The State of Corporate Real Estate
28 Feb, 2007By: Richard Kadzis
Predictions Portending a More Strategic Role Are on Track for 2010
Forge a vision for the future.
That’s what CoreNet Global did in 2004 with the launch of Corporate Real Estate 2010, or CoRE 2010.
Halfway to this touchstone, how close are we to realizing the key predictions of CoRE 2010?
Our trend tracking and other evidence support the case for a strong ‘adoption rate’ of 2010-era practices surrounding the so-called globally networked enterprise and the ability of corporate real estate (CRE) to play a leading role in support of the industry’s demand side.
Three years ago, CoreNet Global worked with the Gallup organization to identify and benchmark a total of 10 management domains that make CRE a strategic corporate asset. (See sidebar.)
Recent CoreNet Global Applied Research Center (ARC) studies of several CoRE 2010 focus areas – reflecting the leading disciplines of CRE – show the industry’s evolution is on track with the expectation that CRE is a key enabler of the corporate enterprise and the corporate workplace.
Shift to Global Portfolio
Start with the dramatic shift by multinational companies to a globally integrated portfolio model.
Portfolios are today managed holistically. Companies no longer view their real estate holdings as a collection of individual properties across global regions. Location strategies are now linked to global business plans – as are CRE strategies themselves.
A new ARC Experts Survey validates the fact that the globally integrated portfolio is now one of the CRE industry’s leading driving forces defining the model foreseen by CoreNet Global.
The ARC is predicting a surge of multi-property sale-leasebacks, which are increasingly taking a new shape as corporations look to reduce ownership of property and increase flexibility. It signifies a stronger linkage to the capital markets and the use of flexible strategies to create more value by freeing up cash. Augmenting the trend are new practices such as Real Options, which add flexibility to the structure and terms of corporate leases, the ARC has also shown.
Impact on Location Markets
This new direction in turn underscores the new reality of economic development: To compete for jobs and investment that result from larger-scale corporate strategies, economic development corporations (EDC’s) now need to take a portfolio perspective and understand the much higher-level needs of their corporate clients.
CoRE 2010 also emphasizes the importance of the knowledge worker along with the emergence of intellectual capital as a corporate asset. With technology advances as a key driver, the nature of work in the increasingly knowledge-based business environment has changed. So has the demand for talent.
Talent – or the emergence of the “creative class” as reported by Richard Florida in the Harvard Business Review – is now one of the deciding factors in where companies locate or expand.
Another recent ARC finding confirms the CoRE 2010 prediction that global companies choose location more for access to talent and markets than for cheap labor. This ARC survey shows a wide gap between how major corporations rate location factors as compared to the economic developers recruiting them. Access to talent and markets is much less highly ranked by EDC’s, according to the ARC.
Outsourcing as a Leading Driver
Strategic configuration management at the portfolio level is an indicator of another important change driver: outsourcing.
There’s an entirely new supply-side and asset-management mentality influencing the industry as a result.
Today’s mantra of ‘global portfolio integration’ is the byproduct of the service provider industry’s response to corporate outsourcing – once of core functions and now broadened to more strategic forms of external support.
The recently-reawakened M&A wave of consolidation of service providers further solidifies their ability to deliver a wide spectrum of corporate services on a global scale, in lockstep with the globalization of their client enterprises and the centralization of CRE.
CoRE 2010 forecasted the emergence of advanced global alliances as a higher level framework for outsourcing. The ARC also examined the degree to which service providers are becoming partners with their corporate clients and are no longer seen as vendors or preferred providers.
An ARC Expert Survey shows the rise in the number and nature of strategic outsourced services such as supply chain management, portfolio optimization and space utilization. But the same results also show that internal CRE departments are still running strategic planning and internal client relations management along with directing the external alliances with their service providers. Moreover, the study reveals a disconnect between corporations and service providers. Occupiers see the primary driver of outsourcing as increasing innovation and flexibility while their service partners rate cost control as the top reason for outsourcing.
Increase in Remote Work
There’s another dimension of value being added to integrated portfolio management through the workplace. The changing nature of work helps complete the interlocking set of disciplines that now embodies CRE. Flexibility, mobility and IT are the drivers.
While CoRE 2010 and Gallup foresaw a substantial decrease in the use of assigned space and meaningful increases in remote work, the ARC’s latest data support the Gallup predictions that home-based and other alternative work strategies are on the rise by a factor of 20%. This signals yet another evolutionary step toward our future vision of CRE: the elevation of the flexible workplace from operating efficiency to strategic effectiveness.
Richard Kadzis is Senior Contributing Editor of Corporate Real Estate LEADER Magazine published by CoreNet Global, the world’s leading association for corporate real estate and workplace executives. More than 7,000 members are based in 25 countries and manage over $1.2-trillion in real estate and workplace assets. www.corenetglobal.org