Views

How cost allocation models can optimise corporate real estate

In this new world of work, it’s time to revolutionise thinking around the cost of space

The hotel industry gets it. The airline industry gets it. Even though an empty hotel room or a vacant seat on a plane is no different than an unoccupied office desk, the concept of a wasting asset is not actioned into corporate real estate.

All three are wasting assets with a shelf life – available for use today, but todayʼs value will be unavailable tomorrow.

Corporate real estate enables work as part of an ecosystem (space, the worker, the work itself) through a center of brand and corporate culture, collaboration, connection and community. For most organizations, real estate is an enabling cost that requires maximisation of use to be efficient. However, to achieve this, changes in the model needs to be made.

The introduction of pay-as-you-go (PAYG) principles into cost allocation models, supported by levers and controls (enablers and guardrails), will be a key component for finding efficiencies. With a high prevalence of hybrid working and less predictable demand, it’s time to take action.

Space as a service

We’re all familiar with idea of PAYG and organisations with decentralised business units should consider adopting it, as it entails the principle of space-as-a-service, a core element for seeking optimisation.

Typical portfolio optimisation tackles the obvious surplus asset. However, more proactive management and nudging of demand enables further reduction, removing inefficient asset use. PAYG and space-as-a-service approaches remove core and fixed-use space. In their place is a budget for use of what is required that day, week or month.

Ultimately, PAYG alongside levers and controls can shift the business unitʼs view of corporate real estate costs – from a fixed corporate cost to a vehicle that enables efficiency and brings workplace experience to the forefront.

Where to start

In a centralised corporate real estate function, optimisation is relatively simple – a top-down, evidenced or leadership mandated call for change, followed by implementation by the real estate experts.

But for decentralised business, change needs to be delivered by the occupiers themselves – those business units. That will only happen once confidence is established through pilots, further iteration, and a continued reassurance that progressive change is happening.

Cut the carbon waste

There are new reasons to act, and the primary one is carbon. Surplus space means more carbon is embodied in new buildings. Inefficient space means carbon is wasted every day in heating, cooling and managing vacant space.

Initiatives driven by a central corporate real estate function for financial reasons alone will struggle to gain support even with a top-down approach. Consideration on carbon emissions will support the optimisation mandate from the corporate social responsibility social side, providing an additional argument to the cost savings one.

There’s no 'one size fits all' approach, but these principles create the potential to convert a liability (in the form of surplus, inefficient or misaligned assets) into a multifaceted benefit by providing alternative spaces which deliver cash, carbon, experience and reputational benefits.

To find out more about cost allocation models, download our full white paper here.