The pandemic forced corporate real estate (CRE) strategies to evolve at a more accelerated pace than at any other time in my 25-year career. From the initial response of corporations, supporting mass home-working and keeping on-site employees safe at work, the CRE industry transformed in every aspect, from density in the usage of space to maintenance and cleaning protocols.
Fast-forward to today, and looking beyond 2022, the continued evolution of CRE strategy and the critical decisions facing CRE leaders to optimize portfolio performance will, I predict, be driven by five key themes:
For corporate occupiers of office space, portfolio changes will likely be linked to lease expiration dates, rather than accelerating change with resultant write-offs of existing obligations. But businesses with the financial strength to restructure portfolios may move more quickly. In other dynamic sectors, such as logistics and retail, portfolios will be reshaped similarly, as consumers sustain and increase online purchases. For most corporations, change will happen in incremental steps, evaluating what does work, what will work, and what impact each change has on business performance, rather than risking a radical deployment that falls short.
Companies will need to evaluate how much space is required and how to utilize the space most effectively, which is inextricably linked to how often people come to the workplace. Space provision will demand clear policies on considerations such as sharing ratios and flexible working, and increasingly Environmental, Social, and Governance (ESG). These policy decisions are key to workforce enablement and will likely impact attraction and retention of talent, especially in markets and job classifications with lower unemployment. Space provision is now integral to a corporation’s brand development agenda.
As companies re-assess their portfolios, business leaders will likely become more interested in “optionality” – the ability to make rapid adjustments as their needs and those of employees' shift. The ‘cost per employee’ may reduce as companies consume less fixed space, and if employees no longer need to be co-located full-time, companies can benefit from a more distributed workforce. By leveraging flexibility, increasing the speed and reducing the frictional cost of space optionality, companies can optimize space where and when employees need it, and even open their portfolios on a flex platform to further increase optionality. It is going to be a whole new ballgame.
Optimizing flex space has been a challenge for large corporations. For example, if a CRE leader wanted five flex desks in 50 cities, historically, they would need to transact 50 different deals or negotiate with two or three flex space firms for space. Typically, the internal cost of processing and transacting was prohibitive for the small, short leases typical of flex space. With the advent of flex space technologies, such as Optality, businesses can now efficiently transact and manage diversified workspace options with one process and one transaction. Flex space technologies are driving down costs and democratizing work locations, which in turn becomes a competitive advantage for corporations who adopt early.
Pre-pandemic, supply chains were globalized and optimized with the minimum amount of working capital tied up in inventory. With the onset of the pandemic, and geopolitical forces at play, supply chains are failing to function as envisioned. Global contracts including those for outsourcing, built on volume turnover, are being challenged. Businesses are seeking greater flexibility, resilience and transparency in their supplier partnering to lower supply disruption risk. More supply source diversification and generated labor could be the start of a new era with increased proximity and sustained competitive advantages. Given the shift of supply chain availability, the need increases for fiduciary partnerships with key, strategic service providers, and decreases for historic box-standard service models. New services and client-first transparent models are increasingly available to optimize post-pandemic portfolio and business performance, similar to the resources available to clients from Newmark Global Corporate Services.
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