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Strategic Real Estate Portfolio Planning: Effective Solutions

In the post-recession, new normal, companies must do everything they can to ensure their real estate portfolios contribute effectively to the bottom line.

Spring 2011
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.

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