As global markets continue to respond to the challenges posed by Covid-19 and the world heads towards a new normal, corporate occupiers are looking for the proverbial crystal ball to navigate these uncharted waters.
In the previous decade, recovering from the global financial crisis of 2008, some businesses initially took a conservative approach towards their location strategies, weighing the pros and cons of different models such as nearshoring vs offshoring, campus developments vs hub and spoke models.
As the global economy boomed, these businesses quickly began expanding aggressively, hiring in large numbers which translated into a spill-over in their corporate portfolios. The caution in the earlier part of the decade made way for a more aggressive approach, fuelled by business expansion and the hope of a long and favourable economic growth cycle.
Unfortunately, this was not to be.
A NEW NORMAL IS DRIVING A RETHINK OF CORPORATE REAL ESTATE PORTFOLIOS
The first half of this year has brought about a paradigm shift in the way businesses think about their real estate portfolio spread. Whilst work from home is a recurring theme, the importance of flexibility in corporate real estate portfolios has gathered steam. A ‘new normal’ will be shaped by businesses accepting higher levels of remote working and the adoption of flexible spaces whilst maintaining perhaps a reduced “core” portfolio.
A rethink of the corporate portfolio is a necessity given this new reality. Traditionally, real estate decisions were driven primarily by costs. Such a unidimensional approach can no longer work. Human capital is integral to the success of any firm and companies that have effectively invested in structuring their offices around their employees have been more successful than their peers.
In the post-Covid world, employees will no longer be agreeable to the same commute times they were subjected to earlier, having had the opportunity to work from home. Companies that would like to emerge as employers of choice and engage and retain their talent effectively will need to take a holistic approach to plan their city-wide portfolios – not only with the objective of saving commute time for their employees but also to create a diversification of their portfolio across the city.
PLANNING THE RIGHT PORTFOLIO STRATEGY WITH SMART ANALYTICS
While city-wide portfolio planning and optimization exercises have traditionally involved evaluating multiple scenarios, the advent of flexible office spaces has added to the complexity, making it even more challenging for corporate occupiers to decide on the most suitable strategy for them. CBRE has been helping corporate clients simulate these scenarios through its proprietary tools to drive more intelligent location decision making. Through a blend of art and science, clients are able to achieve 3 key outcomes:
- Smarter Portfolio Creation – through risk diversification planning
- Portfolio Savings – through core-flex space modelling
- Optimize Commute – through transportation analysis and route planning
- SMART PORTFOLIO CREATION: Traditionally, potential real estate options for relocation or consolidation form the base of any portfolio optimization exercise. However, companies don’t want this to be the norm anymore. By developing interactive city-wide heatmaps of their existing employees and client locations, companies can take more effective decisions around identifying potential relocation options, additional office spaces or planning their business continuity sites.
Further, potential splits across offices can be analysed by business units or teams (Finance, HR, as an example) and level of seniority (Entry level, Mid-management, C-Suite) based on their commute times to effectively arrive at the most suitable portfolio strategy.
- PORTFOLIO SAVINGS: By optimizing the footprint across different offices, driving reductions in commute times and adopting the right proportion of flexible spaces based on business unit synergies and the need for touchdown offices, businesses can effectively drive significant savings in their real estate portfolios.
Companies looking to provide transportation services to their employees such as pick-up and drop-off services can also optimize their transportation routes, driving additional savings in their transportation expenditure outlay.
- OPTIMIZE COMMUTE: Employee commute times matter and the impact of any relocation decision needs to be carefully weighed against the potential savings that it unlocks and the impact it will have on employee commute times. In recent years, relocation by companies to the city fringes has often been accompanied by proportionally high attritions following such moves. The case for shorter employee commutes doesn’t get any stronger than this.
Leveraging CBRE’s Commute Optimizer tool, corporates can understand the impact of any relocation, consolidation or diversification decisions on their workforce. Using proprietary APIs, commute times to and from employees’ homes to offices during different hours of the day can be tabulated. The analysis can be further diced based on the mode of transportation (public or private commute), and travel times and distances can be provided for each potential location. Finally, comparisons with the existing state can help business leaders take more effective decisions backed by live traffic data.
BUILD A MOAT AROUND HUMAN CAPITAL TO NAVIGATE THE NEW NORMAL
While no one has access to the proverbial crystal ball we spoke about earlier, human capital will be the differentiator amidst the new normal. Companies that can effectively build a moat around their human capital will emerge as the leaders over the next decade. Shorter commutes, smarter portfolios and significant savings – all three of which can be unlocked in a relatively short span – should be at the heart of any corporate real estate strategy going forward.
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