“I claim not to have controlled events, but confess plainly that events have controlled me.” — Abraham Lincoln
A client of mine once told me that he refers, tongue-in-cheek, to his Real Estate Planning department as his “Real Estate Reaction” department. At the time, we were touring a building, and we both laughed as he said it because, on an interminably long tour of a very large industrial building, it struck us both as much funnier than it actually was. In the months since he made that comment in passing, I have reflected on it and realized that it highlights the Achilles’ heel of most of the traditional commercial real estate industry: the fact that we most often ignore the underlying needs of the businesses we serve, choosing instead to focus on expiration dates, net rents and expansion rights.
What is it that we still don’t see?
What is it that we are ignoring? Over the last two decades or so, our clients in businesses other than real estate have begun to take their real estate more seriously. Some of these companies have hired internal people or third parties to deal specifically with their real estate, and many have come to understand the way they deal with their real estate can play a vital role in achieving the objectives of the entire business.
Sometimes real estate is more than just real estate
Academic and professional thinking demonstrates that real estate can impact corporate objectives, outcomes and value beyond the obvious value of the assets or reduction of real estate costs. According to Linholm’s Model linking corporate real estate strategies and operating decisions to core business strategies, these are:
- Promoting marketing and sales
- Increasing innovations
- Increasing employee satisfaction
- Increasing productivity
- Increasing flexibility (in operations)
By engaging in true strategic planning, companies can use corporate real estate as a tool to meet their corporate objectives.
Sometimes even when we know what we should do, we still don’t do it
Karen Gibler and Anna-Liisa Lindholm define corporate real estate strategy as a “pattern of decisions related to acquiring and managing property and related services to support the overall corporate competitive strategy.”
The numbers vary, but generally speaking only about 30 percent of non-real estate companies have a formal real estate strategy (though many of the 70 percent that do not have strategies have real estate providers, real estate departments and occasionally real estate objectives).
The word “strategy” certainly forms part of the service offering of most commercial real estate service providers. So, where is the disconnect? As an industry, we in commercial real estate have somehow lost our way between knowing that most non-real estate companies need a real estate strategy and actually helping them to create one.
For “strategy,” we often provide leasing and marketing timelines, negotiation tactics and databases of critical dates. This results in reactive decision-making where real estate service providers get surprised by and are called to act quickly on the changing needs of the business with respect to real estate.
This cycle of neglect-urgent need-reaction-neglect repeats itself endlessly within a company until it is broken by the development of a true corporate real estate strategy.
Easier done than said?
Companies and their real estate service providers can easily move in the right direction by beginning a dialogue about business needs as opposed to simply real estate needs. With a thorough understanding of corporate objectives, plans can be made with respect to the real estate that support those objectives, thereby eliminating “Real Estate Reaction” departments for good.
A lawyer by training, Kate Hay is Vice President of Client Strategy for Colliers International in Canada. Over the last 15 years, she has worked in almost all aspects of the business — as a consultant, lawyer, broker and in the CRE department of a large, publicly traded retailer. Kate loves spending time with her two amazing sons, and trains for and competes in triathlons in the small amount of time not spoken for by family and work.