How to cut real estate costs beyond rent

Real estate is often one of the largest expenses for any company. When looking for a new office space, there are multiple factors to consider: location, layout, amenities, rental rate, lease flexibility, and more.

It can be an overwhelming process, and it’s easy for companies to compare options by the most basic factor: the rental rate. Comparing rental rates give tenants an easy way to evaluate cost and savings—but there’s an even better way to look at your real estate.

If you evaluate a building’s productivity potential when considering a new lease, it can save you far more than $3-$4 per square foot. A holistic view of your real estate considers both the hard costs, like rent and utilities, as well as their residual impact on the people who work there.

It’s called the 3-30-300 rule

The 3-30-300 rule evaluates a company’s annual costs (utilities, rent, and payroll—all per square foot, per year) to illustrate how an office space with features that lead to better employee productivity can save money.

According to the 3-30-300 rule, the rule of thumb for utilities, rent, and payroll are the following:

  • $3 for utilities
  • $30 for rent
  • $300 for payroll

For example, a 10 percent increase in energy efficiency would yield $0.30 savings per square foot, a 10 percent decrease in rent would save $3.00, but a 10 percent gain in productivity is worth $30. Actual figures will vary across locations and organizations.

The impact of productivity

There are two main features that highly impact employee productivity: workplace configuration and workplace wellness.

Office layouts that promote chance encounters and interactions between employees can greatly improve satisfaction, performance, and productivity. According to a 2012 Gallup study, this also enhances employee engagement:

“Business or work units that score in the top half of their organization in employee engagement have nearly double the odds of success (based on a composite of financial, customer, retention, safety, quality, shrinkage, and absenteeism metrics) when compared with those in the bottom half. Those at the 99th percentile have four times the success rate compared with those at the first percentile.”

Regarding wellness, a 2013 World Green Building Council report identified eight specific factors that when optimized result in bottom-line business benefits due to their positive impacts on occupants. Multiple case studies were compiled and showcase the following average increases in productivity:

  • Individual temperature control: +3 percent
  • Improved ventilation: +11 percent
  • Better lighting: +23 percent
  • Access to natural environment: +18 percent

The bottom line

Efficient workplaces boost productivity, which may be worth potentially higher rent rates. As a result, it’s important to think beyond rent when selecting your next office space. A space with smart design and green attributes will yield far greater employee performance than a substandard space at a lower sticker price.

To help evaluate the 3-30-300 principle, JLL has developed an algorithm to calculate a company’s savings on a case-by-case-basis.  The 3-30-300 calculator takes your actual input values for things like rentable area (square footage), rent rates, employee salaries, average sick days and employee retention, then spits out your true 3-30-300 and total cost of occupancy (TCO). From there, you can play around with attributes to calculate cost savings. Contact me today to calculate your values.

Matthew Coxhead

Author: Matthew Coxhead

Matthew Coxhead is an Executive Vice President at the JLL Phoenix office, where he specializes in representing tenants in office leasing transactions. Through his relationships with corporations both locally and nationally, he guides his clients through their most important real estate decisions.

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