With slowly downward trending vacancy rates in Melbourne and Sydney and the impending supply drought there is little commercial tenants can do to cure the market however preventative measures can be implemented to minimise the financial impact. Rental levels are increasing and will continue to do so and at the same time leasing incentives are falling. Occupational costs will therefore increase. So what can be done. Here are a few suggestions:-
Planning is probably the most important remedy an organisation can initiate to partially inoculate against future accommodation cost shocks. Many companies fail to undertake proper space planning and budgeting or just leave it to the last moment when insufficient time is available to properly research and review respective accommodation solutions.
Always start the process earlier than later. With supply concerns it is advisable to put your toe in the water early to assess the supply side and obtain an understanding of likely rental levels and incentives.
For larger organisations occupying over 2000 sqm plus the review process should start at least 2-3 years from the lease expiry date or date when required to exercise an option if such exists. Larger contiguous floor plates are becoming more difficult to identify and as such may entail an organisation either looking to secure additional space within their existing building or pre-commit to space in new developments that may not be immediately available.
For smaller businesses of 200 sqm and over at least a 9 months to a year before the lease expiry measures should be taken should taken to test the market to ascertain the amount of available space and cost and thereby assess if securing appropriate premises is going to prove problematic. Should this be the case then there will be sufficient time to explore alternative lower cost solutions.
2) Space Planning and Work practices
Not only is the efficient use of floor space important but also the nature of the work environment which has a direct impact staff satisfaction and productivity. Proper consideration of these factors will produce cultural change and ultimately savings. The appointment of a designer/workplace consultant to review current workplace practices and develop a strategy for future accommodation needs will pay dividends.
Many major organisations are adopting activity based working strategies to make better use of their space. Lawyers and accountants and many others are reducing their staff occupancy ratios by cutting down on the number of private offices and moving to open plan space. For some organisations these practices may not necessarily work and there are also a multitude of pitfalls that that can be encountered in adopting such workplace strategies that need to be properly assessed hence the need for independent objective advice. Shared office services provided by many of the major institutional landlords in their CBD office buildings are proving popular for many companies. Such services will include meeting and conference rooms, auditoriums, function space, teleconferencing facilities. This space can be hired on an as needs basis and as such relieve tenants of the requirement for similar space within their own tenancies on a permanent basis. It will not suit all organisation but for some it will be a very attractive option.
The Greens have recently proposed a four day working week which is an interesting concept but very unlikely to receive universal approval. What we are seeing however are much more flexible working practices including working from home one day a week, job sharing etc which will ultimately affect the quantum of space organisations will be required to lease.
3) Quality and Style
Somewhat related to the above considerations. With rising costs many organisations are looking to de-centralise particularly back of house functions to less expensive premises. The question needs to be asked do I need to be paying premium Collins Street rents and outgoings and could the business make savings by operating certain functions from lower cost premises.
With State grants available some companies are looking to regional centres to house their operations thereby benefitting from capital incentives and substantially lower rental costs.
Rapid advancements in technology in the form of smart phones, collaborative workplace software packages and automation will no doubt have an enormous impact on accommodation requirements. Nowadays most work can be carried out on a tablet or mobile and with the development of hub office space, that can be rented out on hourly rates, and home working the future of the traditional central office in many cases is questionable.
Taking into account all of the above it can be seen quantifiable savings can be achieved by proper and timely consideration of such factors and if your organisation doesn’t your competitors will and thereby gain the competitive edge.