“We’ve proven we can operate with no footprint. That tells you an enormous amount about where people need to be physically.” – James Gorman, CEO, Morgan Stanley

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So your firm has realized that it can work differently than in the past. What’s the right process to reduce your footprint? Here’s a plan to follow.

Less than 10% of the firms that we’ve polled believe they can operate with absolutely no office space, so likely you’ll still have an office presence, albeit a reduced one.

Since nobody is a post-Covid19 office space design expert, we’re going to go past the philosophical discussion of the future of office space, and jump into a pragmatic approach for executives who suspect they can now get by with less space. We’ll help you answer these questions:

  • How much less?
  • What kind of savings might we realize?
  • When can or should we do it?
  • How do we maintain culture, brand, and staff satisfaction?
  • What steps do we need to take to make it happen?

Remember this is post-Covid19. Don’t confuse social distancing and immediate precautions with eventual we-all-have-the-vaccine future requirements. Many of the large landlords and the brokerage firms that represent them are trying to contend that the reduced demand for space will be offset by distancing. Wrong. One requirement is a short term precaution, the other is long term and permanent.

To understand the process we use a framework known as E.S.C.A.P.E.

E = Evaluate

Since most businesses lease their space, we’ll presume an office lease, although the method is very similar for owned properties. Culture and political issues aside, there are three categories that you must consider to understand what is financially feasible. Start by reviewing:

  1. Lease Contract Obligations
  2. Space and Floor Plan
  3. Anticipated New Requirements

Let’s break it down:

Lease Contract Obligations

  • Term – Short or long term remaining?
  • Rate – Are you at or below market rate?
  • Language – Do you have sublease rights that are not overly restrictive? Any rights to terminate?

If less than 2 years, you’re probably best to either ride it out until expiration or renegotiate early with your existing landlord. If longer, you need an exit strategy. The two year timing is an average and will vary based on size and complexity of infrastructure.

To vacate long term space, the most obvious solution is to sublet all or part of the space. Subleases generally provide less flexibility than direct space with a landlord, so rates need to be discounted accordingly. Hopefully, you have rights to sublease that allow you to price it attractively, market it, and lease to obvious users such as neighboring tenants.

Space and Floor Plan

  • Condition – Is the space “move in ready” for another user?
  • Separability – Could you divide it easily into two or more spaces?
  • Demising Costs – Is dividing as simple as constructing a wall or do you have restroom, electrical, HVAC and fire code issues that need considered?
  • Alternate Users – Do you have any growing neighbors or related-company occupants who can take part or all of the space?

You’re trying to understand construction cost feasibility. A neighbor might simply open up a wall and capture part of your space, and related companies may not require formal demising to share space and could possibly assume the remaining lease.

New Business Requirements

  • Existing Space – Do you anticipate that you could operate out of part of the existing space comfortably?
  • Existing Building – Would relocating within the existing building be a reasonable option?

You likely don’t know yet exactly how much space you’ll ultimately need, and that’s OK. You just need a conceptual understanding to decide if keeping part of the space would be a good solution. If you physically can, it often is, due to minimized disruption. A relocation within the building allows you to renegotiate with your existing landlord, who has the ability to substitute a more suitable space immediately.

There are more than a dozen potential solutions, although six that are most common:

  • Divide and Sublease Excess
  • Sublease/Substitute and Relocate
  • Downsize Blend and Extend
  • Early Termination
  • Early Buyout and Relocate
  • Wait It Out and Relocate

Before you draw any conclusions, you need to make sure that you fully understand the impact that Work From Home will have on your business operations, consider the impact on company culture, and get both input and buy-in from your staff. Read about the next stage on how to Survey Your Staff in our upcoming post. #PostPandemicOffice

Nearly every office worker worldwide has taken part in a forced remote work exercise. Incredibly and perhaps surprisingly, we’ve passed with flying colors and demonstrated our ability to adapt to a non-office environment.

The experiment is not over. We’ve learned some things, but not everything.

We’re finding a significant portion of companies are wrestling with the long term implication of Work From Home (WFH). The challenge is that everyone has an opinion and they are not consistent – most staff love WFH, some hate it, and productivity results vary by department, tenure, and even personality type. Making a blanket policy “Anyone can work from home up to X days/week” will not be the right way to manage it.

For companies, here is the important consideration: Your competition will offer it. Some prospective hires will value WFH over salary. The competition will be able to reduce their operating expenses if they’re using less office space. Your staff may feel micromanaged by being expected to clock in 8-5 M-F when that is no longer the social norm.

Everyone has an opinion. Workers think the solution is whatever their personal preferences may be. Landlords and the global real estate firms that represent them insist that offices will remain vital. The CEO’s of many large companies (Morgan Stanley, Twitter, PayPal, Nielsen, Barclays) are either declaring their obsolescence or questioning the need for the notion of a daily M-F workplace.

Here’s the answer: There is no single answer. Like a custom tailored suit, your firm will need a solution that fits your unique work and culture. The issue is complex.

Over the next few weeks, we are going to interview top executives, real estate industry experts, and cultural thought leaders to understand “Where do we go from here?”

Next up: “The Office is Not Dead. The ROI Has Changed.

Follow me on LinkedIn or email me wb@avocatgroup.com with subject #PostPandemicOffice and we’ll make sure you get notified of new posts on this topic.

There are many hurdles for getting staff back to work.  Here’s our LeasingBetter C19 Workplace Checklist of best practices to help simplify your process.   Feel free to download and/or print it out if you find it useful.

Also be sure to keep checking the CDC Employer Information for Office Buildings for the most recent updates.

It’s only when the tide goes out that you learn who has been swimming naked. – Warren Buffett

As I write this, COVID-19 has about 80,800 confirmed cases worldwide and 1,323 in the US. The operative word there is “confirmed” since by reason there will be many thousands that are unconfirmed and undetected. The virus spreads exponentially so, and I don’t mean to sound like a pessimist, it will eventually arrive like a tsunami.

Perhaps because my entire career has been focused on business continuity, I’d suggest that we personally look at the best case, worst case, and develop a probable case plan with some contingencies.

Best case: The government and public implement containment procedures that slow the spread, the most susceptible are substantially protected with extra care, the warm weather calms the spread as it does with most traditional flu seasons, and perhaps we even develop a vaccine or at least get enough test kits available so that every clinic and drugstore can administer them.

Worst case: The virus spreads like wildfire (think Stephen King’s The Stand) and continually mutates faster than vaccines can be developed becoming increasingly lethal.

Probable case: A combination of the above, hopefully and likely trending to the best case. It will probably come swiftly and mostly go, and life will go on. It will have a horrific death toll and cause all types of economic turmoil. It will be a sad and difficult memory, although hopefully the lessons learned will help future generations (that sounds even to me like I expect to be gone, which I don’t) be better prepared for such events.

One of my favorite clients has been PSS World Medical, who a few years ago became part of McKesson. For a couple of decades they were the largest distributor of medical supplies to doctor’s offices in America, and built their business on their FedEx type motto “Next day delivery of medical supplies”. We’ve completed over 200 leases for them and dozens of moves, many of them quite major consolidations of large distribution facilities.

And like FedEx, they had urgent medical supplies that “absolutely, positively” had to be delivered the next day. Lives could depend on it. And so they were, and the distribution system went on every day, year in and year out, regardless of what issues, holidays, natural disasters, or other obstacles appeared. And whatever disaster happened, and there have been a few, life eventually returned to normal.

To that point, especially given the current situation, medical products need to be delivered today and tomorrow and next week. Health workers, who will be revered like the firefighters after 9/11, will need to put themselves at risk. Those of us who are able need to take whatever precautions we can to slow the transmission. But we won’t quickly stop it.

This event, from a business perspective (and I realize business is not the most critical concern at the moment although it will be after the health issue is mostly contained) will likely also arrive like a financial tsunami for both individuals and any businesses that are highly leveraged and/or without a strong financial cushion. Per Warren Buffett’s quote, we’re going to find out which ones were swimming naked. Many thinly capitalized businesses will default on invoices and rent payments. The spigot of revenue is going to completely shut off at least short term for many, which will become a trickle down problem for everyone that does business with them.

Statistically, I fall in the unfavorable survival category based on age for both my family and our business. And while I and you fully expect to – and hopefully will – survive, we owe it to both our families and our businesses to provide continuity during this tough time and keep everything buttoned up so that life can go on as it did before once this all ends. And it will end. And the world will go on as it did before.

 

Your company signed a lease for office or perhaps warehouse space a few years ago and you’re now somewhere in the middle of the term.  You can relax for a few more years, right? Wrong. Not if you want to make sure that you are staying ahead of the game. Here are three things that you should do right now:

 

  • Know the Market – Where are market terms relative to your current rate and terms?  Find out availability and current rates for both your existing building and competitive alternate spaces.
  • Why this Matters:  You want to be proactive and informed should you need to either expand or contract.  You might discover the opportunity to renegotiate now for either more or less space, or otherwise improve your terms as an early incentive from the Landlord for you to renew.  And you won’t be surprised when lease renewal or relocation time comes along.

 

  • Audit your Current Lease – Are your negotiated Operating Expense exclusions or caps on increases being correctly calculated?  Are you paying the correct proportionate share of expenses? Your lease is likely a complex 40 pages or more and there is not a word there by mistake – it is all there to protect the Landlord.  
  • Why this Matters:  Don’t rely on the Landlord’s bookkeeper to apply your negotiated terms or assure that you are not being overcharged.  Now is also the time to consider how your terms compare to current market terms. 

 

  • Reassess your Requirements – Is your space as efficient as it could be? Know how your neighbors and industry peers compare and are building out their space.  See how strategies like hoteling or coworking layouts might work for you.
  • Why this Matters:  You need to understand how much you might save or better serve your objectives with an ideal layout. Most companies use space differently now that they did 5 years ago.  Attracting workers and leveraging their talents often requires more collaboration, requires less admin, filing, and library area, and replaces drywall with glass partitions to allow more light.  Now is the time to start considering how your space could be better used in the future and start discussing with your staff.

Avoid negative surprises at the end of your lease, or discover that you’ve been incorrectly charged for years when it might be more difficult to correct or collect.

You don’t wait until you are ill to go to the doctor for a checkup (hopefully).  Don’t wait until your lease expiration is upon you to do a Lease Checkup. Stay informed and on top of market terms.

 

 

 

Your company has multiple leases for office or industrial space. You’re represented by a Big 5 Landlord Rep firm, and it’s not working out so well. You’re under pressure to improve it, along with a hundred other things that need improved. So you plan to create an RFP for RE services. I get it. Read more

 

When choosing professional services, there exists an old adage that the largest providers are the safe bets. “Nobody ever got fired for hiring IBM” was the well known saying implying that a large company offered at least the reasonable perception of reduced risk over smaller firms. In regards to technology consulting, those advantages may have been real or simply perceived. When choosing commercial real estate advisors however, often the risk increases significantly as the size of the provider firm increases.

Read more