When you’re looking for a new office space, what’s on your short list of considerations? You’ll likely prioritize things like location, layout, amenities, lease flexibility and—perhaps most importantly—rental rates.
In comparing leases, you can probably save a couple bucks per square foot. But what if that $3-$4 in space savings actually lost you money elsewhere? What if that cheaper office on paper is really more expensive because of its negative impact on employee engagement and well-being?
There’s a better way to evaluate your building’s true costs when you’re considering a new lease, and it can save you far more than $3-$4 per square foot: Productivity potential.
We know pretty instinctively that better productivity saves money, but how can we prove it? Beyond that, how can we prove that it’s more impactful than rent savings?
Let’s compare their annual costs. The 3-30-300 rule illustrates the average order of magnitude between a company’s costs for utilities, rent and payroll (all per square foot, per year).
While actual figures will vary across locations and organizations, 3-30-300 is a solid rule of thumb. For example, where a 10% increase in energy efficiency would yield $0.30 savings per square foot and a 10% decrease in rent would save $3.00, a 10% gain in productivity is worth $30.
In addition to having the right types of space for various tasks and job functions, office layouts that promote chance encounters and interactions between employees can greatly improve satisfaction, performance and productivity.
This also enhances employee engagement, which Gallup’s 2012 research examining nearly 50,000 business units and 1.4 million employees in 192 organizations showed to be a true competitive advantage. According to the study:
“Business or work units that score in the top half of their organization in employee engagement have nearly double the odds of success (based on a composite of financial, customer, retention, safety, quality, shrinkage, and absenteeism metrics) when compared with those in the bottom half. Those at the 99th percentile have four times the success rate compared with those at the first percentile.”
A 2013 World Green Building Council report amalgamates dozens of studies on how sustainable building design impacts employee health, well-being and productivity. It has identified eight specific factors—including natural light, good air and ventilation, temperature control, views and green space—that when optimized result in bottom line business benefits due to their positive impacts on occupants. Multiple case studies were compiled and showcase the following average increases in productivity:
And this doesn’t even touch workplace environments that cause Sick Building Syndrome (SBS). Affected buildings are estimated to impact up to 20% of workers, while improvements to air quality, reductions in air pollutants and better ventilation can reduce symptoms by 70-85%. In fact, a 2010 paper in the American Journal of Public Health found that LEED Certified buildings reduced perceived absenteeism and work hours affected by asthma, respiratory allergies, depression and stress, and showed self-reported improvements in employee productivity.
So it stands to reason that selecting a space with a smart design and green attributes will yield far greater employee performance than a substandard space at a lower sticker price.
Short answer: Yes.
Knowing it was possible to capture significant savings, three JLL real estate brokers developed an algorithm to calculate their clients’ savings on a case-by-case basis.
Their 3-30-300 calculator takes a company’s real input values for things like rentable area (that’s square footage), rent rates, employee salaries, average sick days and employee retention, then spits out their true 3-30-300 and total cost of occupancy (TCO). From there, you can play around with attributes to calculate cost savings.
Using this tool, we find that a company with a TCO of just over $60 million per year and a human capital cost of $54 million can save:
Even if you cut that same company’s improvements down to just 2% across the board—you’re still looking at $13 per square foot savings annually.
That’s a lot better than $3-4, don’t you think?
Michael Cronin, Senior Associate, Digital Content
Partnering with JLL visionaries to deliver premium content for use across various business lines.
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Companies can combat under-productivity by measuring how real estate impacts talent attraction, retention, productivity and engagement (TARPE).