real estate future proofing
The age of austerity will drive corporate real estate managers and facilities managers towards renewed innovation and efficiency, says Glenn Corney.
Responsibility has set the scene for a low growth environment with its downward revision of economic growth forecasts over the next five years. Below trend growth will heighten
The real cost of real estate T
he twin pressures of financial austerity and environmental responsibility are increasing boardroom attention on corporate real estate costs. The newly-formed Office for Budget
Our research has found that most corporate real estate
pressure on already fragile occupier markets, while occupiers themselves, braced for an economic slowdown and possible double-dip, need to focus their efforts on reducing real estate costs while meeting corporate social responsibility requirements. Occupiers need innovative, long-term solutions. History teaches us that recessions can
spark creativity. The severity of the Great Depression, for example, left a remarkable legacy in the spectacular civic and commercial architecture of Liverpool and Manchester as well as the creation of the modern high street. New habits were born out of necessity. And they may have to be again to meet the challenges faced by public and private sector occupiers. The intractable economic realities and growing environmental pressures have generated a sense of urgency. So there are short- and long-term
considerations which must be balanced.
managers and facilities
managers are unhappy with their current ‘performance dashboards’ – the metrics used to measure real estate performance.
Performance measurement and benchmarking can be used to drive improvement on the status quo in the short term, while over the longer term these tools can also act as sensors to identify the need for and means of doing different things. So what are the challenges on the horizon?
Boardroom Scrutiny
Real estate costs are typically second only to labour costs as the highest overall company expense. Leases are one of the most important issues in shaping the attitude corporate occupiers have towards their real estate. Many organisations have lamented the lease inflexibility which cost them during the recession. A point forcefully made by retailer JD Sports chairman Peter Cowgill at the BPF Annual Conference on June 12th, describing leases as “amazingly rigid”. Going forwards, the onus is on real estate managers to consider lease flexibility more broadly in the context of their business; short and long-term interests need to be balanced. At the corporate level, real estate costs
will be scrutinsed much more diligently if proposals to include operating leases on company balance sheets come into force. The white paper proposals, put forward by the International Accounting Standards Board (IASB) and the US Financial
10 l Property Management Select l july/august 2010 l
www.pm-select.co.uk
Accounting Standards Board (FASB), aim to increase transparency and could come into force as soon as 2012. The implication would be a much more powerful voice lobbying landlords over lease inflexibility: instead of the real estate managers complaining the CEOs could start to enter the fray.
Environmental Agenda
Another issue gaining traction at boardroom level is corporate social responsibility. The clamour for organisations to adhere to best practices on energy and space use, carbon offsetting and waste minimisation is emanating from employees all the way up to government. The issue is inescapable but business
and real estate are yet to wake up to the potential impacts. For example, space occupancy alone accounts for almost three quarters of all carbon emissions, according to recent research, with energy management practices exerting a much lower impact on overall carbon emissions. Space utilisation is crucial. Furthermore, with the Carbon Reduction Commitment (CRC) coming into force this year and financial penalties for non-compliance, there is an even greater imperative on effectively managing environmental impacts. A recent Npower survey found that
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