I have spoken over the last six months to many corporate real estate leaders dealing with the no-win scenario of being told by Finance to cut costs by reducing space while being told by the business that there must be enough space to maintain a 3-day-a-week in-office mandate. The two directions are incompatible in the long term and impossible for a CRE team to work towards independently. While holding two conflicting ideas simultaneously can lead to innovation, it can also lead to gridlock.
Real Estate is ultimately a function centered around supporting the goals of the business. It must provide the space necessary to generate revenues, profits, and customer support while also establishing a financial trajectory in line with business requirements. It can only achieve both if the business and finance have somewhat compatible objectives. Recently, those objectives have strongly diverged in ways where both may be overreacting to current conditions. Finance may be looking to cut too much too fast while the business is looking to hold on to too much in the hope that their employees magically begin using the office again. Meta recently made a big bet against the office paying out 7 years’ worth of rent upfront to get out of their 18-year lease. It is only one example, but it is an intriguing data point.
Getting all parties on board to change the entire direction of a real estate portfolio is not easy. It will involve, at a minimum:
- Many leaders rejecting the direction outright no matter what
- Higher than normal capital expenses and one-time costs to achieve real estate outcomes impacting short-term cash for long-term real estate gains
- Fear, uncertainty, and doubt from all parties until the model is proven to work years in the future
- An entirely new approach for real estate leads to engage with business partners to plan, deliver, and communicate space
- Creating all new standards for how a workplace is designed, built, and operating
- Retraining 3rd party partners on the new standards for the workplace
- Providing Facilities Management teams with all new SOPs and short-term support to handle the change
- Getting HR teams to develop policies that support employees with the new real estate direction
- A greater level of communication around projects and overall direction for the real estate team than has ever been done before
- Complete and total support from the senior leadership of the company on the direction and that no site will receive an exception (that is not to say that all sites will be the same)
- Real Estate leaders having empathy and support for their teams going out on a limb to deliver something new to, not just the business, but to them as well while dealing with the barbs of doubters
- An ideal first few pilot sites to try the new model out on to get early wins in place with (hopefully) positive business feedback
And that is the bare minimum just to get started regardless of whether your portfolio is 15 sites or 15,000. Regardless of the class or type of space. Regardless of the average size of offices in the portfolio (although the smaller the office, the more difficult this process becomes). Starting down this path is the start of a difficult multi-year effort that only pays off if everyone remains aligned on achieving the right outcomes and the right support (financial and resources) is put in place and maintained.
Very few organizations have ever pulled off this type of restructuring. Many companies pull it off just for a few key sites where there is more support, but a full portfolio is a different story entirely. I have been part of this happening but it was a very rocky road for 2 1/2 years before the program settled in and began to snowball. Leadership was absolutely key as any doubts from those responsible for the delivery would have ended everything before it began. Wrangling the many cats necessary to pull it together was a huge effort with no net or playbook.
But this is what company after company in the current world wants to do. On paper, it makes perfect sense. If you have too much space, reduce your space. Unfortunately, the reality is much messier.