Real estate execs must put adaptability at the heart of portfolio management
Corporate real estate (CRE) portfolios faced a reckoning in 2023. One of their primary reasons for existing is under threat, as most white-collar workers are opting to work from home. According to a 2023 Gallup poll, 90% of respondents do not want to go to the office five days a week. The problem is compounded by the fact that most firms’ existing leases are being paid for on the assumption that the space would be occupied most days of the week.
Real estate teams are currently pulled in too many directions
But this trend did not begin with the pandemic. Pre-pandemic, offices struggled. In 2019, a VergeSense study found that even at peak utilization (72%), most offices still had considerable spare capacity. The spread of hybrid working accelerated the decline of regular office use, exposing a fundamental problem with corporate properties as a business resource.
When managing properties, real estate executives were pulled in many directions. Finance told them to control costs. HR told them to remove barriers to staff engagement. Sustainability asked for reporting on energy and emissions. But none of these objectives truly addressed the issue that demand for space never really matched the supply.
The core of the issue is that real estate planning rarely joins up with other key stakeholders. Without adequate insight into the plans of finance, HR, sustainability, and indeed the C-suite, real estate is left in the dark. For instance, without foresight of upcoming M&A, real estate will not know the true size of their portfolio post-merger. If HR is planning to acquire new talent in a specific region, real estate not knowing this in advance would delay efforts to identify existing or new locations to accommodate hires. This reality means that real estate is often unable to select, purchase, and configure space that aligns to corporate goals in a timely fashion.
High-performance real estate teams prioritize adaptability
In our latest study, we collected insights from existing client case studies and a fresh survey of 33 firms to identify what is really driving the future of portfolio management. We found that ahead of cost, talent or sustainability, adaptability is the most important objective. Adaptability is a commitment to having more flexible operations that can change on shorter notice to meet the evolving goals of the broader business. To do this, real estate teams must be more connected with other parts of the business, particularly the C-suite.
In practice, this could mean more robust monitoring of lease contract terms (to ultimately shorten them), energy usage across key sites, and planning for the provision of space based on incoming demand from new hires or relocated staff, to name just a few examples. All of this necessitates formalized, regular, and deliberate collaboration with external departments. But that is not all.
Achieving adaptability requires extensive use of technology
To truly facilitate adaptability, the above examples around leases, energy, and space require some form of technology to track activity. Doing so enables teams to identify areas for change and track the impact of efforts to realize these changes. The following excerpt from our study illustrates the difference between mature teams that have a handle on this and transitionary teams that are less adaptive. On average, 79% of respondents from mature functions leverage BI, IoT and IWMS, whereas only 39% of the rest of the sample do. More extensive use of technology opens the door to opportunities for value creation.
Extensive use of technology enables digital-first portfolios
In the survey, the more mature functions reported higher performance across strategy, planning, transactions, leasing, and operations. Across these five areas, 79% of mature teams reported a 4- or 5-star performance, compared to 51% of transitionary teams. Moreover, a digital-first portfolio revolves around greater use of metrics that matter. Examples of this include portfolio elasticity (the degree of a portfolio that can absorb changes in headcount) or real-time space utilization (the number of employees present in a building unit at a specific time). Keeping tabs on such metrics indicates a willingness to capture data first—and then act on it—to proactively update aspects of the portfolio as the need arises.
In the current hybrid era, data is the most important currency. Being digital-first entails getting closer to the insights that demonstrate a portfolio’s true state of performance.
Read our study to find out more about how real estate teams that prioritize adaptability as well as technology benefit from these choices.