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April 2024

How Flexibility Is Cutting Real Estate Costs by Half

Over the last five years, how we manage office spaces has dramatically changed as the business world has evolved. Previously, determining how much office space was needed was straightforward—mainly based on the number of employees and the amount of space each person required. Companies would plan sufficient space for everyone, even adding extra to accommodate future growth.

However, allocating a specific desk for every employee works less effectively today. With the rise of flexible working, the old methods of calculating space needs have become outdated and overly rigid. Offices now need to be more adaptable, reflected in the fact that only some work from the office at all times.

This shift from permanent office setups to more flexible environments means companies must think differently about their real space needs. Changes in how people want to work, the growing trend of downsizing the office due to low utilization rates, and the desire for shorter lease terms drive this need for more adaptable office management.

As a result, those in charge of workplace planning now face a new set of challenges. They must be agile, ready to adjust plans as needed and use data more effectively to make informed decisions about office space. 

Business Case

A company based in Stockholm can set an example* of adapting to these new realities. With 80 employees occupying 700 square meters, this company faced the pressing need to slash office costs. By analyzing daily seat usage and recognizing that only 35% of the space was actively used, they devised a plan to reduce their physical footprint by approximately 60% to 300 square meters. 

The reduction in physical space reduced the company's annual rent from SEK 5,574,000 to SEK 2,229,600, translating into an impressive yearly saving of SEK 3,344,400. To complement this downsizing, the company embraced flexible work arrangements. They introduced a system of flexible coworking hubs, allowing employees to book workspaces as needed. With this flexibility, the company only pays for actual usage, leading to further cost efficiencies.

The total monthly cost after these changes amounted to SEK 238,600. Combining reduced rent and flexible office costs resulted in monthly savings of approximately SEK 225,900, cutting office costs by 49%. When adjusted for lower usage for the flexible spaces during vacations and holidays, the savings rate climbed to 51%.

* You can find more detailed calculations and figures about this business case at the end of this article.

Conclusion

This change led to significant cost savings and made the company more flexible and quick to respond to changes in the number of people working at any given time. By using flexible workspaces and cutting down on permanent office space, companies can really cut costs while making employees happier and more productive.

However, cutting office space by 40-60% is bold. There is a real worry about needing more desks if everyone decides to come to the office simultaneously or if you need space for everyone but perhaps only once a week or twice a month. This is where flex space is handy, as it helps ease the worry about running out of workspace. In a situation like the one just mentioned, where you need more space occasionally, you can reserve more workspaces on those days as part of your flexible capacity.

Flex space lets the company adjust how much room it needs, so it doesn’t have to stick with a big office on a long lease that may not always be used. As leaders in the workplace figure out how to manage these situations, they need to smartly use policies, track office use, and think about employee experiences in their plans. Understanding these parts helps them use office space better and decrease costs in a changing work world.

This transformation in workplace management demonstrates a broader trend: the move towards more flexible, cost-effective office solutions that align with modern work preferences and business demands. This approach will likely become the norm as we look to the future, with data-driven decisions at the forefront of strategic workplace planning.

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The Business Case in details

A company in Stockholm with 80 employees and an office area of 700 square meters faces the challenge of reducing its office costs without compromising the work environment. 

Cost of running the office
  • Office area (sqm): 700
  • Base rent (SEK/sqm): 7000
  • Property tax (SEK/sqm): 543
  • Heating & ventilation (SEK/sqm): 70
  • Cooling (SEK/sqm): 45
  • Waste management (SEK/sqm): 55
  • Electricity (SEK/sqm): 100
  • Reception, cleaning, security, wifi, coffee, fruit (SEK/sqm): 200
Current Office Expenses
  • Annual rent: SEK 6,309,000
  • Monthly rent: SEK 525,800
  • Number of seats: 50
  • The occupancy rate at the office is 35%, meaning, on average, about 18 desks are used daily.
Strategy for Reducing Office Space

By analysing the usage of the office, where only 35% of the seats are used daily, the company identifies an opportunity to reduce the area by approximately 60% to 300 sqm with only 20 office seats, resulting in:

  • New annual rent: SEK 2,495,000
  • New monthly rent: SEK 208,000
  • Yearly savings: SEK 3,800,000
Integration of Flexible Workspaces

A system of flexible coworking hubs is introduced where employees can book day passes or meeting rooms as needed to avoid a shortage of workplaces during higher demand. 

This flexibility means that the company only pays for actual usage.

  • Average cost per day pass in Stockholm: SEK 350/person
  • Average cost per meeting room: SEK 600/hour
Assumptions

15% of the staff (12 people) book eight-day passes per month per person (96-day passes)

  • Cost: SEK 33,600/month
  • 40 hours of meeting room per month:
  • Cost: SEK 24,000/month
  • Total monthly cost for flexible spaces: SEK 57,600
Total Monthly Cost After Changes
  • Monthly rent for reduced office space: SEK 208,000
  • Monthly cost for flexible workplaces: SEK 57,600
  • Total: SEK 265,600
Economic Benefits

This strategy leads to monthly savings of approximately SEK 260,000, corresponding to a reduction in office costs by about 49%. The annual savings, adjusted for vacations and public holidays, where flexible costs decrease, result in an additional reduction in flexible expenses, raising the savings rate to approximately 51%.

Flowpass - the platform for consuming flex workplaces.

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