The Uncertain Future of the Corporate Real Estate Profession

By February 12, 2016Lease Accounting

Earlier last week I attended a dinner in San Francisco of a group of corporate real estate executives. During the evening I had a chance to speak with several of the attendees, and queried what were the major issues being discussed by the group at their 2 day meeting. A number of topics came up including the subject of Corporate Wellness, Sustainability, and Strategy. But the most urgent question on their discussion list was “what is the future of the corporate real estate profession.” This question led to a number of speculations but no real consensus.

Perhaps the greatest concern was one of irrelevance. Would the growth of outsourcing, and shared services render the role of the internal real estate profession as superfluous or irrelevant? Real estate and facilities management is not a core activity in many companies, (so the argument goes) and there are senior executives who want to eliminate or outsource non-core functions. Another concern is the possibility that another corporate function such as Information Technology or Human Resources would absorb the real estate function and depend primarily on outside service firms for transactional support.  A third possibility is the emergence of specialty service firms who combine technology services with real estate and facilities management services. This scenario is popular with companies who outsource much of their IT activities and are partial to the outsourcing model to reduce operating cost.

I think this concern is unrealistic if not disingenuous. Real estate represents the second highest cost for most companies. As new companies emerge, they will need real estate of some kind for product development, workplaces, and manufacturing. Service firms alone cannot fully understand the needs and unique cultures of most companies, and at a minimum, management will need executives with the domain knowledge and experience to direct and manage outside service firms. If anything, the corporate real estate profession will grow with globalization, as international firms expand into global markets.

The relevance (and growth) of the corporate real estate function and profession will be highly correlated to the degree with which the function is closely tied to the business strategy of the enterprise. Thus, it is a matter of success whether the corporate real estate executive focuses on strategy and process versus transactions and operations although these functions are critical.There are many examples where the corporate real estate function developed strategies which delivered substantial cost reductions, asset  enhancements, or progressive and flexible workplace environments. These are the corporate real estate professionals who earn a place at the senior management table, and prosper. Those who focus only on transactions and day to day operations become candidates for outsourcing. The choice is clear, and many at the dinner the other night were professionals who exemplified these principles of strategic leadership.

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