How to Prepare Your Corporate Real Estate Portfolio for an Office Downsize
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Is your CFO is in the same boat as the 72% surveyed by Gartner last year planning an office downsize? If so, you’ve likely been tasked with preparing the CRE portfolio for the big chop.
You’re not alone – giants like Meta, Block and Wells Fargo have already cut or are planning to cut their office footprints as revenue growth slows and hybrid work takes over.
Whether it’s by cancelling leases, letting them expire or selling off assets, an office downsize is a go-to during recessionary periods.
And in many cases, it seems like a no-brainer. Office space utilization rates are at 50% of what they were pre-pandemic, and the majority of employees prefer hybrid working.
But trimming the fluff and the fat from your corporate real estate portfolio doesn’t come without a slew of potentially negative consequences.
Downsizing too drastically could mean costly office acquisitions in the future, while not downsizing quickly enough could leave the entire portfolio hemorrhaging costs as the weeks, months and years go on.
To successfully prepare for an office downsize, CRE leaders have to balance past, present and future occupancy rates with leadership’s vision for the future of work, and cost-cutting quests with company culture and employee experience.
It seems like no easy feat. But successfully preparing for an office downsize without sacrificing the future is possible by taking these steps.
Measure space utilization rates to identify prime targets for downsizing.
Identifying which office spaces stay and which go falls squarely on the shoulders of CRE leaders.
Whether you have a downsizing target or not, looking at space utilization rates for every building, floor and zone is one of the fastest ways to pinpoint which spaces get the chop – without unintentionally chopping employee experience and productivity.
Whether you go the occupancy sensor or sensorless route, space utilization measures how employees are using the workplace, not just if they’re using it. It’s important to look at two types of space utilization analytics: space utilization patterns and space utilization trends.
Space utilization patterns provide a clear picture of when employees come into the workplace and which areas of the office are most densely occupied on a weekly basis.
Low utilization rates on specific floors on specific days could be a signal to drop those floors and consolidate workspaces. Spaces with consistently high utilization rates are likely the ones to avoid cutting – employees are occupying those spaces for a reason.
Space utilization trends are longer-term increases, decreases or plateaus in occupancy rates. This is your return-to-office (RTO) velocity. Trends give you the full picture and indicate whether occupancy has reached a state of predictable equilibrium.
A building with historically low utilization rates that’s been seeing a consistently steady increase for the last six months could be an asset to hold onto for now. Floors with rock bottom rates that haven’t changed in months could be targets in the next round of downsizing.
Utilization patterns and trends also tell you what functionalities employees need from the office.
For example, high occupancy of meeting rooms and lounges are a signal that people are in search of collaboration in the office. This could mean letting go of spaces dedicated to individual work across the entire corporate real estate portfolio. Overlaying floor plans with these patterns and trends can tell you what types of workspaces you can cut without impacting productivity.
Read more: Measure these 7 corporate real estate metrics to future-proof your portfolio
Tap into leadership’s vision for the future of work to align office downsizing with the organization’s trajectory
Here’s where office downsizing can reach a fork in the road, with the rest of the organization moving in the other direction. Ambitious office downsizing targets and a CEO deadset on getting everyone back in the office five days a week do not a happy workplace make.
Leadership’s opinion on the right mix of in-office, hybrid and fully remote work shouldn’t be the only determining factor in a workplace strategy, but the influence it exerts is undeniable.
Across many organizations, productivity paranoia steers the vision for how and where employees should work.
A September 2022 work trends report by Microsoft found that 85% of leaders struggle to have full confidence that their teams are productive following the shift to hybrid work. 87% of employees in the same survey consider themselves productive.
If this sentiment rings true for your leadership team, an office downsize may cause your employer brand to lose credibility. A more productive course of action would be to introspect and create a workplace strategy before making any sudden moves.
Whatever leadership’s vision, corporate real estate portfolio decisions and office downsizes can’t be made in a vacuum.
The workplace is where vision becomes reality, so unless the vision and plan are aligned from the get-go, execution will fall short.
Read more: How to Create a Hybrid Workplace Strategy
Understand employee work habits and preferences to avoid sacrificing workplace experience
Finding out which buildings, floors and zones employees like using the least is a purposeful way to decide where to downsize.
Positives and negatives of office spaces can be divided into three main categories: location, functionality and overall appeal.
Location is a significant determining factor in how employees use office space. Lengthy commutes are a huge deterrent from coming into the office, especially if employees have moved further away from large city centres during the pandemic. Multiple smaller offices in more accessible locations instead of large city-center skyscrapers could be preferable to your employees, but the only way to find out is to ask.
Functionality of office spaces determines the role of the workplace. Most people typically see the office as a space to brainstorm, connect and build relationships with colleagues. That means offices mostly dedicated to individual desk space could be a downsizing target. Overlaying floor plans with utilization rates is a good way to measure this preference, as you can visualize which functionalities are most popular and which ones don’t see much action.
Overall appeal of office spaces determines whether people like coming in and if they’ll want to keep coming back. If employees are going to brave a commute that’s any longer than the one from the bed to the living room, they expect the office to be top quality.
This could come down to aesthetics and comfort, like choice of office furniture and design, or sustainability and carbon footprint. The latter could make older offices – which could be costlier to maintain especially with new energy efficiency regulations coming into play – a logical target for downsizing.
Space utilization measures how employees behave in the office, which indicates their work habits and preferences. Getting feedback from employees directly can provide the “why” behind these habits and preferences, whether it’s through focus groups, speaking to departmental heads or through well-crafted surveys.
Read more: 23 Questions to Ask in Your Next Employee Workplace Survey
Look at predicted office utilization rates to future-proof your office downsize.
Office downsize decisions that end up being the wrong ones months and years down the line can have a profound impact on employee experience, real estate and operating costs.
That’s why the future impact of cutting office space is a crucial criteria – and the best way to address it is by looking at predicted space utilization rate.
Predicted space utilization rate is the expected occupancy of office spaces based on past and present patterns and trends.
When used as a data source for an office downsize preparation, this metric forecasts whether occupancy will increase, decrease or stay the same in the spaces you may or may not chop from your portfolio.
Forecasting occupancy prevents cutting office space that would have actually been valuable in the future, or not cutting space that won’t deliver ROI. Both of these scenarios result in costly decisions and lost revenue down the line: exactly what an office downsize is intended to avoid in the first place.
Market and industry positions will always be unpredictable, which is why it’s important to budget for slightly more space than what the data predicts.
5 Space Utilization Metrics for a Better Workplace in 2024
Hubstar helps CRE leaders make the right real estate portfolio decision
Hubstar’s space utilization software helps CRE teams make data-driven decisions by measuring how employees are using the workspace, helping you understand what’s actually happening.
