Strategic Real Estate Portfolio Planning: Effective Solutions | corporate real estate, portfolio planning

The global economic crisis highlighted corporate real estate (CRE) as a way for organizations to reduce costs and access needed capital. CRE leaders gained increased visibility with the C-suite as a value-driver and contributor to short- and long-term business success. As a result, the bar has been raised and corporate leadership's expectations for CRE have increased. As companies emerge from the global economic crisis, the challenge for CRE teams will be to support their organizations' growth objectives while driving continual productivity gains across their portfolios.

This will require a shift from reactively right-sizing the portfolio when business needs dictate, to ongoing, strategic planning developed in partnership with business leaders, which maps directly to enterprise goals and objectives. If your organization lacks an all-embracing strategy, you're not alone. A recent Jones Lang LaSalle client survey of select Fortune 100 companies revealed that many of the most admired companies lack a sound overall strategy that assures business alignment, efficiency, and cost effectiveness.

Lack of Robust Strategic Planning
We examined a number of Fortune 100 global companies across various industries with real estate portfolios ranging from 10 million to 130 million square feet. Many of these companies regard strategic portfolio planning as an ongoing discipline, not just an event-driven activity spurred by downsizing or mergers and acquisitions, for example. However, only a third have dedicated staff focused on portfolio strategy, and only a select few have a documented strategic planning portfolio process. With the exception of two companies, the planning cycle is directly tied to the organization's capital planning process, or is determined on a project-by-project basis.

One of the most surprising findings was that most companies surveyed do not measure performance of their planning functions. Those that do measure performance measure it subjectively, or only in terms of meeting budgets, reducing vacancy, and/or complaint volume. Only one surveyed company benchmarks performance against set metrics. Most of these companies rated their success as roughly average, though they had little basis for their claim.

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Aligning RE Strategies with Business Goals
An effective, strategic portfolio planning program aligns real estate strategies with overall business goals to deliver:
• Improved speed, flexibility, and planning for growth or contraction
• Better financial transparency, analysis, and decision making
• Optimal capital planning and deployment
• Strategic analysis of locations

CREs should take advantage of their newly-earned seats at the table by facilitating ongoing dialogues with their businesses and becoming an integral part of the process - not just during the business planning season or isolated business events, but throughout the year. In order to identify and apply the right solutions, CRE executives need a deep understanding of challenges and goals of the overall enterprise, as well as for each individual business line.

Ideally, portfolio teams can proactively and swiftly accommodate the needs of the business without becoming "order-takers," and provide strategic direction that creates value beyond cost savings. Once they establish credibility, CRE leaders can challenge conventional assumptions and offer ideas that not only improve portfolio performance, but also contribute to business growth and productivity. Once the CRE team has a clear understanding of business drivers and priorities. They should develop and apply overarching real estate strategies that knit the right mix of comprehensive solutions for the optimal benefit. These guiding principles should be adaptable to meet the unique needs of individual business lines and geographies, and flexible enough to respond to unpredicted business events and activities. However, they should also be rigid enough to affect consistency and discipline across the portfolio.

Data Is King
Quality data and effective strategic portfolio planning are inextricably linked: The success of one relies on the other. Unfortunately, many organizations collect occupancy data haphazardly, if at all. Good data are critical for building and maintaining credibility with the C-suite; enabling strategic decision-making; developing sound business cases for investment in real estate programs and initiatives; and for measuring, managing, and reporting performance. The data you collect and maintain should link to your performance objectives and comprehensively cover supply, demand, availability, vacancy, and space utilization, in addition to suitability, total occupancy costs, and pertinent geographical and local market factors. Data should also adhere to the "3 As:"

• Accessible: Can you quickly and easily attain complete and accurate data? Do you have ready access to benchmarks for comparing your real estate performance to peers within an industry, or type and size of portfolio? Does your data provide a historical perspective in addition to a future view?

• Accurate: Does your data offer visibility into your true vacancy, even shadow vacancy? Do you have accurate space, headcount, and financial data? Is your information real-time and dynamic, or outdated and static?

• Aggregated: Can data be easily aggregated to provide a dashboard view of portfolio performance? Can you quickly and effectively model potential scenarios, manipulating individual factors to gauge and report potential impact?

The Need for Speed
Strategic portfolio planning needs to not only be sound, but speedy. As companies grow, C-suites want to make swift, unerring decisions on all aspects of the business. The right strategic planning tools can enhance and enable the decision-making process. Turning current and forecast data into actionable knowledge allows companies to make better choices faster, impacting both top- and bottom-line results and portfolio performance. Leading-practice strategic planners address business needs rapidly by creating and "selling" portfolio solutions to meet ever-changing business requirements. This requires the ability to capture data from multiple sources - occupancy planning, lease administration, accounting, HR, facility assessments - and combine that data with headcount demand and workplace and portfolio assumptions to create a dynamic model for the portfolio.

Jones Lang LaSalle utilizes a strategic planning tool that:
• Uses maps, charts, and bubble diagrams to visually display important portfolio metrics related to costs, square feet, and headcount by geography, line of business, or asset type
• Analyzes portfolio and individual assets based on cost and other asset characteristics, including quality, suitability, and sustainability
• Recommends potential workplace solutions including user types, types of space, and average participation rates applicable for the enterprise, a line of business, or a given department
• Calculates an ideal portfolio size, seat count, and cost based on policy assumptions, such as workplace strategy or structured vacancy, or a given level of demand to dynamically demonstrate the impact of policy or demand changes
• Illustrates the gap between the ideal portfolio and the existing portfolio, and develops and displays multiple scenarios, including financial analysis, to close that gap. Scenarios are built from the asset level, defining specific asset strategies that support the overall scenario - sale, lease extension, or lease expiration
• Calculates and displays the impact of real estate policy changes on other corporate initiatives, such as reducing the company's carbon footprint or enhancing work/life balance
• Develops a business case for portfolio changes

As companies settle into the new normal, the role of CRE becomes more visible, complex, and important. Now is the time to develop and deploy a robust strategic planning program to realize the full promise of real estate's contribution to enterprise success and drive increased productivity of assets, workplaces, and people. With an effective program in place, you can deliver cost savings, but also increase flexibility, enable the work force, improve access to labor, and enhance sustainability performance - all with significant impact to the top and bottom lines.