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Reduce your (workplace) occupancy costs


You play a role in running your office, however big or small it may be. As you may have realized, there are various costs which go into running an office. One of the biggest costs in any modern office especially in a city is the Rental that you are paying for our office. The Rental, along with the Operational Costs of the office is what is typically termed as the Occupancy Cost of the office, right? Wrong.

If you are calculating Occupancy Cost as Rental +Operational Cost, you may be off mark by a large extent. Occupancy Cost is the sum of capital cost of interior construction as amortised over the lease period and the rental plus outgoing cost of the running of the facility. Today most organizations spend a considerable sum of money in doing the interior fit-out. On an average, they are spending about Rs. 1300 per sq ft in Interior Construction alone. Amortise that over your Rental period and you will realize that it forms a large chunk of your Occupancy Cost.

Typically, when your organization expands and you are looking at new property acquisitions, it is rent which is often benchmarked during real estate acquisition time. Interior construction cost is not considered till the property is secured. This is the mistake we make.

Rental cost is not necessarily the ultimate measuring stick to determine the suitability of the property. You have efficient buildings and inefficient buildings. Efficient buildings are those which lend themselves to easy space planning and very little wastage of space. Often inefficient buildings command low rental prices. But such buildings will cost a premium to do the interior fit-out. This will happen as the Architect will need to allocate a larger tenancy space due to more space necessary to allocate for the extra circulation.

The other thing which could happen is that an inefficient space may be able to fit-in less people than a more efficient space. Whichever is the scenario, you end up spending a premium per sq ft (Occupancy Cost).

To keep your Occupancy Costs on the lower side, I suggest:

Consider benchmarking occupancy cost for all new property acquisitions. You could do this for the final short listed properties in your city. For example, the following are some test results of a Benchmarking Exercise for major cities in the Asia Pacific region;

The Median Occupancy Cost in this exercise turned out to be 4.95!!!! Now that immediately gives you an idea how your home city compares with the Benchmark.

So you can actually do a similar exercise (it’s a simple MS Excel sheet) for your short listed properties within a City and trust you, it will help you achieve big-time savings!

This exercise is becoming increasingly popular in the competitive West and we are sure organizations in India are doing that and/or will make this a regular part of expansion plans in the weeks to come. As they say, money saved is money earned.

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