As quality real estate facility costs continue to rise, companies need to view real estate not just as an expense but as a strategic asset that can enhance business performance, influence culture, attract talent, and create long-term enterprise value.
The most effective management teams we work with are rethinking their approach to real estate. Below are five key considerations for evaluating how real estate can significantly enhance shareholder and stakeholder value:
Align the Real Estate and Business Strategies
Before assessing buildings, costs, or locations, consider the primary drivers shaping an organization:
Strategy: What is the organization’s direction, and how will it get there?
Culture and Brand: Who is the organization, and what does it stand for? When you think about the organization, what do you think about it?
Human Resources: How many generations exist in your workforce? How are you meeting their needs?
Operations: What does the organization need to operate effectively, efficiently and productively?
Finance: What is the financial condition of the organization, what are upcoming capital expenditures, what is the debt picture, are there acquisitions of other companies in the future?
One of our recent clients, Fibergrate, tasked us with locating a property offering a campus-like feel that could expand as the company grew. That requirement wasn’t just about square footage; it was about finding a workplace that supported each business driver.
Make Real Estate Represent the Corporate Brand and Culture
When our long-time client Curtis Group Architects merged with Grace Hebert Architects to form GHC Architects, they wanted a new identity to reflect the merged organization as it moves forward. GHC was savvy enough to understand how the real estate facility could be accretive to this new initiative.
Choose a Workplace Designed for Today’s Multigenerational Workforce
With four generations represented in today’s workplace, an office must support a range of expectations around amenities, technology, flexibility, and collaboration.
Long-time national client, Weaver, singled out one primary initiative when it looked to relocate its facilities in Dallas. It focused on locating a facility that was more reflective of the brand and would significantly improve the hiring and retention of personnel.
Prioritize Operational Flexibility and Efficiency
As the workplace continues to evolve, the facility footprint plays an integral role in how an organization functions and operates. Experiential amenities play a critical role in getting employees back to the office. They also impact office functions and play a role in developing new leadership and communicating internally across departments. Evaluating how effectively a facility creates productive and efficient employee experiences is essential to bringing people back to the office.
Evaluate Real Estate From a Financial Performance Perspective
Since the second half of 2012, our market has experienced growth like we have never seen before. Construction costs have increased over 40 percent in the last three years, while property insurance and property taxes have skyrocketed based upon national disasters and investment property sale activity over the last seven years. Since the pandemic, we have experienced a clear flight to quality, and this has created a market for the haves and have-nots.
At the same time, organizations seeking to bring staff back to the office have demanded the latest in technological advances, experiential amenities, and reasonable commute times, typically 30 minutes or less. This has driven corporate users to very distinct submarkets, which has fueled demand for the Class AA properties. This demand, along with rising construction costs and ever-increasing operating expenses, has driven lease rates to new highs that are typically relegated to markets like New York City.
Economic uncertainty, interest rate fluctuations, and the ongoing evolution of bringing employees back to the workplace add to the challenges for the C-suite decision-makers. It is not an enviable position to be in, and not for the faint of heart.
Real estate should reflect how an organization operates, leads, and grows. The bottom line goes beyond the profit and loss margins to factor in the people. They are the heartbeat of the company and often represent an organization’s largest investment.
This CRE opinion piece was written for D CEO by Scott Morse, managing partner of Citadel Partners.
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