Real Estate

Home officeWhen smaller offices are worthwhile for companies

Open plan office
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The world of office work has changed since the beginning of the corona pandemic. With the increasing normalization of work processes in and from the home office, the question arises for companies whether office space could possibly be reduced in order to save rental costs. The auditing and consulting company PwC Germany has created the study “More home, less office: When optimizing space for users pays off”.

The following survey results were incorporated into this:

  1. On average, employers anticipate an increase in home office days of 65 percent compared to the level before the crisis.
  2. Both employers and employees consider investments to be necessary to switch to even more home offices. On average, a little more than half of the workforce (57 percent) has the necessary technical equipment. Employers expect investments of an average of EUR 950 per employee. There are also costs for meeting rooms and flexible desk sharing at the workplace. The employers put the upcoming renovation work at an average of 220 euros per square meter.
  3. Most of the companies assume that the number of employees will be reduced within the next three years: 45 percent expect a reduction of up to 15 percent, 38 percent expect a reduction of 16 to 30 percent. An average reduction of around 20 percent can be derived from this.

100 German employers and 500 German employees from industry, trade and services were surveyed from August to September 2020. Based on their statements – briefly described – these three scenarios were developed:

# 1 The rental scenario

According to the study, a reduction in space in the rental scenario is worthwhile from a reduction of eight percent. A reduction of 20 percent results in a cost saving of eight percent in the first ten years. In the case of a 20 percent reduction in space, however, the costs for renovation measures should not be more than EUR 630 per square meter, and the lease should not have a remaining term of more than nine years.

# 2 Ownership scenario with rental to third parties

In this scenario, according to the authors of the study, it is worth reducing the space from around ten percent. A reduction of 20 percent leads to cost savings of around twelve percent in ten years. The renovation costs should, however, amount to a maximum of 700 euros per square meter, otherwise the investments will exceed the savings.

# 3 Ownership scenario with sale and leaseback

A so-called sale and leaseback can be useful if companies have a large need for liquidity and are prepared to be tenants instead of owners. However, the profitability of this model is heavily dependent on the possible sales price. In the model calculation of the study, a reduction in space of around 30 percent is worthwhile.

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