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Survey sees decline in corporate downsizing.

If headquarters space needs are a good indicator of corporate America's health, the days of corporate downsizing may be on the wane and a trend toward corporate expansion may be beginning, according to a study by Deloitte & Touche LLP and NACORE (the International Association of Corporate Real Estate Executives).

The national survey revealed that 55 percent of corporate real estate executives have needed to increase their headquarters space during the past three years, and 61 percent anticipate a need to increase their headquarters space during the next three years.

The results of the national headquarters bench-marking survey, conducted by the Realty Consulting Group of Deloitte & Touche in conjunction with NACORE, were announced at NACORE's 21st Annual Symposium and Exposition in New York City.

"These recent and anticipated increases in space needs were predominantly attributable to change in head-count," said Mark Klender, senior manager, corporate real estate services, of the firm's Realty Consulting Group. "This is a good sign that corporate America is rebounding," said Klender, who spearheaded the survey of corporate real estate executives on the costs and plans for headquarters facilities.

Surprisingly, alternative uses, such as space hoteling and employee telecommuting, are responsible for only a small portion of recent and anticipated space needs changes (4 and 7 percent, respectively). "This flies in the face of what might be expected, given all the recent attention to alternative uses," Klender said.

Trend Toward Leasing More Space

The majority (55 percent) of headquarters are housed in single, stand-alone buildings. More companies own their own headquarters buildings (53 percent) than lease them (47 percent). This is a trend that seems to be changing, however.

Of those survey respondents indicating that they will need to acquire additional space, 71 percent indicated that they will lease space, and only 29 percent plan to own. "This finding has significant positive implications for the commercial real estate market," said Klender. "Corporations seem to be reluctant to own or build more space and are looking for the flexibility that leasing provides. This buttresses signals that the beginning of a recovery is occurring in the commercial real estate market."

Current Locations Remain Favorable

Nearly half (42 percent) of headquarters have been at the same location for more than 15 years, and more than three-quarters (79 percent) have been at their location for at least five years. Of the headquarters that have moved within the past five years, moves within the same metropolitan area are predominant (83 percent). In addition, almost half (42 percent) of companies relocating to another metropolitan area stay within the same state.

Back-Officing

Although back-officing of administrative functions appears to be uncommon for headquarters operations, a large number of companies (at least 25 percent) are considering back-officing as an alternative to addressing changing space needs. "It appears that back-office operations will become more common," Klender said. "This could have a major impact on big cities in terms of jobs, tax base and commercial real estate markets, if corporations move these functions to the suburbs or smaller cities," he said.

Corporate Headquarters Amenities

Corporate real estate executives report that the most popular amenities at corporate headquarters are services such as automated teller machines, mailbox services and vending machines; free or company-paid parking; and cafeterias. Nearly half (41 percent) of the respondents offer a health club or recreational facility. Day care is not a frequently offered amenity, with only eight percent of respondents offering on-site day care services.

Other Findings For Space Needs

The survey also found the following:

* The average number of employees at corporate headquarters is 1,230;

* The average corporate headquarters is 350,000 square feet;

* The average number of square feet per employee is 285;

* The split for employee work space was roughly two-thirds open configuration (cubicles and open work areas), and one-third traditional offices

About The Study

The national survey examined the setting, ownership, size, functionality, amenities, image, space needs, location and costs of headquarters facilities. The surveys were sent to a mix of NACORE member and non-member companies in July, 1994. Responses were tabulated in August, 1994.

The 180 responding corporate real estate executives were from companies representing manufacturing, finance, insurance, real estate, retail trade, transportation, communications, electric, gas and service industries. A significant majority (97 percent) of responding companies indicated that they have centralized headquarters operations. Sixty-seven percent of the responding companies have annual sales or revenue of more than $1 billion.

This is the second major study conducted by Deloitte & Touche LLP and NACORE, continuing their joint efforts begun last year. Last year's study examined the role of economic development incentives in facility location decisions.

The cost of doing business at headquarters

* On a square foot basis, leased facilities were 16 percent higher than owned facilities, i.e., $23.18 per square foot-for leased facilities and $19.95 for owned;

* Operating expenses, as a percentage of base rent/occupancy cost, were lower for leased (56 percent) than for owned facilities (96 percent);

* Leases were more common on a net basis (58 percent) than on a gross basis (42 percent);

* The most common measure for cost of owned facilities is apportioned depreciation (73 percent), rather than apportioned debt service (18 percent) or other measures (9 percent);

* There was a close split between the number of companies that allocated headquarters occupancy costs to operating units (55 percent) and those not doing so (45 percent);

* The most common methods of allocating headquarters costs are: On a pro rata basis per square footage of space occupied (50 percent of those describing how they allocate costs); On a lump sum basis, e.g., fixed amount for each store (9 percent); On a pro rata basis per sales (8 percent); and billed as part of charge when headquarters services are used (8 percent).
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Title Annotation:survey by Deloitte and Touche LLP and International Association of Corporate Real Estate Executives
Publication:Real Estate Weekly
Date:Sep 28, 1994
Words:958
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