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The Future of Corporate Real Estate Revisited

By September 15, 2017Lease Administration

Early in 2015, I reported on a dinner meeting of the Corporate Real Estate Leadership Counsel in San Francisco. I was a member of this group when I managed corporate real estate at Dun & Bradstreet and was invited to attend as a guest. The primary topic of discussion centered on the future of corporate real estate. Essentially would the profession recede because of a lack of relevance? The group was concerned with the growth of outsourcing and felt that because of cost pressures, more and more companies would abandon their internal real estate staffs and turn over leasing and facility management to global real estate service and management firms. Also with the growth of alternative workplace models such as co-working and telecommuting, the need for traditional office facilities would diminish over time, thus reducing the need for professional real estate management on staff

There is definite evidence that the traditional role of corporate real estate is changing in part because of the growth in information technology, particularly mobile technology which changes the locus of work. I had felt for some time that the IT function would expand its charter and take on more of the facility and real estate management role. And now with the advent of new leasing standards, there is convergence in contract management with a whole range of assets, not just real estate assets. One scenario might involve a new management role that would be chartered to manage all contracts in the corporation including both real estate leasing and IT asset leasing.

Just as the role of the CRE executive is changing, the role of service firms will also change. The traditional real estate services firm may expand to include IT asset management and the broader function of workplace management. This hybrid services firm will be propelled by the growth of “cloud computing” which redistributes data processing, storage and network connectivity to centralized data centers, typically operated by third party service firms such as Amazon and IBM.

Despite these trends, I continue to believe that the CRE management function will continue to evolve and expand, not recede as some have feared. The reality is that real estate assets represent a huge cost and investment for most companies, and for many companies real estate is a strategic asset. This is certainly true for the retail industry, and thus management will look to their corporate real estate manager to insure close control of costs, values, and functionality.

I’m reminded of the importance of real estate and facilities management this week with the announcement of the new Apple iPhone X which took place at the new Apple “space ship” headquarters in Cupertino. This new headquarters is a $1 billion investment and represents an enormous commitment by Apple for workplace effectiveness and corporate culture of innovation and collaboration.

I could argue that the new FASB and IASB standards demand focused professional management of a company’s lease portfolio. While the tasks of lease reconfiguration could be outsourced, I would argue that it will be essential to have detailed knowledge of the portfolio and its operational importance to strategy and lines of business.

In short, I believe that the future of corporate real estate is secure because of the costs and strategic value of the portfolio. Certainly the management of corporate real estate will evolve and change over time with new technologies and new business models. But its mission to be the steward of corporate assets will continue to prevail over time.

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