Insight - A casualty of the financial crisis: The corporate palace

Mon Mar 4, 2013 2:03am EST
 
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By Ilaina Jonas

(Reuters) - In the past year, defense company SAIC Inc SAI.N has shrunk the office space it either owns or leases by 306,000 square feet (28,428 sq meters), the size of about five football fields.

Now, it is thinking about tearing down many of the walls at its headquarters in McLean, Virginia, replacing private offices with open-floor layouts. Fewer offices mean the same space can accommodate more people, which will help cut costs further at a time when the defense industry is facing a downturn.

"The consequences of making smart real estate decisions are more pronounced because we have, candidly, greater cost pressures, greater competitive pressures today than we have had in years," said Mark Sopp, SAIC's chief financial officer. "It has to have the latest technology and collaboration environment, but it's got to be smaller and cheaper than what we might have otherwise built 10 years ago."

The palatial headquarters that came to symbolize the rise - and the fall - of companies such as AOL-Time Warner and CIT Group Inc (CIT.N: Quote) may have had their day, executives and real estate experts said. While the bare-bones headquarters favored by Wal-Mart Stores Inc (WMT.N: Quote) may be too spartan for many, there are plenty of companies rethinking real estate costs as they look to boost margins in a slow-growing economy, they said.

In many industries, such as financial services and technology, real estate ranks among the top expenses. More efficient use of office space can lead to tens of millions of dollars in annual savings - a boon for the bottom line at a time of uncertain revenue growth.

"Organizations are looking very discriminately at costs because, in a lot of ways, their fundamentals have changed as a result of the recession," said Lenny Beaudoin, senior managing director of CBRE Group Inc's (CBG.N: Quote) Global Corporate Services.

As a result, companies have been consolidating their locations. Some are considering selling the real estate they own and redirecting the money to other uses such as research and development. Technological advances have helped them get rid of file cabinets and big desks. Long tables, benches and other collective working spaces are replacing closed doors and windowed offices.

In 2008, the average office space per person was about 250 square feet. Now, the average is 150 square feet, said Christian Beaudoin, research director at Jones Lang LaSalle Inc (JLL.N: Quote). He predicts that will shrink to as low as 125 square feet by 2017.   Continued...

 
SAIC Inc. corporate headquarters in McLean, Virginia is shown in this September 2009 handout photograph. REUTERS/Picture courtesy of SAIC/Handout