With increased focus on cost reduction and operational efficiency, 45% of the organisations have reduced office space per employee, according to a survey report “Real estate cost optimisation: The road less travelled” by Jones Lang LaSalle India
In the services industry, real estate cost is the second largest cost component after human resources and can be considered significant for other industries as well. India has been seeing a steady increase of real estate costs over the last few years This survey was conducted to reiterate the known facts of cost saving and to make corporate India aware of real estate cost saving opportunities, says Jones Lang LaSalle on its CFO (Chief Financial Officer) survey.
The report predicts that by end-2014, India office rents will grow by 24% over the trough levels of end-2009. The report cautions that real estate cost is expenditure that must be relooked at. Currently, CFOs tend to ignore cost-saving opportunities that could lead to significant value creation in real estate. CFOs also concede the need to build robust information infrastructure for decision making before acquiring offices on rent.
According to Jones Lang LaSalle, one of the common strategies followed by corporates to achieve cost reduction and operational efficiency is to relocate and consolidate/ expand operations to more cost-effective suburban locations. This move not only allows cost optimisation but also provides opportunity for organisations to give better amenities to employees and more space per individual, which in turn improves the operational efficiency within the organisation. On the other side, a substantial 45% of the organisations have also reduced office space per employee recently.
The concept of Alternative Workplace Strategy (AWS) taps into organisational prerequisites, creating an environment that supports and enables employee needs.
This strategically bundled concept results in increased cost savings, more efficient space utilisation, higher productivity and reflects the organisation’s brand value, according to the CFO survey report. In addition, work place Strategies are emerging as a global imperative for optimal employee productivity, satisfaction and retention. Mapping AWS can drive an organisation towards ultimate success, and is essential to overall portfolio and expense management. But despite of these factors and other benefits, only a minority of organisations in India have incorporated an AWS.
The survey reports caution that anticipated growth in office rents across all markets in this uncertain phase has compelled organisations to lease out spaces at a relatively attractive price compared to existing rates. One of the real estate strategies that organisations should consider is early renewal and extension of lease agreements. Most organisations in India have still not explored significant savings which could arise out of restructuring leases. It is also vital that developers and tenants confide in each other whilst renegotiating or restructuring a lease agreement. This amalgamation of extension and early renewal of lease agreements gives the occupier an immediate rental relief.
The report concludes that with 68% of organisations planning to expand their operations in the next five years, occupiers can focus more on structuring their lease agreements when they expand, whilst property owners can possibly look at identifying the sale and leaseback opportunities present to raise funds when they expand.
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