The role of knowledge in the lease process.
Real Estate in an Organization in the COVID-19 Era – 5 Ways how Corporate Real Estate Can Increase an Organization’s EBITDA.
Tenant, educate yourself!
Do you rent an office, commercial premises? Do you have a branch network? Offices scattered throughout the country or one headquarters of the company? What is happening to them today? They are probably mostly empty and your customers are rare visitors to your retail outlets. To make matters worse, the duration of the lease contracts is a few more years without the option of early termination.
The commercial property rental market, like many other sectors of the economy, has slowed down significantly as a result of the COVID-19 pandemic. Organizations, after the initial control of the crisis situation in March / April this year, implementing business continuity plans remotely and focusing on re-learning to manage people working in highly dispersed teams, who often shared their desk with a partner and children in remote education school, began looking for ways to optimize their costs, getting ready for unknown turns of achieving their goals for the next months of the pandemic.
Adapt or Die
The situation has created enormous pressure on changes in organizations, searching for and accelerating technological solutions, digitizing processes and technologies, searching for new development opportunities, analyzing potential revenues from new sources and looking for cost savings. The way of looking at business had to change 180 degrees.
According to the latest forecasts of the World Bank, the Polish economy, after more than three decades, will have to face a recession of -3.9% for the first time. What can and should an organization do in the strategic area of facility management, which is the largest item in companies’ expenses after human costs?
How to look at the costs of real estate, both rent and daily maintenance of office space, parking lots or utility costs?
Can they become a part of the main strategy of the organization in terms of company development, attractiveness of its work environment, creating unique, personalized experiences for its employees, and finally a tool increasing the attractiveness of the organization as an employer?
They can and even should.
Changes, changes, changes
Let’s hope that the virus will soon become a history of epidemiology, but our lives will definitely change a lot. The situation that we observe today in the commercial real estate market means changes for all companies that rent office, retail or warehouse space today. Not only does the way we use real estate change, how much we pay for it and under what conditions, what are the provisions of the lease agreements and how long we decide to lease, but also what will happen to office or commercial space in the future, how modern will look like office and what function it will perform.
The area of support services in an organization is often seen only as a considerable expense and is the first on the cut list. Often there is a lack of transparency of costs related to them, they are dispersed in various departments of the organization, as well as the management of individual services, constituting a necessary but not a strategic administrative addition to the company’s core activity.
In small and medium-sized companies or branches of international companies, these functions are in the area of HR, finance or purchasing, and often there are no separate teams to manage them. Meanwhile, the largest element of these services, i.e. lease contracts or management of the organisation’s own properties, is the second or third cost item in the budget of each organization and constitute between 5 and 40% of its total costs, most of which concern the costs of current maintenance (80%) and only 20% investment.
So what is worth doing today when planning the budget for next year, facing economic uncertainty and wondering what to do with the current lease agreement for an office that has been practically empty for months?
Here are the top 5 strategies for the coming year in my opinion:
It is said that “cash is king and data is its twin” – without detailed data analytics, not only will we not have current knowledge about our activities, but most of all we will not be aware of how to. in the short and long term, manage costs related to a given service.
In the case of real estate, it is particularly important taking into account long-term fixed-term obligations. If we do not know exactly how much a given contract costs us, we do not know whether this cost is on the market, we cannot compare it to similar locations. Maybe the contract specifies the possibility of changing the size of the space or maybe it includes an automatic extension for another period if we do not resign at the right moment.
It is best to use technological solutions and implement appropriate software that will help us organize this information, categorize, prepare selected reports on an ongoing basis and receive information about upcoming important dates.
Keyword – what kind of real estate should we choose? Where should it be located? How big is the building and for what period should we rent? Finally – for how much and under what conditions, taking into account the increase in these costs over time, while analyzing our core business activity and its development over the same period.
After all – how many employees will the organization have in 3-5 years? How will people work in it? What space will they need to do their job most efficiently? How many of them will work remotely and how often? What spaces should the office have and how is it to ensure security?
Only after answering these questions, you can make decisions today about what to do with the existing contracts – changes will only be possible in a few months or maybe in a year or more. Will then our decisions still meet the needs of the organization? You need to take this into account and keep track of the impact of your company’s strategy on real estate needs in order to be as flexible as possible and make changes.
And these changes won’t happen overnight either. Therefore, let’s look for solutions that give the most possibilities of adaptation, both in terms of size, location or arrangement of space, and in relation to the provisions of our contracts.
Today, landlords have to meet the greater expectations of tenants, what is more, they must look for the possibility of flexible adaptation of buildings and spaces, use of possible technological solutions that will make their offer more attractive and allow them to keep customers. This is a good time to negotiate!
- LEASE OR WAIT? – NEGOTIATE
Today, negotiations are definitely the best solution provided that we have met the first two conditions described above – we know what we want and on what terms. Negotiations of most elements of the lease agreement, starting with the size of the space, the availability of flexible spaces in the location, rent and maintenance costs, options for changes in relation to the length of the lease period and the size of the space leased, as well as the right to sublet and their assignment or possible rent reductions (and can be considered either directly as periods of reduced rent or as coverage of redevelopment costs, for example) – they can bring significant benefits to the tenant.
Today, there is more than 100,000 m2 in regional markets and in Warsaw alone, twice as much office space for sublease. In the Q1-Q3 period this year, over 200,000 m2 of new office space was delivered to the Warsaw market alone.
Within a few months, the situation of supply and demand has changed and today everyone can and should negotiate their contract,
- TECHNOLOGY AND DIGITAL TRANSFORMATION
Today, in the face of many months of remote work, the need to ensure the necessary security measures and the fight for tenants will become even more fierce. Who will have the advantage in this race? Who will make every effort to introduce innovations and changes as soon as possible that will improve the functioning of the entire building. In every area – from automation and control of the functioning of the building (which affects the comfort or discomfort of each user) to the awareness of the operation of your property management or maintenance department and effective cost management by it.
Today and tomorrow we will choose buildings that are SMART and WELL. Those in which we will have an impact on whether we cool or heat the entire floor or only selected zones. Those that will adapt to the changing expectations of the tenant and the variable use of space. Buildings will be filled with sensors measuring everything, as long as someone wisely manages this data and, above all, analyzes it at all.
The data itself is just the beginning. The era of platforms that will help select and automate simple, repeatable and mass processes is beginning, helping organizations to move to the next level of digital transformation by remotely managing electronically signed documents stored in the cloud. Building applications that create mini local communities or, on the contrary, help a dispersed organization to connect employees from different countries, giving them a sense of community, the possibility of sharing, networking or sharing their own work experience at different levels and in different sometimes very remote locations, supporting each other in the process of ad hoc coaching and mentoring or through a structured process.
- EMPLOY THE PROFESSIONAL
Everything is nice, but who has time for it? Today, trying to find time for a coffee between the two zooms, we try to address the most urgent needs and projects related mostly to crisis management and the specificity of the year 2020, in which all intricately planned budgets and projects already in Q2 had to be quickly updated.
And here it takes a lot of work from scratch so that you can only think about strategic management, not to mention its implementation and the time needed for it, even assuming that we can agree on strategic requirements and we will not have to focus only on urgent savings by reducing costs.
Maybe this is the moment to ask a specialist for help, if only because he will devote all his time to a given project without being distracted by the current activity?
Seweryna Afanasjew, MRICS, PRFM,
CEE Real Estate & Facilities Head Liberty Global;
RICS World Europe Regional Board Member
Nr kontaktowy: 695 251 157
Last Updated on December 15, 2020 by Karolina Ampulska