A Tale of Caution

A Tale of Caution

Developing and executing a strategic plan to help manage real estate and occupancy costs is an important consideration for oil and gas companies. A well thought out plan will have long term financial implications and will impact the ability to attract and retain talent moving forward.

By sharing some examples of how other organizations are successfully using their space, we hope you will gain valuable insights to develop your own occupancy strategies. 

Current Market Outlook

  • The current state of the commercial real estate market is close to equilibrium.
  • Oil and gas executives’ outlook was overall negative in Q4 of 2018. It rebounded this quarter with more companies saying they were optimistic about the future than not.
  • Energy firms are fatigued with the velocity and severity of the cycle, so they’re being more cautious with the amount of space they are leasing.
  • Most recently the view was that the price of oil, which traded at or above $70 per barrel for several months last year, would linger close to that price. Instead, prices dropped to about $50 per barrel to close out the year.
  • Additionally, as a result of the low unemployment rate, companies today are more inclined to go where prospective employees are instead of having them come to them.

Successful Strategies 

With shorter business cycles and technological advancements and markets becoming more unpredictable than ever, occupiers will continue the shift to more flexible real estate strategies. Work environments and lease structures must be adaptable to support highly dynamic organizational objectives. Below are some growing trends.

  1. The historically low levels of unemployment create some challenges for companies. Tenants are reevaluating their real estate as a result. The most successful companies are using their office space as an asset to attract top talent rather than merely an expense.
  2. Another trend is the drive toward efficiency. For a growing number of office tenants signing new leases, workplace strategies are being used to optimize space needs.

*Nationally, the average range is 150-225 RSF per person.

  1. Additionally, there has been a shift in the location of private offices. Companies are moving away from offices located at the exterior in lieu of designating their offices in the interior of the space. The main benefit is the addition of more natural light to the space.

*Tip: The first step toward effective space management is to gather and analyze demand forecast data at the business unit level. Ideally, this should include the current state of seat occupancy and vacancy as well as business unit growth projections.

  1. Planning ahead: Use of forecast data is essential for making proactive real estate decisions. Effectively planning for future requirements necessitates more than that. It also requires buy-in and coordination between a company’s leadership, HR, finance and real estate teams with the goal of minimizing the gap between space supply and demand to directly support business success. Working across business units in this way, executives can factor in long-term organizational needs, goals and planned projects to create fact-based strategies for future real estate needs.

Disruptive Trend to Watch in 2019

More and more companies are closing the door on the popular “open office” design trend. A recent study shows that the open office may do more harm than good.  Here are some thoughts based on science. The Journal of Environmental Psychology jumped into the fray and came out with a huge study (40k+ workers and over 300 companies).  What did they find?

  • Closed offices outperformed open offices for productivity.
  • Proxemics issues (how people feel when close) create uncomfortable workers (and therefore less productivity).
  • Noise and visual disruption (or as Geoffrey James says below “visual and noise pollution”) creates distraction and focus issues.

 Key Takeaway

When done correctly, rather than merely reacting, an organization can proactively respond to changing business needs and priorities. The most common cost savings opportunities include reducing seat vacancy, trimming square footage, increasing space efficiency, and tightening seat density.

Final Thoughts

The integration of these strategies, location factors and space considerations requires comprehensive due diligence and a measured approach.

The information provided should help serve as a reference. While it can’t replace the personalized insight gained from working one-on-one with a tenant advisor, it can offer a starting point for the considerations and steps that should be taken to ensure your facility is an asset, not just office space.

Author Profile

As director of the office tenant representation team based in D.F.W. Mike Ebbitt oversees the building and growth of the specialty group. His team assists tenants with occupancy needs in office properties throughout D.F.W and across the nation. Whether the assignment is a relocation, expansion, consolidation, sublease, acquisition or disposition, Lee provides end-to-end occupier representation services. He may be contacted at mebbitt@lee-associates.com or 512.701.1574.

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