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How to Make Data-Informed Leasing Decisions
Sep 1 2021
When it comes to corporate real estate there are many instances in which data is collected and used to make informed decisions. For example, the valuations and forecasting phases of CRE management rely heavily on the compiling and analysis of valuable data. However, there is one primary aspect of real estate management that often overlooks the use of data for one reason or another— leasing decisions.
Making informed decisions has always been a necessary factor of effectively managing assets. In 2021, offices saw a 2.8X decline in office utilization, making data-informed decisions even more important. Even more interestingly, the use of collaborative space use grew by 25% during this time. Office behavior is changing, and workplaces will, too.
In recent years there has been an increase in organizations using relevant property-related data and user data to help them make as informed leasing decisions as possible. More than three-fifths of property service providers have acknowledged that they regularly capture Internet of Things (IoT) data on their properties through a variety of sensors, with 49% saying that they share this data with their corporate tenants.
Let’s take a closer look at what it takes to begin making data-informed leasing decisions about your company’s assets in 2021.
The 5 Types of Office Spaces
If you’re looking to grow your career in corporate real estate, one of the most important tasks you’ll be responsible for is making strategic decisions about the types of properties your organization should invest in. Let’s take a look at the 5 primary types of office spaces.
Owned Office Spaces
Owned office spaces are known as the most strategic buy for those looking to diversify their assets. However, because owning an office space is more permanent than leasing and subleasing, this process is also the most involved.
The data-informed decisions you make about the assets you own will require capital budgeting and investment appraisal in order to determine the most accurate price value of the space.
Owned office spaces are best equipped at acting as the home base for large workforces and will require you to have a heavy input into the bespoke design and space mix needs of the property, tailoring them to your employee population.
Leased Office Spaces
When you decide to lease an office space you are typically met with a decision to make right from the start. Do you want a long term leasing deal or a more flexible short term deal?
Typically, for those with their sights set on ultimately constructing a larger owned space, leasing office space for anywhere between 5-7 years is standard. Leased spaces provide more opportunities for cohesive design than coworking or flexible spaces, without the pressure of owning the space outright.
Subleased Office Spaces
Just below leased office spaces are those that are subleased. Think of subleasing as providing you with that coveted landmark feel for a fraction of the price. Because subleasing is the act of acquiring a cheaper space within an existing corporation, these office spaces are best suited to house a smaller number of employees or those in shared industries.
For those organizations with small workforces looking for a shorter lease term, consider subleasing as a more long term alternative to a coworking space. However, due to the nature of subleasing, it’s important to note that the only downside is that you may not have design input into your physical office space.
For those organizations looking to construct a central hub for their employees— whether they are on-site, hybrid, remote, or they practice activity based working— coworking spaces are a flexible, scalable option. These office spaces are particularly suited for those organizations who have no heavy architectural, design, or branding needs.
Flexible Office Spaces
For organizations with a heavy remote population of workers or for those with a majority of distributed teams, the flexibility offered by these spaces provides a blank canvas for a variety of uses, depending on the employee needs. These may vary by location, department, or available space
How to Make Data-Informed Leasing Decisions
With the types of office spaces top of mind, it’s time to bring in the element of data. During this process, it’s important to stay organized.
Using a comprehensive workplace analytics platform like VergeSense will not only provide you with the insights and data you need to make informed decisions, but will allow you to keep all of those same insights in one central location for ease of use. Armed with an intuitive workplace analytics platform, you’re ready to begin making data-informed leasing decisions.
Step One: Align timelines against lease renewals in chronological order.
Before you can begin applying your gathered data to your decision making process, gain a holistic view of the restraints of your assets. When making any leasing decisions, timing is everything. Depending on when you break a lease, it can be the difference between a few hundred dollars and a few thousand.
Therefore, you’ll want to start this process by accurately compiling all of the timelines of your assets against their lease renewals. By ordering them chronologically you’ll be able to easily view your lease requirements, and then make a more informed decision about if/when to break which leases.
Step Two: Identify costs and square footage across your entire portfolio.
Another component of developing a bigger picture understanding of your portfolio is to identify all of your property costs and the total square footage of your combined assets. Compile all of your lease agreements (and use your mortgages as an indicator for owned assets) in order to accurately identify the cost of your portfolio.
Then, check your lease agreements and mortgages to identify the total square footage of each of your assets, and the total of your portfolio. Once you’ve arrived at a total cost and square footage you can proceed with the knowledge that you have an accurate understanding of your portfolio.
Step Three: Identify opportunities for portfolio consolidation.
Now that you’ve compiled your portfolio, do any opportunities for consolidation jump out at you? These consolidation opportunities may be disguised as high cost regions that are currently underutilized or even low cost properties that are nearing the end of their lease agreements. Look closely and opportunities will begin to present themselves to you.
To help this process, ask yourself questions about your portfolio such as:
- What are the most utilized properties?
- Which properties are the most under utilized?
- In a pinch, which properties would be the easiest to shed? The most difficult?
- Are there any assets that you are adamant about keeping or that would feel wrong to sell?
- Have you been looking for an opportunity to shed any of your properties?
- Are there any assets that jump out at you as being a wrong fit for your portfolio?
Rich Bettina, senior director of the real estate portfolio for Fresnius Medical Care, takes a holistic, 360 approach to portfolio management.
“I always believe that it is important to understand where a company is trying to go, what it wants to do, and where you’re trying to go. Oftentimes, people are trying to push their own agendas instead of understanding and assessing what’s really going on. [Without data], we might have been way over market in our pricing and we might have a location with only half-utilization a mile away.”
Step Four: Survey properties around the area to see if leasing rates are cheaper.
Once you’ve identified the assets you’ll be focusing your consolidation on, you’ll have designated regions in which to begin surveying. Start with a general overview of the cities or even states where you’ll focus your efforts, before narrowing your property searches down even further.
During this process, keep in mind where your employees are located so as to target those areas for expansion. If you are looking for cheaper leasing rates in a city center, consider the location of central transit hubs in order to assist in the commutes of your on-site employees.
Step Five: Understand tax implications of office locations.
This step is composed of two parts: the company and the employees who will be using the office space. No leasing decision is as informed as possible without the consideration of relevant tax implications.
Consider rates for local property taxes, both annual taxes and those incurred during a sale. There are ways to deduct real estate taxes as a business expense which should be evaluated prior to a purchasing decision.
Step Six: Get a breakdown of total utility charges.
With a variety of utilities (electricity, water, heat, etc.) to be calculated at each location and the added modification of calculating how utilities are charged when only leasing a portion of the building, understanding the complete breakdown of utility charges can be a headache.
However, it’s a necessary component of making data-informed decisions due to the role it plays in the complete costs of your assets. For example, once you calculate the utility charges of a location you can weigh the costs against the space utilization for that property in order to determine total cost efficiency.
Step Seven: Understand utilization trends across all properties.
Speaking of calculating space utilization— the final piece of information you need in order to make informed leasing decisions is your utilization trends. These trends will not only show you which properties are being utilized the most and the least, but they will also show you exactly how the space within each of your properties is actually being used.
Employee behavior is capable of providing you with endlessly valuable intel. When you use deep-learning sensors like the VergeSense occupancy sensors you can gain a hyper-accurate understanding of how your properties are utilized. Then, you can analyze these utilization trends in order to make your leasing decisions.
Before you can make data-informed leasing decisions you first need to acquire all of the necessary data. We here at VergeSense are ready to help you do just that with our intuitive, comprehensive workplace analytics platform. When you use our platform, you won’t have to guess how your assets are being utilized. Instead, you’ll know for certain thanks to the power of our sensors that produce real-time data for all of your leasing decision needs.
Right-sizing your corporate real estate portfolio can be a complicated process if you’re unprepared. To get started, here’s a beginner’s guide to right-sizing.
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