RTO Versus Hybrid Office: A Balancing Act Between Productivity And Profitability
The office market is at a crossroads. Employers are looking to permanent return-to-office mandates while simultaneously trying to reduce their office footprints and rents.
A recent study by Resume Builder, which surveyed more than 1,000 top executives, shows that 90% of business owners are planning to bring employees back to the office by the end of 2024. The reason for this dramatic about-face in workplace strategy is that 75% of companies that have already initiated return-to-office policies say they have seen an improvement in revenue, productivity and worker retention, according to the study. Yet most companies also have a desire to reduce their real estate costs by cutting their footprints, often through various iterations of a hybrid workplace.
But there's a catch. While companies seek ways to entice their employees back to the office to reap the benefits of in-person work, a hybrid workplace can send the entirely wrong message. A permanent, assigned workspace can help employees feel more attached to their companies and increase productivity, whereas an impermanent, transient environment can lead to stress, anxiety and exhaustion. It’s a seemingly impossible balance to navigate.
SpaceLogik, a real estate technology company based in Chicago, has already predicted that the future of the office market calls for more optimized workspaces and lower real estate costs. In anticipation of this pivot, it is launching web-based software to help tenants optimize space by 15% or more, and it offers a commission rebate to companies that use the platform. Tenants would be able to reduce space without having to convert to a hybrid workplace that, ironically, isn't preferred by the very employees they are trying to lure back.
SpaceLogik founder Michael Walker said space optimization generates the highest savings for tenants, even though users are initially attracted to the commission rebates, which return 75% of the fee to the tenant, on average. The combination of the two provides significant cost benefits.
“For a 30K SF tenant in Chicago, the customary broker commission is $450K on a 10-year lease,” Walker said. “Using our application, tenants would receive a fee rebate of roughly $340K.”
As appealing as that rebate sounds, Walker said SpaceLogik’s real value is in showing that tenants invariably need 15% less space than the industry suggests. On the same 30K SF lease, a 15% space savings would cut rent by $2.7M, eight times more than the commission rebate alone saves, he said.
That $3.1M in total savings has the same impact as negotiating more than $10 per SF per year off the rental rate, and all before traditional negotiations even start, Walker said.
Although SpaceLogik has used the technology to prove 15% savings for companies like Aon, Aetna, Wells Fargo, United Healthcare, HP and McDonald’s, to name a few, some might question whether it’s the right time to launch into new software with the real estate market in such turmoil. But Walker said he believes just the opposite.
“Whenever there’s a large shift in how much space a tenant needs, either by shedding excess space or changing workplace strategies, the tenant’s previous space becomes somewhat obsolete, and moving often becomes the best alternative,” he said.
But determining the right workplace strategies and going through the relocation process is a daunting task for many companies, Walker said. SpaceLogik has patented tools to make that process much easier and faster.
SpaceLogik’s features include AutoProgram, which allows tenants to simply select their industry and the number of employee work areas needed. The platform’s algorithms calculate exactly how much space is needed as well as how much it will cost to build it out.
From there, tenants can use SpaceLogik’s map search to find properties that match the space projection, get instant initial landlord proposals and compare lease costs at dozens of buildings in a side-by-side format.
“All of this can be done in a matter of minutes, before the tenant has to make any commitment,” Walker said. “It takes months to get to that high level of analysis with the current industry process.”
Most importantly, the tenant can analyze the long-term financial impact of dozens of different workplace strategies without paying for endless test-fits or waiting for construction estimates.
For final negotiations, the software offers an online bidding system in which landlords submit offers and counteroffers, and the technology calculates the financial impact of each submission instantly, eliminating the need for a traditional financial analyst, Walker said.
“With SpaceLogik’s track record of finding space efficiencies of 15% or more, tenants can have their cake and eat it too,” Walker said. “The cost savings they’re looking for are already embedded in their current space. Using SpaceLogik, they can have assigned desks and cut their space too.”
Walker is quick to point out that the savings generated are always above and beyond any reduction in space due to downsizing or shedding unused areas.
“Even if you’re moving from 50K to 40K SF, it’s very likely you only need 34K SF,” he said. “Our software will show you that in a very short order.”
If a commission rebate and leasing less space isn’t enough, the SpaceLogik platform also significantly reduces the time needed to get into new space.
Walker said SpaceLogik can help that same 30K SF tenant move in just four to five months, while a traditional brokerage process usually takes 12 to 16 months.
“It’s not that we’re cutting corners on the real estate process,” he said. “We’re actually quite vigilant. We’ve just automated and streamlined many parts of the transaction that most other industries computerized a long time ago.”
Walker has a vision for SpaceLogik and how the tool can be used as a catalyst to change the way tenants find office space.
“My mission is to give tenants a fully transparent office acquisition alternative that is faster, more reasonably priced and generates unparalleled savings compared to the current industry process,” he said. “I absolutely believe that this platform does just that.”
SpaceLogik will officially accept tenants on Feb. 1, 2024.
To contact SpaceLogik, inquire about software demos or get a free consultation, email firstname.lastname@example.org.
This article was produced in collaboration between Studio B and SpaceLogik. Bisnow news staff was not involved in the production of this content.
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