So my post earlier this week on the 3 core metrics of corporate real estate seemed to strike a chord. I got more hits from that than any normal post. Maybe it’s because it had a number in the headline? Maybe it’s because it’s superbly written? Not sure which but I’ll run with it anyway.
As a follow-up, I thought it worth putting together some additional metrics that fall out from the first three. Technically, none of those are financially focused, although controlling them does control your financial exposure as well. But there are four additional metrics that are worth tracking:
- Cost per person. The total annual cost of real estate (all in- leases, taxes, utilities, facilities, etc) divided by the total number of people that could use the real estate portfolio. This is actually more important than tracking cost per square feet. High-cost square feet can still yield a decent cost per person if space is efficiently utilized. Sometimes low-cost space is very hard to actually utilize efficiently. Higher levels of flexible working can cause this number to drop sharply.
- Cost per desk. The total annual cost of real estate divided by the total number of seats in the real estate portfolio. This is your cost of actually providing fixed real estate services. For every desk you add to the portfolio (or removed) you should see a movement of this much on the total budget. If this number is tracking up, it impacts your hard cost budget.
- Workplace Survey Feedback. If you are not annually surveying the population served by your workplaces, you are missing critical information. Does the technology support work? Are there enough collaboration spaces? Is the office falling apart? Much of real estate is highly qualitative – it cannot be measured directly. It’s important to understand that side of the equation.
- Regional Nuances. This is a bit of a cop-out on the last metric because it isn’t a metric by itself. However, all the metrics discussed above and before may vary DRAMATICALLY by geographic region. APAC will often have much tighter densities but also lower rates of agile/flexible working. The US will often have the most space per desk.
You may have noticed that I have not included the classic real estate metric that everyone seems to track religiously: cost per square foot. Yes, real estate can best be broken down into square feet and costs which would imply this is an important metric. But it isn’t important. It is a symptom of the other metrics above. You cannot impact cost per square foot directly. Negotiating a better cost on a lease does not necessarily bring down total costs. Taking fewer square feet does not necessarily make you more efficient.
Metrics should indicate the direction of some controllable action you could or should take. Pick metrics that do this and they will help. Pick sexy metrics (like cost per square foot) and you will struggle to accomplish your goals.
There are three classic metrics used to evaluate the “efficiency” of a corporate real estate portfolio:
- Occupancy Ratio: Square feet per person: the amount of space in the portfolio divided by the total number of employees and contractors. In a traditional one person to one seat workplace, this will always be higher than the Density Ratio because you will always have more seats than people. Agile/Flexible workplaces try to drive this number well below the Density Ratio.
- Density Ratio: Square feet per seat: the amount of space in the portfolio divided by the number of seats available for people to work from. Hard to move too much because you need a certain amount of space in an office but generally targeted in the 150 to 250 range depending on region and type of office. It is possible to go tighter but that can lead to productivity issues.
- Utilization Ratio: Seats per person: the number of seats available divided by the number of people that occupy those seats. Traditional one person to one seat workplaces would target occupancy in the 80% to 90% range with many thinking 90% may actually be too much to account for churn and growth. Going over 100% means that you have more people than seats and can be a really good thing.
These metrics are extremely flexible because they can apply to a single location (small or large), geography, or even to the entire portfolio. They can tell you where you “most efficiently” use space and where you are “least efficient.” Anyone who has worked even a week in real estate instantly recognizes good targets for each. If that person has been around for a year or so, they can even tell you the benchmarks for each by region of the world (culture plays a huge role in real estate metrics).
Plenty of people quibble about whether square feet should be usable or rentable or something in between but the reality is that it doesn’t really matter. As long as you are consistent with the measure you use, you’ll get a result you can work from.
The single biggest difference in how companies use these metrics is the type of workplaces they have:
- Traditional workplace: one person to one seat. Utilization ratios approaching 90% mean that more space is needed to accommodate growth. All of your measures become very straightforward because you know your people, you know your assigned desks, and everything else is just calculated from there. Typically, future workplaces simply try to better enable to employees assigned within the four walls of that site.
- Agile/flexible workplace: more than one person to a seat. Utilization ratios around 90% mean that the facility is being used entirely wrong. A typical Utilization ration in flexible working would by at least 120% and can even begin approaching 200+% as people get used to it. In this model, calculations of metrics for a given site can get a bit trickier as you now regularly have people who may be assigned to the site that never actually come in.
The targets and uses of these metrics will and should change by organization and geography. But these are the three metrics that are most fundamental to CRE – on either the corporate or service provider side. Get the direction of these right and you will find your portfolio improving. Never set a target or direction and you will have a real estate group struggling to understand their mission.
One of the single best habits I’ve developed is challenging myself on “things I know to be true.” It’s amazing to me how often something that was a fact yesterday, is completely false tomorrow. It happens all the time.
My favorites usually fall into the realm of technology. It used to be impossible to automate certain tasks. Now, the automation seems to be everywhere. Single-sign-on (SSO) capabilities are the single best example of this. SSO has become ubiquitous within both consumer and enterprise technologies. Anytime I come across a system that makes me register yet another username and password, it drives me crazy. Five years ago, I none of this was truly common yet.
This is also very true of people and businesses. Someone you thought was working against you yesterday is suddenly an ally. The organization that you have gotten so much out of changes culture suddenly. Your strong vendor partner starts showing signs of no longer being well aligned. What was true last year may not be true next year, even if it is all the same players.
(As an aside, I just spent the last few minutes looking up the word ally because it does not look correct at all….but apparently, it is!)
Entropy is the most powerful force in the universe and it is constantly working. It can lead to chaos or be barely noticeable. Sometimes you never even realize which one it is until after it happens. Your only real defense is constant vigilance and questioning everything you thought to be true.
It’s easy for us to fall into the trap of thinking that one person represents a whole institution. When you get a bad customer service representative, it’s really easy to think that they are all bad. When the cashier who checks you out, doesn’t know the difference between a tomato and a potato, it’s easy to think that all cashiers are at the same level. Even inside our own companies, it’s easy to forget that one person that we struggle to work with is not necessarily representative of the group.
Similarly, a good experience doesn’t mean that all experiences will be good. But like with poker, we rarely remember the good outcomes. We are much more likely to remember the bad beats.
Yes, sometimes people are a product of their environment. But just as often, they aren’t. Beauracracy is real and painful but sometimes we think it exists when it doesn’t actually.
The Holy Grail of real estate strategy is developing a way to tie your real estate and workplace design directly to operational productivity. In so many ways, it is obvious that the design of a workplace has a direct impact on productivity:
- If space is in the wrong geography, you can’t hire the people you need.
- If space doesn’t include the basics needed to do the job, the job doesn’t get done.
- If people feel unsafe or unwelcome in the office, they don’t do great work.
- If people feel uncomfortable, they don’t do great work.
- If there aren’t enough seats, it is difficult for people to work together.
- If there are too many seats of the wrong type, you can change the culture.
It’s easy to see how the workplace can impact culture. But the challenge is in separating the impact of the workplace from the myriad of other variables that influence the equation:
- Corporate culture and its alignment with the workplace.
- IT and technology to support productivity.
- Collaboration and the ability to work with the people you need to work with.
- Shifts in the business or commercial opportunities.
- Business product maturity and changes in the sales cycle.
You quickly get into a correlation/causation debate on what caused the impacts. Over the past decade, I have come to the conclusion that it is quite impossible to directly measure the impact of the workplace on business productivity. What you can do is determine if the workplace is having a positive or negative net impact on productivity. You can tell this by surveying the users and understanding what is and is not working for them. Compare their scores from before and after a change.
What you cannot do is tie actual business improvements or declines to the workplace. The only thing you can count as a direct contributor is the cost reduction/increase of a space to the net costs of the business and its impact on operating costs. Outside of that, be wary of anyone who says you can do more.
This may be a bit off topic.
On a recent trip, I found myself watching The Princess Bride on the seatback screen. It was 98 minutes of bliss. It’s a complicated story but is still fit for kids. It’s got action, adventure, suspense, revenge, heroics, villainy, and yes, love. I probably end up watching The Princess Bride at least once a year because I come across it on the tv with nothing else happening.
The point of this, is that much like the kid in The Princess Bride, most of us try to reject the story happening around us on a daily basis. We don’t want to be in the middle of a love story involving kissing. Or we don’t want bad things to happen to our hero. Or we don’t want the bad guy to win. But sometimes there’s nothing we can do about it. The story doesn’t always comply with what we want to happen.
Our imagination is often the only thing that allows us to figure out what may happen next in the story of our lives. No amount of logic can predict the unexpected. No amount of analysis can perfectly predict the behavior of people. No amount of just rolling with the punches will be guaranteed to keep your head above water (because I felt like mixing metaphors!).
Through proper application of imagination, we can figure out our own positively unexpected future. Through use of our imagination, we can even figure out how to make it happen. You may think you do this already, and you probably do. What you don’t do is actively realize that you are using your imagination. You think you are simply being clever or smart.
Many adults think that imagination is for kids. Those adults are very, very wrong.
I’ve got simple on the brain. KISS is such a great acronym for just about anything in life. Keep it Simple Stupid! I say it to myself all the time. Why complicate things needlessly?
Processes are such a great place for simplicity. However, there are two ways to get simple in a process that can conflict with each other:
- Minimize the number of steps involved.
- Make each step intuitive.
To minimize steps, you often need to include a few complicated ones. The caveat here is that complicated may not be complicated today. It may, in fact, be simpler than the current process. But is that complicated step more complicated than you want it in the future? Does the complication make it impossible to automate?
I once was involved in a process automation project. We spent months trying to make an online system replace the manual excel spreadsheets that were in place. The sticking point became that the client refused to remove “highlight the cells a specific color based on a complicated set of rules” as a requirement. There was no possible way of turning this overcomplicated requirement into something simple enough to automate – or even hand over to non-specialized resources.
To make each step intuitive, you end up with the long-form process description of “how to make a peanut butter and jelly sandwich.” Each step, by itself, is intuitive and natural but collectively the process grows a bit unwieldy. There’s nothing simple about a process for making a sandwich that involved 20 easy steps.
As with anything, the answer lies in balancing the various needs of both process and users. Making things simple can actually be quite complicated.