Previous Newsletters

October 2013 Newsletter

September 2013 Newsletter

November 2013 Newsletter

January 2014 Newsletter

February 2014 Newsletter

June 2014 Newsletter

2014 September Newsletter
 
 
October 2013 Newsletter
October 2013 Number 2

To Lease or Not to Lease?

That is the question for corporate management
by Christopher H. Volk


A principal goal of corporate management is to make a business worth more than the cost of its underlying assets. To create such shareholder wealth, management has three levers at its disposal: asset efficiency, operating efficiency, and capital efficiency.


Asset efficiency is the ability to limit the amount of assets that have to be funded with shareholder equity. It primarily entails managing fixed asset costs and working capital levels. Operating efficiency is the ability to improve operating profit margins, which is accomplished by finding ways to increase sales, raise prices, and control expenses. Capital efficiency is the ability to reduce the weighted cost of debt and equity capital. Managers must harness equity in concert with various forms of outside capital to lower corporate costs of capital.


Combined, the three efficiency levers work together to generate shareholder returns. Companies that can produce the highest returns with the least financing drag on cash flows tend to create the highest percentage gains in shareholder wealth, not to mention higher current equity cash flow yields.


The Role of Real Estate

The decision to lease or own real estate is centered on capital efficiency, which is measured by pretax rates of shareholder return. To be sure, there are tax implications to real estate financing decisions. The benefits of real estate depreciation, which can shield income from taxes, can be alluring. However, such benefits are nominal, since buildings are depreciated for tax purposes over a lengthy 31.5 years, and land has no depreciation.

Moreover, the tax benefits are merely a tax deferral, since real estate sold after a long holding period is subject to gains from the recapture of accumulated depreciation. The many public companies that are shackled by the potential for severe tax consequences from imbedded real estate gains serve as a reminder that the better route is to focus on pretax equity return maximization.

Equity rates of return cannot be properly computed from a financial statement: They are a financial, as opposed to an accounting, concept. If a company invests $1 million into a building and finances 70 percent of the cost, then the percentage of equity is 30 percent. The equity percentage never changes unless the debt is paid down, in which case the mix of debt and equity shifts. This is what happens when real estate is owned and related mortgage debt is repaid. As the percent of the real estate funded with loans declines, the amount of equity rises, which has an adverse impact on shareholder equity returns over time.

Apart from depreciation, there is a second allure to real estate ownership, which is the potential for appreciation. Without question, this is a subject worth considering, but not in concert with the proper means of corporate capitalization. Business leaders are rewarded first for focusing their attention on optimizing the three corporate efficiencies. Real estate appreciation, which is a part of real estate returns, is not a business activity; it is an investment activity. The attractiveness of real estate as an investment for companies will be addressed later in this article.

Computing Equity Returns
The V-Formula is a simple shortcut to compute current pretax equity returns. The formula harnesses all three of the corporate valuation levers.

The financial model based upon the V-Formula illustrates the impact of real estate financing decisions on corporate valuation. The V-Formula calculates pretax rates of return on equity, which means that the relative return comparisons are the same, irrespective of the dollar values of the real estate and business. That said, the model assumes location revenues of $1.5 million for the purposes of demonstrating the magnitude of the capitalization decisions on corporate cash reserves.



The model inputs are self-evident, perhaps with the exception of the expansion capital input. That figure represents the amount of company capital that has to be invested in start-up or other costs associated with the location financed. Many businesses also require capital for equipment related to new locations. For simplicity, the model does not take such investments into account, nor does the model include an allowance for ongoing replacement capital expenditures.

Model results were prepared for both the first year and the fifth year. This is because returns on equity change over time as a result of anticipated sales and profitability growth and as a result of changes in corporate capitalization as debt is repaid.

Based on the model assumptions, corporate pretax equity rate of return in the first year is 85 percent if the location is leased. (See V-Formula sidebar for computations.)

The model results illustrate that the current pretax returns from the decision to lease real estate are more than 2.2 times greater in the first year and rise to nearly 2.7 times greater by the fifth year. The magnitude of the difference is significant and the company is immediately able to conserve more than $423,000 in equity in the first year. Moreover, to the extent the company can apply the equity saved to further growth, an additional two leased locations can be added.

Over five years, the three combined locations would provide nearly $1.7 million in pretax equity cash flows over and above the cash flows that would be realized from the alternate decision to own real estate in a single location.

What could be done with that extra $1.7 million? Well, after taxes are paid, another five locations could be opened, which would generate even more extra cash flow and more opportunities to expand shareholder wealth.

While 100 percent financing can create a drag on cash flows, the drag is less than the added percentage funded because leases have lower payment constants than any other source of outside capital. Plus, since leases conserve precious corporate equity, more equity can be applied to growth, which can reduce corporate risk and add to corporate cash flows through greater location diversity.

In today’s credit markets, leasing real estate will almost always be preferable to real estate ownership. The principal determinant of the relative desirability of leasing versus owning is the percentage of financing and the loan terms available from debt providers.



The 2010 passage of the Dodd Frank Act and the added lending constraints imposed on banks by the Basel Accords have combined to make the extension of real estate credit restrictive for the foreseeable future. In this current light, where debt providers are generally limited to advancing between 60 percent and 80 percent of project cost, leasing is not simply a debt substitute, but a debt and equity substitute, because the landlord provides 100 percent of the real estate capital. As a result, real estate leasing allows business leaders to avoid the costly options of infusing added equity capital or constraining corporate growth.

A Wise Investment?
The preceding analysis overlooks the question of whether corporate real estate ownership is a wise investment for companies to make. However, the answer is fairly clear: Real estate investing tends to be nowhere near as lucrative as corporate investing. This is the basic reason why companies that own their real estate tend to post lower equity returns and create less shareholder value; strong business rates of return are depressed by the lower rates of return from real estate investing.

In the previous model example, the five-year average returns from corporate investing (assuming locations are leased) would actually be more than seven times those for the landlord who owns the leased locations. The implication for companies having surplus cash flow is that investing in real estate will tend to lower returns and erode shareholder wealth. As a result, the corporate valuations of businesses having surplus cash flows tend to be better supported by paying out the cash in dividends or by buying in shares, rather than by directing free cash flows to real estate investments.


One look at a cross-section of public companies laden with real estate will bear this point out. For closely held LLC or Subchapter S companies, shareholders may desire to direct their surplus free cash flow into real estate ownership in lieu of other personal passive investments, which is fine. Here, the catch to watch out for is trapped equity. On one hand, it is always smart to undertake long-term real estate debt so as to avoid floating rate risks and lock in spreads. On the other hand, long-term loans can be subject to severe prepayment restrictions, as well as restrictions on assignment or assumability. Such restrictions can, at the least, lower property valuations and, at the worst, limit the potential to freely sell real estate.

Real estate leasing is just one of many tools that are at the disposal of corporate leaders to minimize corporate costs of capital. As demonstrated above, the advantages of this tool include:

• an ability to conserve equity capital that can be directed into growth;

• an ability to lock into a wealth-creating capital structure for a long time; and

• a lower payment constant compared to other external capital alternatives.

Combined, the three advantages of leasing spell a lower cost of corporate capital. The result is greater shareholder value created through capital efficiency.

Christopher H. Volk is chief executive officer of STORE Capital, which specializes in single-tenant sale-leaseback transactions. Contact him at cvolk@storecapital.com.
- See more at: http://www.ccim.com/cire-magazine/articles/244998/2012/11/lease-or-not-lease#sthash.x7aiT0vv.dpuf



Foreign Aid

The EB-5 program offers developers another funding option.

By Geoffrey S. Goss


While the broader economy is still seeking firm footing, commercial real estate appears to be among the early engines of growth. Sustaining momentum in property markets comes with the ever-present challenge to secure funding, as lending and capital markets continue to remain tight.

Developers - particularly those willing to take advantage of sophisticated financing or complicated structures - are not without additional funding options, however. Development in significantly challenged markets such as Cleveland and New Orleans has remained consistent in recent years due to broad application of new markets and historic tax credit-backed funding. Additionally, a newer government-backed program known as EB-5 has shown stunning signs of growth and offers hope to developers seeking new funding sources.

What Is EB-5?

Established as a part of the Immigration Act of 1990, the EB-5 immigration visa program permits foreign nationals to qualify for permanent residency in the u.s. under the employment-based fifth preference category - hence the name. Through the EB-5 program, foreign nationals who invest a minimum of $1 million in U. S. businesses can receive green cards for themselves and their immediate family, if the investment is made in a business that thereafter creates at least 10 full-time jobs. The minimum investment amount is reduced to $500,000 if the investment is made in a business located in a "targeted employment area" - a rural area or an urban area with an unemployment rate that is at least 150 percent of the national average.

EB-5 investment activities are typically coordinated by, and project funding and investment is often operated through, one of the almost 300 regional centers designated by the u.s. Citizenship and Immigration Services agency. These centers focus on specific geographic areas and work to promote economic growth through increased exports and productivity and job creation.

As the EB-5 program has evolved, both equity and loan models of investment have been developed. The equity model refers to projects where a regional center, along with the foreign investors, takes direct ownership in the business or property. On exit, after the minimum five-year holding period, the investors elect to sell either the business or their equity interest and/or dissolve the business.

Conversely, the loan model typically involves the investors and regional center creating a stand-alone entity, which then makes a loan to the subject business or property. The loan exit occurs following the maturity date, usually based on a five-year term.

As the program has prospered, the loan model has become more prevalent due to the relative certainty as to exit modes and timing -when the loan is paid off. With the equity model, exit timing and costs are susceptible to market forces. If a developer wants to buy out the investors, the costs could escalate if the project is particularly successful.

Qualification Process

EB-5 investments can be used for almost any commercial real estate project; however, all projects utilizing EB-S funds must be reviewed by USCIS. It is not unusual for funds to not be available for up to 12 months following the initial closing. EB-5 investments must weave through a lengthy review process that evaluates both the project and the investors. The review includes analysis and due diligence on the project, the business, and the company business plan.


Moreover, the lead time to funding also encompasses negotiation and execution of the investment documents between the project sponsor and the regional center; marketing of the investment opportunity overseas; securing of foreign investment funds; application, review, and processing of investor visa applications; and, finally, delivery of investment proceeds to the project. To be clear, whether EB-5 project investments are made through loan or equity model, such investments will pool funds from multiple investors and the overall number of investors is limited only by the aggregate size of the investment (keeping the applicable minimum investment requirements in mind, however).

If both the project and an investor are approved by USeIS, the investor receives a conditional two-year green card. The investor and immediate family can apply for permanent residency based on the EB-5 investment. If approved, EB-5 investors then become permanent green card holders and can later apply to become u.s. citizens. Upon receipt of conditional permanent resident status, investors and their immediate families are entitled to the same benefits as other lawful permanent residents.

For eligible projects, the EB-5 program offers developers access to diversified project funding. Whether through a debt-based or equity-based model, EB-5 can help developers close funding gaps, increase capital stacks, or expand equity. Other than the $1 million investment requirement (or $500,000 in applicable geographic locations), there is no definitive minimum investment required. The time and costs involved in securing funds and approvals, however, may create cost inefficiencies for projects requiring less than $5 million in funds. But sponsors of large development projects, particularly those with lengthy lead or build times, may find significant benefits and financing cost savings using EB-5 funds.

Of course, as with most evolving programs, the EB-5 standards and rules remain fluid. Developers should be sure to consult with qualified counsel to ensure the developer's interests are well protected and overall project compliance is maintained.

Geoffrey S. Goss is a partner in the Real Estate Practice Group of Cleveland-based WHaverfield. Contact him at ggoss@walterhav.com.

Corporate Real Estate Management

Plays an Important Role in Overall Corporate Strategies

By Thomas Glatte


In the early 90s, one of the leading topics in Europe's real estate business was corporate real estate management (CREM). This new wave of professional enthusiasm with Anglo-Saxon origin was embraced by both scientists and industry. Corporations established real estate departments and enabled their administrative property or land departments to do more than simply tasks. However, soon afterward CREM became silent again, and only with the arrival of the financial crisis in 2008 did CREM become a part of public awareness.

Most commonly, CREM is defined as the "value and success-oriented acquisition, handling and disposal of properties under use or possession of corporations." Thus, the focus is on the property assets of companies with a core business in anything but the acquisition, erection, management or disposal of real estate - non-property companies.

The fact that properties are not part of the core business but are seen as operational resources or fixed capital to accomplish core business goals leads to a few specifics among corporations with regard to the handling and management of their used or owned properties. This has to be considered, although there are many parallels in the traditional (institutional) real estate industry with regard to structure and allocation of responsibilities (see Figure 1).

Contrary to property companies, whose core business and corporate strategy have a real estate focus, are real estate-related strategies within non-property companies clearly subordinated toward the overall corporate strategy. In short: The core business defines how to deal with its real estate, not the other way around. This is the critical challenge corporate real estate (CRE) managers have to tackle since CREM was "invented" as a profession. However, a simple top-down-approach between core business and CREM doesn't seem as appropriate as an interrelation between clearly defined prerequisites of the core business and their professional and realistic reflection with the reality of the real estate market.

Why Should It Be Like That?

A closer look at the balance sheets of European corporations proves that these enterprises still retain a fairly high ratio of real estate assets (five to 20 percent of fixed assets). A counter-check with their real estate departments still derives a high ownership ratio within their property portfolio (only a slight decrease from 75 to 68 percent between 2000 and 2010 ). However, once detailed questions are asked with regard to real estate or workplace-related costs -which require significant transparency toward processes, property portfolio and cost structures- responses would be marginal because of the very heterogeneous maturity of the respective CRE Organizations.

One of the reasons for this is that many corporations still perceive the alignment between corporate strategy and CRE strategy as a one-way road with the CRE department deemed the executor of operational directives. The result is lack of transparency, an excessive portfolio of surplus sites, inefficiently utilized space and high property-related costs. It is, unfortunately, a fact that this lack of transparency impedes companies from knowing the value in their assets.

The inflexible, immobile condition of property makes it highly essential to convert the internal corporate one-way road of command into two-way-traffic. Today's dynamic and demanding business environment requires flexibility, speed and a high ROI - all prerequisites for which properties of the traditional real estate market are not commonly known. Institutional investors consider real property in their portfolios a way to stabilize and safeguard other riskier investments. Therefore, it seems logical and economically reasonable to seek a vice-versa alignment between a corporation's overall strategy and its real estate goals with regard to success factors and a corporation's prerequisites and feasibility in a real estate market. Contradictions within the respective value proposition can be shown especially in quantitative performance indicators like yield or productivity or qualitative indicators like flexibility - meaning timely availability and marketability - as well as user or customer satisfaction.

In a purely economic view, the sum of all (economic) targets within an enterprise is defined as the target concept, which can be categorized into:

  • Performance targets (procurement, inventory, production, sales)

  • Financial targets (liquidity, investment, financing)

  • Success targets (turnover, earnings, profitability)

Financial targets and performance targets are basic economic objectives and focus on the methodology of management and operation within a company. Success targets are rather formal economic objectives to visualize the aspired commercial goals as a result of pursuing fulfillment of those basic economic objectives.

A typical way to measure success is through deriving profitability indicators from success factors whereby profitability can be understood as the capability to cover business-related expenses (cost) through respective income (revenue). Yields are being commonly used as a term to describe profitability. With regard to non-property-companies, prevailing market yields for real estate are typically well behind yields of most corporations' core businesses. Depending on the type and the risk profile of the respective property, yields between 4.5 and eight percent are common for traditional central European real estate investments. The yields expected from a non-property-company's core business often starts only at or above this threshold - sometimes even well above.

Such factors for success with regard to an achievable yield for holding a piece of property are, however, related to the view of a real estate investor. It has to be questioned whether such perspective could be shared by a corporate investor at all as his/her view is defined predominantly from its usage.

The usage itself is derived from an existing demand that, in the first place, is defined by specific operational needs of the respective corporation's core business. In the end, those will be the selection of the property's site location, its physical requirements as well as its respective commercial and legal aspects.

CREM can under such circumstances only provide a real estate related optimization within the framework given by the core business. Thus, a comparison with the traditional view of institutional real estate investment makes sense only upon full marketability of the respective property with regard to its asset type and site location. The marketability is, however, defined by its potential usability for third parties, which is not applicable for the vast majority of corporate properties. Manufacturing enterprises are for many logical reasons required to locating and further develop only at the edge of or far away from urban settlements.

In case changing market conditions require a reallocation of production capacities, existing sites and facilities thereon might become underutilized. Under such circumstances there are only very limited alternative ways of use for these facilities, for example, a conversion of standardized production or storage buildings. If reasonably well located, such facilities can be marketed for alternative use, perhaps taking into account a certain discount on their value or potential rental fee because of existing user-specific features in the facility's structure, fit-out, connection or current usage.

Such challenges for the marketability of corporate property are easily understandable for production and logistic facilities. However, they might also be applicable to other property types, e. g. office or administrative buildings. For example, it has to be questioned why office facilities are being built within industrial production sites or at the periphery of urban developments and not in downtown areas or in administrative clusters. Such buildings cannot be reintroduced to the real estate market in the event vacancies might arise. Thus, such buildings - although fairly market-common by property type - are in this case non-marketable special properties that are too risky for external financing. As a result, such properties become a significant burden and liability for the core business. The situation even worsens once business declines and vacancies arise that cannot be absorbed through letting to other users. The remaining business activities therefore have to cover the vacancy cost - another commercial liability on top of a perhaps already struggling business.

This situation clearly describes where the added value for an alignment between corporate and real estate strategies lies. The reflection of real estate-specific know-how in core business processes and decisions will lead to long-term cost advantages if sites and facilities are selected, located and designed not only according to the immediate needs of the requesting business but also according to the realities of the local real estate market. Only marketable facilities can provide the flexibility needed by a dynamic business with regard to its site location and avoid the sizable collection of surplus or inactive sites, which, in the end, tie up resources and capital that should be allocated to business development.

To make it right from the very beginning, this means not only the aforementioned optimization during a facility's operation but also a long-term real estate view of the core business requirements during site selection through reflection of local real estate market specifics and the application of marketable building or fit-out standards for manufacturing or storage facilities.

Here it makes sense to elaborate also on the time-related aspects. Land itself has in principle an unlimited life span. However, many external changes occur over time. As a result, many property requirements also change within a certain period of time, e.g., forms of usage, needs, legislation, etc. Markets are cyclical. Additionally, real estate projects and developments require time for planning, decision-making, approvals and construction.

It is a challenge for a corporation that the feasibility study for an investment project is driven predominantly by requirements of its core business, especially in regard to all timing-related aspects: market cycle, investment timing, investment horizon, etc. Unfortunately, market cycles of core businesses and real estate correlate not in a way that is attractive for overall investment. In an international environment, investment decisions are being pushed often at times when real estate markets are also overheated - either through availability of suitable land or construction capacities. Depending on local property market conditions, it might be worthwhile to for economic purposes from owned investments or financial or operating leases.

Another qualitative indicator for success is user satisfaction and, directly related to it, the quantitative indicator of user productivity. A study of the Germany-based University of Darmstadt, Institute for Real Estate Business Administration and Construction Management, determined that because of the application of different work space concepts, productivity deviations of up to 20 percent were seen. However, to achieve substantial productivity increases, substantial changes toward space utilization concepts have to be made, and significant intervention into operational work flows, corporate structures, traditional understandings of hierarchies, HR concepts and availability of IT tools is eventually required.

Here there becomes more need for alignment between real estate and overall corporate requirements. However, only a professional CRE organization and a proactive operating core business will recognize this as a positive overlap of common interests and will be able to successfully solve the tasks that will arise. Internal corporate stakeholders and core business and supporting functions have common goals. These require a holistic, comprehensive approach with other functional departments such as HR and IT and their individual functional strategies (see Figure 3). CoreNet Global's "Corporate Real Estate 2020" initiative therefore came to the logical conclusion that an increased fusion of topics dedicated to CRE, personnel or information technologies was necessary because of new ways of collaboration in our work environment. Based on that, it can be concluded that despite the natural right of the core business to define the overall direction of a non-property company, an alignment between corporate strategy and individual strategies of support functions (including CRE) is not only beneficial but essential for economically efficient management of the corporation's asset "real estate" and to provide a sound basis for the overall commercial success of a corporation. Only along this path is there a chance for a corporation to adapt to a highly dynamic business environment, to achieve further productivity increases and - as one of the ultimate goals - to generate ambitious returns.







Sources
1. Hartmann, S.; Lohse, M.; Pfnill, A.: 15 years Corporate Real Estate Management in Germany (15 Jahre Corporate Real Estate Management in Deutschland: Entwicklungsstand und Perspektiven der Bundelung immobilienwirtschaftlicher Aufgaben bei ausgewiililten Unternehmen); Arbeitspapiere zur immobilienwirtschaftlichen Forschung und Praxis, Volume 10, p. 12; 2007

2. Pfnill, A; Weiland, S.: CREM 2010: Which role plays the user?
(Welche Rolle spielt der Nutzer?); Arbeitspapiere zur immobilienwirtschaftlichen Forschung und Praxis, Volume 21; 2010

3.http://www.basf.comlgroup/corporate/en/news-and-mediarelations/press-photos/

4. Krupper, Dirk: Immobilienproduktivitat: Der Einfluss von Buroimmobilien auf Nutzerzufriedenheit und Produktivitat; Arbeitspapiere zur immobilienwirtschaftlichen Forschung und Praxis, Band Nr. 25; 2011

5. CoreNet Global Inc.: Corporate Real Estate 2020 - Enterprise Leadership; Final Report, May 2012, p. 7

Dr. Thomas Glatte is Director, Group Real Estate & Facility Management, for BASF SE. He is also the Chair of CoreNet Global's Central Europe Chapter and has lectured at several educational institutions in Germany.


It's Not a Workplace, It's a Work Place:

Using the Physical Workspace to Attract and Retain Top Talent

By Scott Ashley


Today's workplaces are facing an unprecedented challenge. For the first time in

modern history, there are now four generations in the workplace, with 20-somethings working alongside 60-somethings. At the same time, the 76-million-strong baby boomer generation is starting to retire, and there are far fewer knowledge workers in Generations X and Y coming up to replace them, making it more critical than ever that organizations attract - and retain - top talent.

While compensation, location and many other elements affect recruitment and retention, there is one key tool that is often overlooked: the physical workspace. Research has shown that the workplace environment accounts for up to 25 percent of job satisfaction, and it can affect employee performance by as much as five percent for individuals and 11 percent for teams. To successfully attract and retain top talent, organizations need to consider their office environments as more than just a set of desks and chairs -they should use their physical workplace as an integral tool that will help them recruit and retain the best talent and create spaces that will appeal to the multiple generations in today's work force.


Who's Working: The Generations

When choosing office space, organizations need to consider their current work force as well as the employees they'll need to attract at the end of their lease. Why? The average lifespan for an office lease is 10-12 years. So, 10 years from now, organizations will be recruiting 22-year-olds - people who today are in the seventh grade.

Organizations must understand the distinctly different attitudes and work styles of the four generations in today's work force. Born between 1928 and 1945, "traditionalists" comprise about seven percent of the current work force. They tend to have a paternalistic, top-down approach to work, and they are focused on financial security and "work to save." On the other hand, the baby boomers, born between 1946 and 1964, "live to work." They are 40 percent of the work force, are optimistic, and, although they value face time at the office, consider working a solitary experience. Gen Xers, born between 1965 and 1980, account for 30 percent and "work to live," meaning they put quality of life ahead of career accomplishments. As the first generation in which it was common for two parents to be in the work force, Gen Xers are autonomous self-starters. The youngest generation, Cen Y (also called Millennials), was born between 1981 and 2000. Accounting for 23 percent of the work force, they value a work! life balance, work best in teams and build parallel careers, meaning they have many different types of jobs throughout their work lifetimes. To create workspaces that are optimized for all of these generations, workplaces must offer spaces for both independent and collaborative work and allow for flexibility, as well as a stable office space.

Attracting New Talent

Think about it. What's the first thing potential new employees see when they enter an organization? The lobby. From the moment they enter an organization's doors, new employees should get an immediate sense of the company's culture and brand. Everything from color scheme to furniture reflects the attitudes and values of a company - aspects that playa huge role in attracting new talent. Reflecting culture and brand can be simple and subtle; to give a feeling of modernity and innovation, choose a clean, sleek design scheme. For a more traditional, conservative organization, choose deeper, more traditional tones and hues. Or using the space to reflect culture and brand can be more literal. A sports organization might make the office look like a basketball court or football field, or a fashion company could display clothing and accessories throughout the space. No matter what the approach, the design of the physical workspace should align with the company's brand and values.

Whether a Cen Y or a baby boomer, it's likely that the latest technology will be attractive to a potential new hire. Offering the latest technological tools is an easy way to illustrate to new hires that the organization is modern, forward-thinking, encourages collaboration and offers flexibility and mobility. Organizations that offer flexible schedules and options for mobile work are extremely attractive to new employees, especially since the number of mobile workers is expected to grow - 87 percent of executives think telecommuting will increase in the next 10 to 15 years. Through technology, such as remote access, laptops and mobile phones, employees can work almost anywhere. Consequently, technology creates a physical workspace that allows new hires to have the flexibility they crave and offers them a chance for the independent work that many desire.

To attract new employees, make it easy to be a mobile worker. Cive employees all of the technological tools they need to work on-the-go. Encourage them to work outside the office at a third place - somewhere besides the home or office, such as a coffee shop or library - or even create dedicated third places for employees in an office space away from the main campus, giving them the flexibility they want, providing the tools they can only get at the office and offering a chance for collaboration with other employees using the third place. When they're in the office, mobile workers should have a workspace assigned to them that is near their colleagues, helping foster social networks and collaboration.


Finally, it's critical that organizations set clear expectations of work - both to attract and retain top talent - and create physical workspaces that reflect these expectations. If the work is mostly collaborative, companies should create multiple meeting areas, use an open office plan and use glass instead of traditional walls/doors for a feeling of transparency. For more solitary or confidential work, organizations should employ traditional offices and rooms with doors.


Keeping Them: Retaining Top Talent

While it's important for organizations to be on the lookout for the best and brightest new employees, they also need to nurture the talent they already employ. To retain current talent, cultivating social networks is critical. Companies can use office space to host company events, such as holiday parties or celebrations, and encourage employees to have a "best friend at work," one of the most important elements of a workplace environment according to the "Gallup Q12," a survey designed to measure employee engagement. To create best friends, office spaces should foster impromptu employee interactions created by guiding employees through certain elements of the space. For instance, if an office has three floors, an employer could place all the copiers or microwaves on one floor. Having employees move through the space to a common location brings them together and fosters interaction that builds bonds.

Another tactic to help retain top talent is to use different types of workspaces to encourage collaboration and foster learning and development. In addition to traditional conference rooms, workstations and offices, companies can create spaces for impromptu meetings, such as small groupings of chairs or cafe areas, and make some of those spaces dedicated to mentoring and professional development. They can use round tables to put everyone on equal footing in discussions and choose furniture that moves easily so employees can customize spaces to their specific meeting needs. However, keeping in mind the baby boomers and Gen Xers that value independent work, companies should also offer some spaces for solitary work.

Just as the furniture should be flexible, organizations should offer flexibility and mobility to current employees as well as new hires. By doing so organizations will please employees, as well as save money on real estate costs (they'll need less office space and fewer desks) and lower their carbon footprints (through less commuting). Current employees should have access to the technological tools they need for mobile work, as well as options for working in third places, whether public or company owned.

Lastly, to help retain current talent, organizations should keep their spaces fresh through impactful upgrades. A power and technology audit is a useful way to ensure current employees have the tools they need to do their work efficiently and effectively. In addition, removing unnecessary clutter and equipment will ensure that organizations aren't wasting potentially useful space for collaboration or learning. Other upgrades include investing in new office chairs, repainting the office to brighten the mood or more accurately reflect the company's brand and culture or supplying new computers to keep employees in touch with the latest technology. These small changes will not only make employees feel valued, but they can also increase productivity.

Through thoughtfully designed office spaces, organizations can cultivate social networks, foster learning and development, encourage collaboration and support a mobile work force, making companies attractive to new hires and helping them solidify relationships with current employees. Whether it's a total redesign or just a fresh coat of paint, paying attention to the physical workplace is an effective way to appeal to all of the generations in the work force, as well as the generations to come.

Scott Ashley is the leader of Workplace Strategy for Vocon, a global architecture and interior design firm focused on transforming the built environment and enabling clients to attract, excite and retain exceptional talent. Follow him on Twitter @scottdashley.
 
gray line image
© 2010 ARVO Realty Advisors Inc. - All Rights Reserved Facebook Logo Twitter Logo