As many tenants know, rents have been rising. The stock market peaked in May (and is threatening a new high again), and according to regular cyclical patterns, it is set to continue rising for another year or two. Continued increases in rental rates can take a HUGE bite out of a business’s bottom line.
Consider the following scenario:
Back in 2008, when you rented your 10,000-square-foot office space, rent was $40 per rentable square foot. Now, instead of paying $400,000 a year, you pay $55 per rentable square foot or $550,000 per annum. That 37.5% increase affects profitability. The impact is exorbitant for many companies.
So what can you do?
1. Take a new look at your office space. Are there design elements compromising its usability? How efficient is your space for your business?
Maybe the building has wide hallways or the window lines that are not uniform, or maybe it’s an old building with large columns that are closely spaced and do not allow for the space to be effectively used. Not all older buildings make sense for today’s uses. If your space is not configured optimally, you could be wasting a ton of money.
2. Consider how you can make the space more efficient. You might not be able to change columns, for example, but what if you reduced all your cubicle sizes from 8x8’s to 5x6’s?
Moreover, many companies are turning to “bench space,” an open-concept office plan wherein people work on a 4x2 foot desk surface, without the “cubicle.” The benefit of such a configuration is increased collaboration and density. The downside is reduced or no privacy and a lot of ambient noise. Of course, this works for some industries better than for others. You must consider your company’s unique needs and goals.
Through better design, you could reduce your office space by 10, 15, or even 20%. So now, maybe that 37.5% rent increase is only 15% or less.
Thinking through space alternatives, and evaluating the shape of the space and the operational impacts on the business, is critical. By working with an experienced commercial real estate broker, space planners and architects, creative solutions can be made that lead to limited impacts in the face of a rising rental market.
If your company is facing big rent increases, let us guide you to a smart solution.
George E. Grace
Mohr Partners, Inc.
232 Madison Avenue
New York, NY 10016