Corporate real estate managers juggle diverse responsibilities. In many companies, they are the designer and caretaker of the overall real estate strategy. That means implementing the company’s vision toward real estate as an essential service and sometimes as a profit center. Whether the manager serves a corporation with a sizable footprint of office sites or one that develops and leases office space, the primary goals are similar:
- Meet the company’s physical space needs.
- Cost-effectively provide space.
- Oversee a strategy that attracts current and potential workers to the office.
- Maintain environments that are safe, healthy, and resilient.
- Enhance sustainability.
Achieving these goals in a volatile environment
Meeting the company’s physical space needs is a more complex objective than in the past. For many companies, office space requirements were pretty standard based on the number and type of employees, desired amenities, and budget. One dividing line is between companies with owned real estate assets and those with leased space.
Even determining how much square footage is needed can be challenging today. Many companies no longer need to provide designated workspaces for every employee. Some use open seating protocols that allow employees to adapt any available seat, either on a first-come, first-served basis or through reservations. Many still use a combination of private offices and open cubicles, perhaps augmented by collaborative and casual use areas.
Interestingly, even as many companies push employees to spend more time in the office, most are also downsizing their physical footprint. According to workplace strategy company Robin, 80% of surveyed companies have downsized since the pandemic, and many plan to reduce their space even further. Realtor Knight Frank similarly reported that half of the largest companies globally plan to cut an average of 10-20 percent of their office space by 2026. The same Knight Frank report noted that companies with fewer than 10,000 employees are more likely to increase their space.
The record levels of office vacancies across the US support this trend. In Q3 2023, office vacancies across the US reached a record vacancy of 19.6 percent. Some cities have even higher vacancy rates. Those numbers refer to leased space, with some occupied offices also demonstrating low overall usage.
All of these variables contribute to the challenge of ensuring that the company has adequate physical space to meet its needs, but not more than necessary. A manager assessing current and future space requirements must first understand how current space is being used.
One great way to gather robust, actionable data regarding occupancy and more is by deploying sensors that can provide a wide range of data for consideration. For example, AVUITY sensors can collect and analyze comprehensive information about occupancy and usage for real estate managers. The available data includes total occupancy, usage peaks, underutilized space information, and environmental concerns such as temperature and humidity.
Cost-effectively providing space is linked to the first objective but requires additional focus. While office vacancies are up, prices for quality space have not significantly declined. Across the US, the average listing rate in 2023 was $37.64 per square foot, down just 1.4% from 2022. Some expensive markets have seen a larger drop, including San Francisco, where the average asking rent dropped nearly eight percent but remains at an elevated $61.91 per square foot.
Adding to the volatility is the increase in office buildings being removed from the market or converted into other uses, primarily housing. Despite logistic challenges, office-to-residential conversions have increased by 357% since 2021. Office buildings are facing continued declines in demand, while many also have mortgage loans coming due within the next two years.
These financial considerations increase the difficulty for a corporate real estate manager seeking to calculate the most favorable lease terms while the market is going through so much turmoil. If a company is considering downsizing its space, the manager must determine the most effective means of doing so. Yet, the outcome remains uncertain for millions of square feet currently leased but unoccupied. Stijn Van Nieuwerburgh, a real estate professor at Columbia Business School, predicts that the downward pressure on pricing from hybrid work and other related variables is just beginning. Many corporate real estate managers and their companies are delaying decisions until it is time to renew.
Facing emerging challenges
While corporate real estate managers have always wanted to create appealing office spaces, the need to actively attract workers to come to the office is a new requirement for many. With many companies wrestling with their employees regarding work location, the real estate department and facility team are tasked with enhancing the office environment as an incentive.
Real estate design can contribute significantly to the office’s appeal, including layout, amenities, and more. Managers can use data from sensors to enhance their understanding of employee usage preferences and, from there, can recommend and implement changes that optimize the office’s comfort level and attractiveness.
For example, suppose the company needs less individual seating like workstations and cubicles. In that case, it may transform some space into additional conference rooms, using data to determine the size, location, and number of these rooms. Another option is to create welcoming, collaborative, and casual areas for informal huddles and individual flexibility.
Maintaining work environments that are safe, healthy, and resilient is not a new goal. Still, it has attracted higher visibility as the world continues to adapt to the COVID-19 pandemic and the associated employee concerns.
Building managers and corporate real estate leaders must ensure a safe and healthy environment for their employees. In the early years of the 21st century, many companies enhanced security, eliminating open access to buildings and implementing measures to restrict entry. These efforts increased physical safety. New office protocols can also protect occupants’ health through distancing, increased cleaning, and upgrades to air circulation, purifying, and monitoring.
Sensor technology can also help you with these objectives. For example, AVUITY’s advanced sensors will report the number of occupants in a particular area and capture the current lighting, temperature, and humidity levels. The system can also interact directly with the building systems to make real-time changes to ensure comfort.
Interactions with building systems to alter temperature and other ambient factors also support the sustainability goals for real estate managers. Environment-friendly buildings help to reduce a company’s carbon footprint and advance its position as an excellent corporate citizen. US commercial buildings consume almost 20% of the energy used nationwide. The main uses are lighting, plumbing, heating, and technology.
Many organizations are working to reduce their environmental impact by enhancing the sustainability of their workplaces. Buildings that meet the Gold standard for LEED (Leadership in Energy and Environmental Design) use nearly 25% less energy and over 10 percent less water than non-LEED-certified buildings. These buildings are healthier and cost less to operate.
Sensors can help meet sustainability goals by reducing lighting, heating, or cooling when a space is unoccupied and notifying other systems when greater or lesser input is needed.
Recognizing the importance of effective real estate management
Every company wants to succeed and also wants its workers to prosper. Fair pay, reasonable working conditions, and a healthy, convenient office location are all part of the employers’ bargain with their employees. The influence of corporate real estate decisions on this overall collaborative effort is notable. Real estate decisions reflect the corporate goals and support their achievements. If you would like to learn how to make more data driven decisions about your CRE, contact AVUITY today.
