How CFOs can cut real estate costs


Richard Bertasi, chief executive officer of Newmark’s Global Corporate Services, built his career helping commercial real estate clients expand and reposition portfolios worldwide. These days, however, he’s increasingly being asked by CFOs and other executives to do the opposite: trim space or at least the expense line.

“One hundred percent of my [large occupier] clients are dealing with these decisions,” said Bertasi, who is based in Manhattan at Newmark’s global headquarters. Corporate leadership recognizes that a long-term expansion strategy isn’t always about high-speed growth, he said. Sometimes, companies want to reduce space and cut costs to minimize expenses and position themselves for future growth when the timing is right.

Many finance chiefs are in cost-cutting mode when it comes to real estate as inflation is pushing up the price of everything including rents. Subleasing and landlord buyouts are just some of the solutions CFOs can consider, experts say.

The shift towards retrenchment poses some complex challenges because it comes as the world emerges from the global pandemic which has dramatically altered how and where many people work. While more people are going to work in offices, it’s apparent for many CFOs that the days of workers filling cubicles forty hours a week are over. Now, the question is not ‘if’ hybrid, Bertasi said, but rather, how flexible one’s hybrid work model will be.

Democratic or autocratic?

So far, industrial space has largely been buffered from the hybrid shift, although retailers are feeling some pain. The biggest effects are rippling across the office sector as companies reconsider alternative options to traditional supersized spaces. Indeed, during such volatility, “cost-cutting programs become essential,” said Jon Sanborn, a
Philadelphia-based real estate investor.

Once a company realizes it is time to make changes to its real estate, “the first decision is to either be democratic or autocratic regarding your real estate strategy going forward,” said Baron Christopher Hanson, principal of RedBaronUSA, a national turnaround consultancy. “Do you discuss options of potentially selling, subleasing or
moving to a more right-sized location with your key employees and executives, or do you do your fiscal homework privately in the C-suite and surprise your staff with a real estate cost-cutting announcement?”

For CFOs looking to cut costs, there are numerous options:

● Reduce the footprint. “The fastest way to save occupancy costs is to have less space,” Bertasi said. Sanborn suggested considering making employees who don’t need the office permanently remote, reorganizing floor plans and implementing desk sharing. Keep in mind that such strategies “require adjustment for the entire company,” he said. “Organizational shifts are generally turbulent, however, they work themselves into the system.”

● Sublease. If you find yourself with extra square footage, consider finding someone else to take over the excess area until the lease ends. “Subleasing is going to ultimately monetize the underutilized asset,” Bertasi said.
However, with so much restructuring occurring, there is a space glut in some regions, particularly in select large cities including San Francisco and New York. Currently, there is 166 million square feet of sublease space available nationwide, up from 97 million just 15 months ago, marking the largest since the financial crisis, according to Newmark research.

Of course, someone has to want the space, and big users are harder to find right now. Before COVID-19, the target market for anyone looking to sublease was about 50,000 square feet, compared with the average sublessee who is looking for between 15,000 and 25,000 square feet currently, according to Newmark. “Clients look to us to do the analysis to understand the financial implications of a potential sublease, and how that compares against the other alternatives to reduce costs,” said Bertasi. You also run the risk of the subtenant not paying the rent, leaving you on the hook. Meanwhile, there will likely be accounting issues to consider.

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