Prioritize then Lease
Every company understands that real estate solutions impact people and financials. This is obvious. Yet given this simple truth, it's remarkable how many companies fail to prioritize the impacts before implementing a leasing strategy. In fact, the strategy itself should be informed by these priorities. The world of tenant real estate services is fundamentally organized into the categories of space procurement, space design and space construction. These services are mostly geared toward execution, often lacking meaningful pre-execution consultation.
But companies must challenge service providers to help them discover their priorities before initiating a space acquisition process. This exercise involves prioritizing the ways in which you want your leased space to impact the company. It requires executives to assess the trade-offs of different approaches and to commit to outcomes that, while typically not perfect, are well aligned with the most critical corporate objectives. Absent such planning, it's possible, even probable, that leased real estate will fall short. The market is littered with the carcasses of bad leasing strategies. Consider the company that leases new space based on a specific design scheme but ultimately learns that it can't afford to build the space. It's left with a choice between a space design that may negatively impact its people or an expense that is misaligned with its financial objectives. Or, consider the firm that absorbs critical timeline negotiating for a space only to submit business terms to senior finance executives for approval and have the proposal rejected for failing to meet key financial targets. This company must now scramble to solve its real estate need, resulting in lost leverage and higher cost.
When impacts are prioritized before engaging in a leasing process, the result is a clear mandate. It looks something like this:
We are seeking to secure new office space that is pre-existing and reflects a contemporary, open plan design that will promote collaboration and serve to increase employee productivity and overall happiness, while also being attractive to recruits. The office will be located in the financial district, close to all public transit and providing employees with access to vast amenities within a short walk from the building. The building will be class A, positively reflecting our culture. We will not seek to design and construct new space. That approach requires substantial capital investment and at this stage of our company's growth, it's vital that we deploy our working capital toward hiring new talent. We will remain sensitive to the new lease's impact on our valuation as we anticipate raising equity over the next 36 months. Given our projections for significant growth over the next 3-5 years, we will seek to negotiate a shorter term arrangement, providing greater flexibility.
Simple, yes. But it reflects a full consideration of the various trade-offs impacting the firm's people and financials; and, it demonstrates total clarity around how these impacts are prioritized. In turn, the mandate informs the internal messaging that should accompany an office leasing process. The strategy is set. Now the company can go forth and execute a procurement process. Of course, the targeted outcome can be modeled against available supply to level-set against the market backdrop and ensure accurate project budgeting. This type of front-end consultation is baked into the TenantSee model. It's one small example of how we're evolving tenant real estate services.
Greg Fogg is an Executive Managing Director at Cushman & Wakefield and a Founding Partner in TenantSee, www. tenantsee.co.