What it means
The numerator normally includes rent or the equivalent property charge, service charges, business rates or property taxes, utilities, cleaning, security, maintenance, reception and workplace technology such as meeting room equipment. Some organisations add fit-out depreciation, and a few add catering and hospitality, so the definition should always be written down.
The denominator is where judgement enters. Headcount can be measured as total employees, full-time equivalents, or the number of people actually assigned to a given building.
Since hybrid working became common, many property teams also calculate cost per desk and cost per attending employee, which can differ dramatically from cost per employee on the payroll. The measure matters because property is usually the second-largest cost in a service business after people.
A finance director deciding whether to renew a lease, consolidate two offices or move to a smaller floorplate needs a number that translates square footage into something the executive team already understands. Used well, it drives specific decisions rather than vague cost cutting.
If one regional office costs $14,000 per head while another costs $8,000, the gap sends you looking for the cause: an oversized lease, a poor rent deal, high vacancy or an expensive city centre location. The main nuance is that lower is not automatically better.
Cheap, cramped or badly located space can raise recruitment costs and reduce productivity, so the figure is best read alongside occupancy rates, employee satisfaction and staff turnover.
In practice
Real-world examples.
Example
A retail head office compares its two locations and finds one costs $11,500 per employee against $7,200 at the other. Investigation shows the expensive site is only 55% occupied since a team moved out, and the space is sublet within six months.
Example
A technology company moves to a hybrid model with three office days a week. Headcount cost per employee stays at $9,400 but cost per attending employee on a typical day rises to $15,600, which becomes the argument for reducing the floorplate at lease break.
Example
A manufacturer benchmarks its office facilities cost per employee against sector norms and finds it in line, but its cost per square metre is well above average. The conclusion is that the space is efficient per head but expensively located, so the next lease review targets location rather than size.
Think of it
“Facilities cost per employee shows what your space costs per person-real estate expense per head.
Formula
Calculation
Facilities Cost Per Employee = Total Annual Facilities Cost / Average Number of Employees
A professional services firm occupies one office and employs an average of 120 people during the year. Its annual facilities costs are $640,000 in rent, $180,000 in service charges and business rates, $110,000 in utilities, $95,000 in cleaning and security and $55,000 in maintenance and repairs.
Total annual facilities cost = $640,000 + $180,000 + $110,000 + $95,000 + $55,000 = $1,080,000
Facilities Cost Per Employee = $1,080,000 / 120 = $9,000 per employee per year
If the firm sublet a quarter of the floor for $160,000 a year, net facilities cost would fall to $920,000 and the figure would drop to $920,000 / 120 = $7,667 per employee.Case study
Seen in the real world.
The following is an illustrative, fictional example. Larkfield Advisory, an invented consultancy of 200 staff, occupied two floors of a city centre building at a total facilities cost of $2,400,000 a year, or $12,000 per employee. Leadership assumed this was simply the price of a prestigious address.
A workplace study showed average weekday occupancy of 41%, with peaks only on Tuesdays and Wednesdays. The fictional firm negotiated to surrender one floor at the lease break, invested $350,000 in reconfiguring the remaining floor with more meeting rooms and bookable desks, and kept a small serviced office for client meetings.
Annual facilities cost fell to $1,560,000 against a headcount that grew to 210, giving $7,429 per employee, a reduction of just over 38% per head. Employee survey scores on workplace quality rose, because the remaining space was better suited to how people actually used it.
Watch out
Common mistakes.
- Comparing the figure across companies without checking what each includes, since one may count catering and fit-out depreciation while another counts only rent and utilities.
- Using year-end headcount rather than average headcount, which distorts the number in any year with significant hiring or redundancies.
- Chasing a lower figure without measuring occupancy, which can mean packing people into space they then avoid using.
Questions
People also ask.
Should contractors and temporary staff be included in headcount?
Include anyone who regularly occupies the space, otherwise the cost is spread over too few people and looks artificially high.
How often should the measure be reviewed?
Annually for benchmarking, but monthly or quarterly during a consolidation programme or a hybrid working transition.
What is a typical figure?
It varies enormously by city and sector, so the useful comparison is against your own history and against firms in similar locations rather than a single global benchmark.
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