Driven in part by an increased demand for hybrid working and a growing understanding of the financial benefits of outsourcing non-core activities, many large businesses are moving to strategically downsize their office rental requirements as a practical means of generating improved ROI.
“Ongoing high inflation and volatility in energy markets have added to an already challenging environment for office occupiers, many of whom continue to grapple with persistently low rates of staff attendance”
LSH Total Office Cost Survey 2023
Trends Show Opportunities for Reduction Strategies
CBRE’s 2023 European Office Occupier Sentiment Survey1 found that:
- Nearly half of respondents reported office attendance of 40% or lower
- Around 60% of companies expect some degree of portfolio contraction over the next three years
- Desk sharing ratios higher than 2:1 go from 7% currently to 24% in two years’ time
In a similar vein, Forbes.com2 reported that:
- As of 2023, 12.7% of full-time employees work from home, while 28.2% work a hybrid model
Meanwhile, office rental costs continue to rise in spite of lower energy prices. The LSH Total Office Cost Survey3 showed that the average cost of occupying a new-build office in the UK rose by 3.4% in the 12 months to September 2023, with ancillary costs such as business rates, furniture and cleaning all showing double digit percentage rises.
Opportunity for Streamlining Office Costs Most Pronounced in Capital Cities
With prime rental costs particularly significant in capital cities and financial centres around the world, financial directors have not been slow to recognise the strategic benefits to be gained from downsizing their organisation’s property requirements.
Recent figures4 show that the monthly rental cost of prime office space in London City is £77.50 per square foot, with the cost rising to £137.50 per square foot in London’s West End.
In midtown New York5, rents reached $168.50 (£133.50) per square foot in Q3 2022.
The story is similar in other major centres such as Hong Kong, Tokyo, Berlin and Sydney.
“In a bid to drive greater efficiencies, logic dictates that increasing costs will prompt an ever greater number of businesses to rethink their office space requirements”
LSH Total Office Cost Survey 2023
Understanding Cost Efficiencies On an Individual Basis
To help us relate cost per square foot on a headcount basis, we looked first at the average space taken up by an office worker. The British Council for Offices (BCO)6 suggests around 10-12 square metres (107 to 129 sq ft) per person.
So, if we take a space requirement of 120 square feet per person, and a sample prime large city rental cost of £100 per square foot per month, we see a monthly office space cost per employee of £12,000 each month.
If a large company in a major city, either through increased hybrid/home working or by outsourcing a non-core department, were to reduce prime office headcount by 50 people, this would bring a potential rental saving of £600k per month, or over £7.2 million each year.
Even looking at this equation for a city like Manchester, with an average rental cost for prime office space of £50 per square foot per month, downsizing rental space by reducing office headcount by 50 desks would deliver annual savings of £300k each month.
Office Space Reduction: A Strategy for Growth
A carefully planned approach to office space reduction, particularly in city locations, clearly has the potential to bring significant cost savings for larger organisations.
When we also consider the potential benefits of increased employee morale and lower turnover associated with increased hybrid working, the organisational efficiencies to be gained from outsourcing non-core activities, and the additional savings to be made on other ancillary people and office costs, it’s clear that a coherent office space reduction strategy can have a dramatic and positive impact on an organisation’s bottom line.
Find out more
Click here to find out more about how partnering with SmartPA can help your organisation improve profitability and resilience by outsourcing non-core business support or administration services. Alternatively, contact us directly to discuss your requirements.
About SmartPA
SmartPA is a pioneer of remote, outsourced admin and business support, providing individual SmartPAs, multi-skilled cross-functional teams, and full lift and drop admin process outsourcing. Working with more than 5,000 businesses of all sizes world-wide, SmartPA draws on a global talent pool of accredited SmartPAs, with a Centre of Excellence based in the UK, near shore hubs in South Africa and Uganda, and an offshore hub in Malaysia.