Corporate Real Estate operating models need to change quickly or risk becoming redundant – here’s why
I’ve spent much of the last 10 years working for the Corporate Real Estate (CRE) teams of large, global organisations. For those less familiar with such teams, they develop the portfolio strategy (building location, scale, type), execute transactions and major construction projects to deliver against that strategy, and provide the services to manage and maintain those buildings thereafter. Those teams have gone through a quiet revolution in the last 20+ years - and they need to go through another one, sharpish. Here’s why:
How did we get here? (First revolution)
There was a time when CRE teams operated very differently to how they do today (or so I’m told by my wise seniors, it was before my time…). Decisions were made locally in the absence of globally aligned strategies or frameworks, local advisers were brought in whenever they were needed, and a myriad of large or small suppliers kept the buildings clean, secure and maintained. Management oversight was limited; real estate activities were often managed off the side of the CFO’s desk; buildings were an unavoidable inconvenience of doing business.
Fast forward to today, and most major global organisations have global CRE teams of some sort. In banks, they likely “command and control” (they’re in charge of everything); in big pharma and consumer goods conglomerates, more likely a centre of excellence of varying degrees of influence over the business.
The drive to this position started in the face of challenges that could best be solved by global solutions: organisations realised quite how much money they were spending on buildings (it’s typically 10-20% of operating costs, second only to people costs) and hence reasoned they should probably think about it carefully. Similar major projects and transactions being executed multiple times in different geographies would surely benefit from standardisation and oversight to drive quality control. And the time and money spent on facilities management (one client spends £2bn on that alone) meant outsourcing such services to suppliers with global reach would drive real economies of scale.
More recently, those teams have stepped up further; data quality and the insights it provides has improved (occupancy tracking and environmental factors being such examples), and the focus of employee experience as a key CRE objective has changed the narrative of many organisations. But those teams may soon get stuck.
What’s changing?
There are three challenges facing CRE teams today:
- The transformational disruption caused by what we’ll more broadly call the Future of Work, and more pragmatically in the short-term call hybrid (post-pandemic) working and its dominant contribution to employee experience;
- The constant challenge of controlling or reducing real estate costs under inflationary pressures and challenging economic conditions; and,
- The drive to Net Zero (buildings account for broadly 40% of all energy-based carbon emissions).
An effective response to all three challenges needs a deep understanding of the business the CRE team serves. Gone are the days when headcount was multiplied by ~10 sqm / ~100 sq ft person to establish footprint needs.
Employee experience and hybrid working remain a nascent and nuanced issue, influenced strongly by local culture, local leadership preference and the realities of local geography and demographics (Manhattan and Delhi are not the same). The ability to drive cost reduction is dependent on local headcount growth projections, on-shore vs off-shore delivery models, expected levels of office presence, and more. Most global businesses have significant local variation: factors driving different objectives, financial performances, goods and services sold to that market. That variation matters, and requires high-impact, high-touch engagement to understand and support.
Where to next? (Second revolution)
CRE needs to pivot to a model more aligned to the local, business-partnering approach that HR and others already adopt.
Of course, there is still a place for global capability - reversing the trend of the last 20 years is not the right answer. The benefits that led to their creation remain intact, and such is the relative rarity of transformational events, that highly skilled local teams would be redundant much of the time. Effort would be duplicated, and economies of scale would be lost should we revert to a world with no global CRE capability. But the balance needs to shift to incorporate a local business partnering approach. CRE teams and their leaders need to evolve; starting by working out what to deliver globally, what to deliver locally, and how the two must interact.
It may sound to some extent semantic, but it matters - given the importance of the drivers outlined, business leaders that feel poorly served by their CRE teams will begin to ignore them. And a CRE team carrying significant cost and adding little value faces an existential threat.
We’re helping our CRE clients adapt to ensure they meet these challenges and compete with the best - drop me a line for a chat.
