Managing corporate real estate: Leading and emerging practices
COVID-19 has disrupted nearly every industry to some extent, and commercial real estate is no exception. Many market segments—particularly hospitality, retail, and office—were significantly impacted by the results of the pandemic, as owners and users of real estate worked to quickly pivot their standard operating procedures to accommodate a changing world. Working in tandem with this quick change was the realization that the industry needed to alter its approach to corporate real estate management.
CBRE and CoreNet Global partnered to survey corporate real estate (CRE) leaders and gauge the evolution of CRE’s mission and purpose, explore how CRE departments are structured and document both emerging and established management practices. The results highlighted 11 key findings that give insight into the shifting priorities of today’s CRE leaders.
1. Mission and priorities: Health & safety now shares top billing with cost savings as a leading priority informing the CRE mission
CRE leaders are reporting a major shift in their priorities as a result of COVID-19—with many objectives altered from pre-COVID times. Pre-COVID, CRE leaders’ goals most commonly focused on enabling the core business (68 percent) and delivering quality service on time and on a budget (62 percent). Today, however, the top two priorities of CRE leaders are ensuring the health and safety of employees in the work environment (71 percent) and identifying/driving cost savings (71 percent).
2. Performance metrics: CRE departments’ performance is generally measured through financial goals
Given the heightened focus on cost savings, it is not surprising that respondents noted cost-related metrics as one of the top three metrics used to guide operations and performance: occupancy costs per square foot (63 percent), cost avoidance (57 percent), and occupancy costs per occupant/seat (51 percent).
3. Reporting structure: CFO remains the most common executive role into which CRE reports
CRE departments most commonly report into the CFO (35 percent), COO (22 percent) and CHRO (10 percent).
4. CRE’s role within M&A: A majority of CREs re port early engagement in mergers and acquisitions
As CRE’s role has become increasingly elevated throughout the pandemic, it is not surprising that most respondents (80 percent) state they are confidentially involved in strategic initiatives such as M&A activity at the earliest stages. This reflects an increase over prior years’ findings (2019: 75 percent).
5. Business unit engagement: CRE leaders foresee an increased focus on client relationship management (CRM) and portfolio planning in 2021
While CRE departments have been steadily focused on improving alignment with their companies’ business units, it appears that COVID-19 is driving continued maturity of formalized CRM programs designed to foster greater alignment with business leadership and portfolio planning activities, with 37.4 percent reporting it as a heightened area of focus now versus 25.9 percent in the pre-COVID-19-era.
6. Approach to budget ownership: The pandemic is causing many CRE departments to reconsider their approach to budget ownership and associated business unit (BU) allocation methodologies
Pre-COVID-19, 62 percent of survey respondents reported direct ownership of operating budgets (either held with CRE or allocated back to the business units). Pre-COVID-19, another 17 percent reported that business units owned the facilities budgets. Interestingly, one-third of respondents (33 percent) noted uncertainty in how facilities costs will be controlled going forward. In addition to the uncertainty, respondents did convey a sense that there will be fewer BU allocations and BU-controlled budgets (14 percent less and 6 percent less, respectively).
7. Departmental Centralization: Centralization of portfolio responsibilities through CRE has become a standard industry practice
Respondents anticipate minimal change in centralization initiatives, with the majority noting their departments are already completely or primarily centralized today (72 percent). Data centers and manufacturing facilities are the most common asset types excluded from a centralized CRE’s managed portfolio.
8. CRE organizational design: The lasting effects of the pandemic have spurred many CRE departments to reevaluate the team’s organizational structure, roles, and responsibilities
When asked about COVID-19-driven organizational changes that are either undertaken or planned, 46 percent of respondents noted no organizational changes, while a quarter of respondents noted restructuring of teams (26 percent) and/or increased use of third-party providers to respond to COVID-19 demands (25 percent).
9. New Skill Sets: CRE leaders are seeking new and different skills in response to the evolution of the workforce.
When respondents were asked whether there are new or different skills in demand within their organizations, three areas jumped to the top of the list in comparison to pre-COVID-19 priorities: Health, safety, and environment (HSE) (72 percent), workplace strategy (72 percent) and change management (65 percent). Demand for technology, experience services, and smart building skills also saw notable increases, compared to pre-COVID-19 needs.
10. Data, technology, and analytics: CRE departments combine internal capabilities and service provider platforms to deliver portfolio analysis, operational reporting, CRM, and more.
The most common technology strategy noted by respondents is to leverage a combination of internally and externally owned and man aged solutions (69 percent).
11. Leveraging Service Providers as an Extension of CRE: CRE leaders are expecting to increase their use of outsourcing in the COVID era
While the use of outsourcing as a percentage of corporate occupiers’ total service delivery varies widely today, survey respondents indicate that CRE departments who leverage providers for at least half of their service delivery needs today will leverage service providers for at least 75 percent of their service delivery needs in the next three to five years. Key shifts may take place in the COVID-19-era at the midrange and higher ends of outsourcing. Further, outsourcing by service line (34 percent) has gained a slight edge over outsourcing by geography (25 percent) in the COVID-era.
Given CRE’s twin priorities of safety and cost savings, coupled with uncertainty around the future of work, this continues to be a very dynamic and unchartered time for Corporate Real Estate. Decisions and trends that emerge in 2021 promise to reshape the industry in unprecedented ways.