Guest Column: When Real Estate Metrics Matter
- Feb 17, 2015
IPD Global Occupiers’ recently released Global Cities study revealed vast differences in key metrics across major global cities. Particularly surprising were differences between key cities for global front and back offices.
While New York and London may jostle for the world’s financial center crown, London is the clear winner when it comes to corporate real estate cost efficiency. Total costs per full-time equivalent employee in London are 32 percent lower than in New York. The driving force for this vast difference in overall efficiency is how occupiers in London are using their space. Agile working and efficient space planning are driving London’s space efficiency 41 percent lower than New York’s. Interestingly, on a cost-per-square-foot basis, New York is more efficient. London’s West End rents and the London living wage, which has been adopted by well-known private companies and certain government departments, are contributing to this difference in costs per square foot between the two cities.
The differences in real estate performance also extend to key back-office locations like Mumbai and Warsaw. These two cities have been helping multinationals reduce their administrative costs for years, but real estate efficiency tells a different story. While Mumbai’s labor costs are lower than Warsaw’s, the total cost of accommodating an FTE in Mumbai is, surprisingly, 4 percent higher than in Warsaw. A closer look behind the numbers shows that space efficiency is once again the driver of overall cost efficiency, with Warsaw coming out 8 percent more space efficient than Mumbai. Mumbai’s low labor costs are helping to drive operational costs like cleaning, security and repairs and maintenance lower than those in Warsaw; however, occupational costs like rent and property taxes remain higher in the Indian city.
Where in the world an organisation decides to locate its front- or back-office activities is often more a decision made at the business level rather than the corporate real estate level. However, organizations are increasingly realizing greater efficiencies in their real estate portfolios when they consider specific market cost drivers and local market dynamics. More would do well to consider these factors.
Nishel Sewpersad is head of new business in North America for IPD Global Occupiers.