Comparing Office Space to MP3s

Published August 3rd, 2009 by Jennifer LeClaire

The global recession in full swing. Some companies are downsizing employees – and office leases. Others are signing long-term lease deals to secure decade-low rates. Still others are resigned to paying for empty sublet office space until their term expires or business picks up.

Real estate is always a challenge to manage, but when revenues are down it can be a make or break task. Even though rental markets have softened, few know what lies just ahead and perhaps fewer are willing to bet their business on a volatile commercial real estate market.

What surprises John Hampton, vice president of Enterprise Solutions for Regus Americas, is the notion that there are no alternative business models with regard to leasing office space. He’s surprised that companies large and small think being “locked-in” to a conventional, multi-year lease is the only game in town.

“Fortunately, for the thousands of enterprises needing to position themselves for growth on a shrinking budget, several viable options exist for reducing facilities expenses and capital expenditures while alleviating the burden of underutilized office space,” Hampton says.

A Blended Real Estate Strategy
I would agree with Hampton that one of the great lessons learned from a recession is that markets rise and fall unpredictably, driven by forces beyond our control. His mantra is noteworthy: “establish and maintain optimum enterprise agility.” It’s true that companies that can rapidly respond to change – no matter what kind of change that may be – are usually the ones that survive and thrive in an evolving market.

As Hampton sees it, the need for agility has given rise to a number of innovative workplace models that are saving companies 60 to 80 percent on facilities costs while aligning their expenses more closely with business demands. In lieu of long-term lease agreements that can sink the bottom line, he says many corporations are adopting blended real estate strategies that address the requirements of an increasingly mobile and distributed workforce while maximizing productivity, professionalism and service quality.

Hampton points to a global consulting firm that invested heavily in office space, furniture, technology and administrative staff, some of which the organization no longer needs but is paying for anyway. Overhead expenses now limit the company’s ability to invest in business development, creating the classic “Catch 22″ situation.

“Going forward, the organization could choose a more cost-effective option: transitioning to a flexible network of workplaces with onsite administrative and technical support and paying only for the space it uses for as long as business dictates,” Hampton says. “With more flexible agreements, the company will be able to scale up or down on short notice, while conserving capital for critical operations.”

A Workplace Passport
Hampton asks us to imagine having a workplace ‘passport’ that provides on-demand access to office facilities around the world. Each location would offer a state-of-the-art, Fortune 500 corporate setting complete with existing infrastructure for Internet, telephony and video communications. (That passport just so happens to resemble Regus’ businessworld memberships.)

A recent study from SupportIndustry.com indicates that, in addition to supporting a central office, two thirds of IT departments are also supporting remote and mobile workers across a range of environments – satellite offices, home offices and customer site. As Hampton sees it, a technology connection is only the first step in supporting these workers, however. Many employees still require, at least some of the time, a physical point of presence to collaborate with colleagues on projects or to meet with clients.

“What if, instead of establishing additional offices, a company could provide remote and mobile workers with the same resources of a centralized corporate campus, without expensive capital expenditures and overhead such as IT and telecommunications equipment?” Hampton asks. “By enabling businesses to have a physical presence just about anywhere business gets done, this network of professional workplaces makes gaining a competitive advantage more affordable.”

A Paradigm Shift
I also like Hampton’s music analogy. He truthfully points that that it wasn’t too long ago that we had to drive to the store to purchase a CD if we liked a song. That CD had many songs, some of which probably weren’t our favorites. Buying 15 songs just to get two or three you like is a waste of money. Today, we can buy MP3s for about $1. We pay for what we want and we get it instantly. Hampton says we need to move in the same direction with commercial real estate.

“Even the largest multinational corporations are undergoing a paradigm shift with regard to where and how their employees work. By utilizing a network of business-ready offices available at flexible terms, corporations are putting people on the ground whenever, wherever and for however long it is profitable to do so, while cutting down on wasted office space and eliminating up-front capital expenditures,” Hampton says. “With a variety of workplace models at their disposal, they are using real estate as a flexible tool that supports their needs in any economy – and some are realizing multi-million dollar savings.”

Traditional offices, like CDs, represent conventional wisdom. But without thinking outside the box, we’d still be listening to phonograph records, eight-track tapes and cassettes instead of high-quality digital music on demand. Is it time for a paradigm shift in office space usage? Hampton thinks so. What do you think?

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