have a badge security system, you can also determine how many employees on average are in the office on a daily basis. This information can help you understand whether those assigned seats are actually being occupied by their assigned employee each day. In industries like accounting this data has been used to justify a hoteling strategy where some of the seats are left unassigned and may be used by any employee in the office on a given day.
4) Employee attendance, productivity and satisfaction: These measures are more subjective but they can help you identify strength and weaknesses in your workplace design and operation. They can also be utilized to gauge whether a change made to improve design or operations was effective. When Deloitte built out 500,000 square feet in a new, highly-amenitized building in Toronto, the number of employees going into the Toronto office to work (rather than working remotely) sky-rocketed. Because this increase was a desirable to Deloitte, they used this data to help them refine their strategy for future locations to focus on amenities.
Your real estate,whether a single location or a multi-market portfolio of properties and leases, is a significant asset and cost to your organization. It houses your employees, facilitates the operation of your business and brands your company to your clients. An evaluation of the metrics of your real estate can help you understand where you are and provide a benchmark for measuring future success.
