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Corporate Real Estate Adapts to Global Challenges

Global market complexities are making strategic real estate planning more critical to business health - and more challenging - than ever.

March 2011
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Improving productivity by implementing strategic real estate initiatives is defining best-in-class organizations. These organizations are also shifting from short-term survival tactics to medium-term, strategic initiatives drive enhanced portfolio productivity.

As global corporations responded to tightening financial conditions and shrinking revenues, corporate leaders sought to downsize real estate, primarily due to its roughly 10 percent contribution to total operating costs. With leaders focused on portfolio costs, CRE teams must meet aggressive performance targets and mandates that emphasize strategic action to improve business productivity. But many organizations did not anticipate the speed and intensity by which leadership attacked real estate costs. CRE teams around the world felt this pressure, as illustrated in the survey response of many CRE executives supporting their businesses with more than one tactical real estate cost-reducing activity.

Adding even more complexity, the event horizon during the financial crisis clashed with the planning horizon of most CRE strategies, which typically spans at least three years. Now, a change in strategic focus is necessary to deliver value and guidance that businesses require as companies recover.

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Going forward, companies will seek better utilization rates in consolidated portfolios, which will dampen further demand for office space in mature markets. Utilization rates, currently about 40 percent, present a huge productivity improvement opportunity to corporate occupiers. Leadership in mature markets will increasingly challenge space utilization, triggering CRE teams to develop real estate initiatives that achieve a more efficient and productive workplace.

Creating an efficient workspace that accommodates modern work styles (i.e., makes the workplace more productive) will help CRE leaders build added business value. Additionally, expanding the scope of programs to incorporate a comprehensive set of initiatives will help organizations meet goals. CRE and business leaders must partner to address barriers to implementation to realize improved productivity. They must conquer fear of change, technological deficiencies, and lack of executive buy-in to realize the maximum potential of workplace programs.

The financial crisis brought attention to the structure, role, and future direction of CRE within an organization. Many survey respondents struggled to articulate how the organization would be designed to support the business in the future, presenting an opportunity for CRE leaders to start thinking differently about the role and focus of CRE, and also a likely shift from the tactical to the strategical. The data suggest CRE organizations make a more valuable, distinguished, and strategic contribution to the overall business and its growth. Greater visibility and engagement with the business allow the CRE community to make more contributions to the company's future.

Seventy-seven percent of survey respondents called the quest for enhanced productivity, right-sizing the portfolio, or a desire to change the work culture and nature top influences of future real estate strategies.

Key Takeaways
CRE teams must change to stay relevant and responsive to business needs. Based on the themes of smart growth and productivity, five fundamental strategies can drive CRE change and adaptation:
• Generate a long-term plan for CRE team evolution that supports and facilitates the wider business growth plan.
• Emphasize real estate portfolios to drive enhanced productivity and effectiveness.
• Fully leverage the service provider market to increase capacity and capability to balance right-sizing pressures with the pursuit of selective growth opportunities.
• Re-focus and restructure the CRE team in response to growing scrutiny from senior business leaders and to drive a strategic agenda.
• Access fresh talent from outside the industry that will engage and manage the greater expectations of an informed C-suite.

The global financial storm changed the corporate operating and economic environment forever. CRE teams will continue to be instrumental in responding to the damage. They will be equally central in re-setting agendas for new economic and operational realities, and in leveraging the unparalleled opportunities for growth, profit, and innovation that the future holds.
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