It’s easy for those in the industry to fall into over-simplifying what corporate (or commercial) real estate is. This world we have chosen is extremely broad. It covers every industry that exists or used to exist. It covers retail, office, warehouse, and manufacturing. It covers big enterprise and mom and pop businesses. The business world happens because of CRE. If you don’t have a place to operate from, your business isn’t going to go far.
An effective CRE strategy (corporate or commercial) involves understanding what is important to you at both the time you are making any given decision and the times after that decision when you are stuck with it. Just because you are signing a 3-year lease doesn’t mean you aren’t making a 10+-year decision. It takes overcoming a lot of friction to pick up and move an existing site. Importantly, the things you worry about today often aren’t the things you will be worrying about tomorrow.
Now, tie in the fact that the decision has more than just a time-based impact. Your CRE decision making impacts how the on-going business will recruit, hire, find customers, and generally operate. The decision also dictates a large degree of the intra-office culture that will exist (offices in the ‘burbs have a different vibe than offices in a downtown). Get the decision wrong and you could negatively be impacting operational profitability.
Let’s step back from any given location decision. Managing a real estate portfolio, even one as small as just 30 locations, because a time consuming and complicated activity. If you miss one lease event, you could easily cost your company a lot of money and operational flexibility. If you aren’t familiar with your negotiated lease clauses, you could be spending money on something that is actually the landlord’s responsibility. Don’t keep your data up-to-date and it becomes surprisingly easy to forget about a location that you have somewhere.
It’s no surprise that CRE teams often roll-up to the finance organization. Understanding lease accounting rules and the impact of a lease on your cash versus GAAP reporting is complicated. That lease you are signing is essentially a financial instrument; if you don’t understand it’s financial qualities, you don’t understand the document at all. But at the same time, if you treat the decision as purely a financial one, you will quickly find yourself with a real estate portfolio that does not reflect or support your operational reality. Rolling up your CRE teams to HR or Operations doesn’t solve anything, it just leads to similar problems.
None of this even starts to address the problems with CRE technology. Let’s start with the fact that there is no equivalent to SAP for real estate. Sure, IBM Tririga and other platforms make a claim to being enterprise capable. But the reality is that operationally, these systems rarely live up to the hype. It’s no wonder why either. Real estate is the owner of no data except for leases (location, clauses, lease costs) and building plans (seats, space). They get data on headcount (new hires, work-from-home, leavers, etc.) from HR. They get data on many of the financial aspects from Finance (non-lease costs including taxes, facilities operations, utilities, insurance). Getting all of that data to connect and talk correctly can be a significant ordeal.
I mentioned the changing decision environment above but it comes back here because on-going changes to business operations impact the overall management of the real estate portfolio. If you are shifting to more work-from-home, you need less space. Suddenly decide to bring all those people back in, you need to have somewhere to put them. Consolidating back-office locations is a great idea but can increase operational risk. Move back-office support back into multiple hubs puts you in a position of mixing types of space all over again.
CRE is often like the tides. Everything changes on approximately 3-year cycles. Expand, contract. Risk mitigation, operational aggression. Focus on the culture, focus on cost. Up economy, down economy. Something is always changing and CRE is always at the front of it for execution but rarely in terms of really understanding what the business is trying to do.