Portfolio Strategy

Six Signs You Need to "Right-Size" Your CRE Portfolio

May 12, 2017

Today’s Corporate Real Estate organizations (CRE’s) are faced with a host of strategic issues that significantly impact an organization's overall performance; like a fine-tuned machine a few misfires can dramatically impact speed, efficiency, and output. The same holds true for real estate. A few mis-alignments can have downstream impacts to your organizational, market and financial performance. Staying ahead of the game is critical, and by doing so one should recognize and understand the signs (or triggers) that point to the need to right size your real estate portfolio.

By not reading the signs, a story that reads across so many industries, significant dollars are left on the table due to excess costs, mis-allocated capital, opportunity costs and sub-performing business models.

If you recognize the following key signs your real estate portfolio needs to be right-sized, your next performance discussion will focus on refining, rather than up-ending, your portfolio strategies.

  1. Under-performing Real Estate Assets - Performance is measured through key performance indicators (KPIs) and metrics. CRE’s should have a set of indicators in place that are both common across multiple industries and industry/business specific. Examples of common indicators include square feet per seat/person, vacancy, cost per square foot and circulation factors. Indicators more common to an industry might include office/workstation size, office to workstation ratio, the number of collaborative and conference seats to overall task seats, and employee seat-sharing. Business specific measures are unique to each business model and can include such measures as cost per case, cost per pound of cut metal and throughput (innovation, market timing, volume).

    1. Significant Events within Your Business – Events can take on a number of forms and are industry specific. Some common events CRE’s need to stay ahead of are:

    2. New market growth (nothing like under-serving a market or missing market timing due to laggard real estate decisions).

    3. Significant shifts in product plans that drive the increase or decrease in resources directly impacting space needs.

    4. Mergers and acquisitions. Not staying ahead of this event will create significant issues later on, when you’re trying to unravel excess square footage, redundant locations and resources and cost and capital allocations. Typically merger and acquisitions are broken into two phase: Pre-M&A (valuation) and Post M&A Integration (operations). Having input during the Pre-M&A stage can set the stage early in the process for decisions that drive the right-sizing of the real estate portfolio.

  2. Under-performing Business Units – Given the finite nature of corporate resources, CRE’s should be cognitive to the performance of its company’s business units. Real estate can play a significant role here at both the strategic and operational level. At the strategic level, right-sizing operational and capital expenditures will allow the CRE organization to reallocate resources to priority strategic initiatives. From an operational perspective, CRE’s can work with lower performing business units to identify strategies that will assist in revenue generation and increased profit margins.

  3. World & Economic Events - What happens to your business if the price of oil rises significantly? What if you’re growing in the Asia-Pacific region, but tensions between the U.S. and China increase? What impact will a more nationalistic governing philosophy in the U.S. have on your business? Being able to identify another set of signs called “road signs” that provide a pathway to potential events can give the CRE a leg-up on, and inform, real estate decisions before world and economic events have downward impacts on the real estate portfolio.

  4. Playing the Timing of the Real Estate Market – The ability to see forward in the real estate market is critical to CRE success. Foreseeing variables in the real estate market will impact your decisions pertaining to acquiring and disposing of owned assets, renegotiating lease terms, or relocating to lower-cost markets.

  5. Enabling Technologies – Technology is vastly changing the way we do business, interact with our markets and break-down barriers to innovation. A recent survey indicated that 60% of CRE organizations had not aligned their portfolios with new technology-driven realities. Predictive analytics and self-serve automation are dramatically redefining the “front door” of the health services industry, driving a new real estate delivery model.

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