Real Estate Expense Held Up to Firms as Cost-Cutting Target
Orange County companies looking to slash overhead should pay more attention to real estate expenses, according to a survey released Wednesday.
A majority of 219 Orange County companies surveyed either don’t have a real estate plan or don’t monitor costs, study space efficiency or negotiate cost-saving stipulations in leases, according to a report by UC Irvine’s Graduate School of Management and Marcus & Millichap Corporate Real Estate Services, a real estate consulting firm based in Palo Alto.
“In most firms, this is the second-highest expense they have, and they literally ignore it,” said Louis Masotti, director of the graduate school’s real estate program and the author of the study. “I think this study speaks to a relative lack of sophistication about corporate management’s understanding of real estate as an asset.”
The survey was generated from 219 companies’ responses to a four-page questionnaire mailed to 1,200 small, medium and large businesses chosen at random from a variety of industries. The results were presented Wednesday at a breakfast meeting at the Pacific Club in Newport Beach.
Among the findings:
* Only 50% of companies surveyed compare their annual occupancy costs to annual revenue, and only 53% weigh them against total annual expenses. Masotti said those calculations give an indication of how efficiently real estate is being used.
* Only 39% of companies surveyed have a strategic facilities plan that coordinates long-term real estate usage with other elements of a company’s overall business plan.
* Only 52% of companies have unconventional work hours or workweeks, 27% allow employees to work at home or remote locations, and 13% rotate private offices among employees who are frequently out of the office. All three techniques can reduce a company’s space needs, Masotti said.
Masotti said he was surprised that more companies are not taking advantage of today’s weak market to request options such as the right to downsize. Only 7% of companies’ contracts included the right to downsize.
Companies frequently examine real estate issues only when leases are up for renewal, Masotti said, and they often delegate authority for such issues to officers who have little real estate expertise.
Some corporate executives attending Wednesday’s presentation said they plan to apply some of the principles they heard.
“I think we are realizing that we need to look at real estate costs in relationship to the totality of our economic planning and not just in relationship to capacity issues,” said Tim Trujillo, executive vice president of Mitsubishi Consumer Electronics America Inc. in Santa Ana. “We hope that there is the opportunity to save some money.”
