July 16, 2020
For some employees, working from home is a personally liberating experience that contributes to greater productivity. For others, not so much. By now, if you have had a significant number of employees doing their jobs from home, you may have enough experience to assess whether remote working arrangements are a net plus for your business. Or maybe the jury is still out, but you’re leaning in that direction.
If enough of your employees will work from home even when the pandemic doesn’t make it a necessity, have you considered giving up some of your pricey office space? Doing so could lower your rent expense and utility bills. Of course, this isn’t a change you can make overnight.
What Others Are Doing
A recent survey by consulting company Mercer reveals the following findings on remote working arrangements.
- 93% had provided “more flexible work options to align to the new way of working” during the pandemic. Of those, only 9% had at least 25% of their employees working remotely.
- 58% said that once regulations are lifted, they expect at least 25% of their employees to work remotely.
- When asked to predict future post-pandemic work-from-home policies, 52% expect they’ll change to “allow for more flexibility to work both on-site and remotely.”
David Ely, a professor at San Diego State University, told a local newspaper that he expects, “Most of the tools and skills mastered during this period of social distancing will continue to be used after the COVID-19 crisis ends.”
Gary London, a prominent real estate consultant, has predicted that pandemic-fueled “emerging business models” will impact office space requirements. He also predicts that shifts to more flexible work arrangements will be permanent and lead to enhanced profitability — except for investors in commercial real estate in hard-hit areas.
Factors to Consider
Before pursuing this strategy, you must first estimate how big the opportunity will be for your business. The impact varies from business to business, but let’s suppose you could reduce your rent by at least 25%. That could put quite a dent in your monthly expenses. You’ll need to analyze whether the savings in your business would make cutting your space worthwhile. Or perhaps, if you reduce your space needs, you could afford a more desirable location without raising your rent expense.
Next, assuming that shrinking your real estate footprint will substantially lower your operating costs, how would your arrangements work? For example, you might still want remote workers to spend some time at the office to stay connected in ways that can’t be accomplished with electronic communication tools. A tried-and-true tactic is to maintain several flexible workspaces that workers who just pop in to use as needed.
What about wasted space in your current location? Try zero-basing your workspace needs by determining what you require without reference to your current workspace. Starting from scratch can be eye-opening.
One more point to consider: Having employees plan to work from home on a long-term basis may cause you to incur some new expenses. For example, you could be footing the bill for a proper desk, chair and other essential furnishings that you supply for workers in your current space. You also might need to purchase printers and office supplies, along with providing cell phone and Internet reimbursements, to compensate home workers that purchase items used for business purposes. And you might need to beef up IT safety measures to prevent cyberattacks on less-secure home networks.
What is your current lease situation? Carefully review all your contracts to assess how soon you could make a change. It never hurts to negotiate. But realize, even if you’re using only a fraction of your rented space, you might be stuck for a year or two until your lease is up for renewal.
Evaluating Your Options
Suppose you could give up some of the space you’re currently renting and sublease the extra space to another tenant. Or, if it’s allowed under your lease contract, you might sublease all the space you’re renting and relocate somewhere else that better meets your needs. But — beware — that means you’ll become a landlord, with all the financial risk and potential headaches involved.
Another approach could be to negotiate a buyout of your lease. Whether you’d come out ahead would depend on the kind of a deal you’re able to work out. If you’re not far into your lease term and your current rent is below market, your landlord might be happy to see you go. The flip side is also true: If the commercial real estate market in your area has cooled off, your landlord may not make it easy for you to break the lease.
Moving a business is no small matter. The cost of moving and setting up shop at a new location could be greater than what you’d save in rent, depending on how long you expect to occupy new, less expensive quarters.
But it’s important to think long term. Staying put until your current lease runs out might be required to avoid penalties for breaking your lease and to give you enough time to get a handle on your long-term real estate needs.