Office space as a strategic asset

April 2008 » Feature Articles
A real estate plan that is integrated into long-term strategic initiatives supports growth, maximizes efficiencies, and strengthens employee morale, becoming an asset that contributes to growth.
Sam Horowitz
An engineering firm’s facility is more than just space housing a collection of desks, phones, and computers. It’s a home away from home for employees, the public face of a company, and most importantly, a medium for service delivery. Many engineering firms view real estate in general as only one of their largest fixed costs. In fact, facilities are the framework upon which engineering firms construct their culture and set operational standards of practice. A real estate plan that is integrated into long-term strategic initiatives supports growth, maximizes efficiencies, and strengthens employee morale, becoming an asset that contributes to growth.

Engineering firms create comprehensive, long-term plans covering every facet of their operations. Plans detail strategies for expanding service delivery, growing staff, and enhancing information technology (IT) resources. Meanwhile, real estate gets scant, if any, attention. Increasing the services provided to current clients and winning work from new sources are how engineering firms grow. A well-designed real estate strategy provides support by creating an environment conducive to growth at the most efficient cost possible.

Real estate has two characteristics that further support including facility management in a firm’s long-term planning. First, transactions can have long lead times, at least several months. Sufficient planning provides the opportunity to find the best space at the least cost. Second, real estate transactions—leases—are long-term obligations. A bad real estate decision will leave a firm either stuck with an inadequate facility for five or more years or paying significant penalties to get out.

Traditionally, facility decisions are driven by immediate local requirements such as increased staff, planned installation of new IT equipment, new projects, and most significantly, expiring leases. Lack of time and preparation, combined with the real estate characteristics described above, can, and often do, create unnecessary expense and operational disruptions that require a quick, costly fix.

Avoiding the trap of the traditional real estate selection and management process requires incorporating real estate into corporate objectives. As with any business function that supports revenue, making real estate an asset requires planning and coordination. A well-designed real estate strategy improves the client experience and enhances business development efforts by facilitating internal communication and marketing efforts.

To maximize profitability, all costs must be considered and approached with a critical eye toward improving efficiencies. Real estate is typically the second largest fixed expense after payroll and a necessary component of operations. Real estate acquisition and disposition timelines are limited in flexibility; proper planning will avoid waste and maximize efficiencies over the long term. Understanding firm facility demands ensures real estate is responsive to the bottom line.

Benefits of the right space
As a firm grows, its workload increases and headcount expands, requiring facility expansion to meet these demands. Whether ownership or leasing is the preferred philosophy, it is easier to identify space that satisfies operational requirements well ahead of the actual need. Projecting requirements and beginning the search and acquisition process in advance puts space occupants in control when seeking larger central offices and new satellite locations.

Meeting headcount goals and operational requirements requires lead times of six months or longer. Expansion plans should consider how to meet demands for expanding within existing facilities and opening new locations. Client responsiveness, internal communication, and employee morale are all bolstered when a seamless transition to a new facility is executed. Proper preparation allows details such as layout and construction, IT infrastructure, and furniture to be addressed in advance of operational demands.

A well-designed facility enhances a culture of communication and teamwork that improves client responsiveness and collaboration. Employees who effectively use firm resources improve the client experience and maximize business development efforts. Putting employees in a position to use these tools will further leverage real estate as a competitive advantage.

Firms can provide opportunities for collaboration and create a team-oriented environment by placing employees in position to effectively interact and efficiently respond to client demands. The organizational chart can be used as a roadmap to define lines of communication and create ideal workflow, while encouraging cross-function dialogue. Properly designed space also helps define the chain of command and allows leadership oversight; supervisors can track team activity and ensure focus on high-priority projects.

Within an office or across a portfolio, a facility is the public face of an organization. Since both clients and employees have powerful reactions to the type and condition of a facility, it should send appropriate messages of competence and success. Selecting and designing a facility that broadcasts the desired marketing message can further support branding efforts. Standard space layouts, similar building types, and typical design specifications further enhance this brand and image throughout the firm.

Maximizing flexibility
Developing the most flexible and functional workspace strategy requires understanding the demands of individual projects and overall workload. Acquisition and disposition strategies that match operational needs can ensure that just enough space is acquired to deliver client services and only for the proper length of time. Facility costs are always a large component of overhead, but carrying surplus real estate is unnecessary and avoidable with appropriate planning.

Leases don’t have to revolve around five-year terms; expirations for project offices can match project conclusions. Including flexible expansion and cancellation rights as part of lease negotiations will help ensure commitments don’t extend beyond operational needs.

Improving efficiency metrics
Forecasting future space needs and the associated financial obligation is simplified through creation of standard metrics designed to anticipate further growth. Standardizing space utilization and space density targets will avoid costly stop-gap solutions that depend on requests from business unit leaders.

By setting employee-per-square-foot guidelines, firms can keep real estate accountable while accommodating growth. Regularly tracking these metrics ensures that space is not acquired unnecessarily and that the real estate footprint matches the headcount.

Leveraging economies of scale
When considering a multiple-office portfolio, a firm can exploit opportunistic pricing by consolidating vendors that deliver everything from technology infrastructure to furniture. Portfolio-wide agreements for office furnishings, telecommunications, supplies, and even presentation collateral can further reduce overhead while enhancing branding and marketing efforts. Leveraging negotiations through bundled pricing will also assist with integrating a standard technology platform across the firm, regardless of location.

Contrary to current business trends which encourage flexible and decentralized decision processes, a firm is best served by having real estate decisions directed from a central point. A comprehensive real estate strategy executed from a single point of responsibility allows a firm to focus its resources on core competencies. With appropriate planning and execution, a facility should be a strategic asset that contributes to growth.

Sam Horowitz is an associate vice president and transaction advisor in UGL Equis’ New Jersey office. UGL Equis Corporation is a global real estate firm that focuses exclusively on business space occupiers. He can be contacted at sam.horowitz@ugl-equis.com.

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