How are corporate real estate portfolios meeting today’s challenges?
Companies have a lot to consider when assessing if their real estate portfolio is suitable for their changing needs
Managing a corporate real estate portfolio has always been about balancing long-term efficiency and stability with short-term agility.
But more flexible ways of working, the growing focus on sustainability, rapidly evolving employee and business needs and the desire for spaces that reflect corporate values are all increasingly impacting portfolio decisions.
Iain Franklin, head of consulting, corporate solutions at JLL, explains more about the big questions facing corporate real estate teams.
We’ve heard a lot about how the pandemic has accelerated shifts in ways of working. How has it impacted those making portfolio decisions?
There’s no doubt it’s created both challenges and opportunities. Portfolio decisions for many just got simpler, ushering in known rightsizing plans at speed. While for others, the question of how much space their businesses require has become a complex, multi-layered question which they’re still grappling with.
Essentially, three camps seem to have emerged over the past 12 months; those who were already optimised and agile who are now tweaking their strategies; those who were in the process of evaluating their needs anyway who are accelerating their plans, and then those who are now looking to make fundamental changes to their portfolios and see this as the right time for their transformation.
Nine months ago, there was panic. Many companies actually did very little and could afford to wait. But decisions are now being made as leases get closer to expiring.
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There seems to be conflicting decisions in terms of space needs; we’ve heard anything from get-back-to-the-office to permanent remote working being the norm. In such an environment, how can undecided companies accurately assess their space needs?
There’s a shift away from portfolios decisions being based purely on staff numbers and current size, as has historically been the case. For the undecided, of which there are many, they need to focus on how real estate can best support their core business strategy and ambitions.
That will mean a closer look at their product or service lines, where those are in their respective lifecycles and their future ambitions – such as a specific business line penned for growth or an incubator, and most importantly what type of space that will require.
Occupancy planning will also play a bigger role for companies that make remote working a part of their workplace strategy; there are a growing number of tech-driven tools on the market to help monitor and optimise space usage to ensure the right amount of space is available on any given day, while reducing both long-term and short-term surplus.
It’s clear to see how a more agile workforce will require a more varied portfolio. But specifically looking at flex space, how is it impacting today’s portfolio decisions?
Everyone is looking for more flexibility whether in the private or public sector. There’s a clear role for flex space as part of a wider, hybrid portfolio which blends core space for collaboration and interaction with more flexible space for an increasingly agile workforce and peaks in demand. The unsolved problem though is the mid-week peak, and flex space alone won’t solve this without wider behavioural change.
Office buildings have always been part of a company’s playbook for attracting highly skilled employees yet as fewer employees spend their working week in a single location, does the high-impact, trophy HQ in a smart postcode still matter?
Absolutely. There’s still a need and desire for a prestigious, downtown headquarter building for those firms with a sharp eye on talent attraction and retention. But not all firms need the top talent, and what a company does and how it does it in terms of business culture, management and corporate purpose are as important as location and in-office perks.
Sustainability is another priority factor for today’s companies. What role are net zero considerations having right now?
It was on the tip of my tongue. For a while, financial cost was the main driver. But now it’s cash and carbon. Implementing change purely to cut costs was always a tough call – but driving change to cut carbon and eliminate waste is far more palatable to employees and a better reason to rethink the portfolio. More companies are aware of the advantages both financially and in terms of their credentials.
Sustainability is a rapidly growing priority – our C-suite conversations this year are consistently prioritising it above financial cost. Many companies know that many older buildings aren’t up to scratch. We’ve seen some opt for multi-tenanted buildings over the ‘status’ of a standalone building, because they feel the benefits of being in a greener office outweigh having a logo above the door. And they do so knowing that green credentials are tipping the balance for the latest generation of talent.
Right now, the focus seems to be on rightsizing. But a portfolio decision made today in 2021 necessarily going to be the best one come 2025, or 2030? And what will this mean for office lease lengths?
Leases, you would think, will get somewhat shorter in response to the desire for more agility across the entire portfolio. We’ve seen some companies take a wait-and-see approach with very short-term renewals but mid-term, there won’t be a dramatic shift in lease length from where we are now in Europe.
But it’s important to remember that investment needs a return. Landlords and occupiers alike can only invest in refurbishment with both the employee experience and sustainability in mind if they have the long-term stability that longer leases deliver. Ultimately, it’s in the interests of landlords and occupiers to work together to optimise available space and maximise its value. And where there is too much uncertainty to do so, the rapidly maturing flex market offers a great interim solution.