Is rent driving your real estate decisions? It shouldn’t be

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What if we told you that a cheaper office rent on paper could actually be costing you more due to the impact that space could have on employee engagement and wellbeing? If that sounds a bit confusing, we understand, but hear us out.

At last check, rents across Greater Boston were on average $34.90 per square foot, which puts the region at 12th in the country. So that means that it would cost roughly $350,000 a year, or just under $30,000 a month, in rent for an average 10,000-square-foot office. According to CoreNet Global, offices across North America will average 151 square feet per employee this year, which effectively means that at the current rates, it would cost you roughly $5,300 per employee per year in rent.

That all being said, during your next lease negotiations you might be looking to get a better deal on your rent to improve your bottom line. But you might be surprised to learn that your rental rate shouldn’t necessarily be your primary focus if you truly want to maximize cost improvements.

In addition to important considerations such as office location, access and building amenities, there’s actually a less obvious factor to consider when evaluating space options to understand the value potential offices could deliver to your bottom line. And it can save you a lot more than a couple of dollars per square foot. What is it, you may be asking? Productivity potential.

The 3-30-300 rule
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 just evaluating a space on potential 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).

  • $3 for utilities
  • $30 for rent
  • $300 for payroll

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.

How can your space impact your people’s productivity?

  • Workplace configuration: In addition to having the right types of space for various tasks and job functions, office layouts that promote interactions between employees can greatly improve satisfaction, performance and productivity. This also enhances employee engagement, which studies have shown to be a true competitive advantage.
  • Workplace wellness: Studies have shown that sustainable building design impacts employee health, wellbeing and productivity. When optimized, natural light, good air and ventilation, temperature control, views and green space result in bottom-line business benefits due to their positive impacts on occupants.

OK, this all makes sense. But can you actually calculate returns?
Yes, you can. Knowing it was possible to capture significant savings, JLL real estate brokers developed an algorithm to calculate their clients’ savings on a case-by-case basis.

Our 3-30-300 calculator takes a company’s real input values for things like 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:

  • $1.50 p.s.f./year with a reduced absenteeism rate of 10%
  • $11 p.s.f./year with 10% improvement in employee retention
  • $65 p.s.f./year with a 10% improvement in productivity. (For reference, World Building Council studies show that 18-20% in productivity can easily be achieved in the right environment.)

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 the $3-4 per square foot you might save with only focusing on finding the cheapest office rent, don’t you think?

We’ve created a comprehensive guide to help you better understand six key strategies to create a workplace that works. Download the complete guide here.

A version of this article originally appeared on OfficeRenew.com.

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