Diligent companies know the impact that their corporate real estate portfolio has on business performance. Powerful companies align their corporate real estate strategy to business goals.The traditional solution to real estate and business alignment involves creating a flexible portfolio.
It can be effective, but frequently carries very high costs. An inflexible solution that combines strategic owned real estate with long-term leases may reduce costs on a per square foot basis, but increases overall occupancy cost due to the need to carry vacant space. The best solution is a three-part approach that aligns the present and future real estate needs of your business:
The Three-Part Corporate Real Estate Strategy: Must, Need, Want.
Given that business moves faster than real estate, a three part model for corporate real estate strategy can provide stability while offering flexibility at the lowest possible cost. The first step in executing the strategy is to divide a company's real estate into three camps:
- Space that it must have
- Space that it needs to have
- Space that it wants to have for the future
Must have space is space that the company anticipates needing for decades and would retain even in the face of a significant change in the economy or in the company. These are a small proportion of a company's total portfolio. Most of a company's successful space falls into the need camp. These are spaces that are successful and strategically important and that will likely stay that way for the foreseeable future. Want space is space that isn't strategically necessary, but might become so in the future.
Must Space Strategy
Must space is space that the company will retain for the long term. To that end, it's space that can be owned or leased for an extended period of time. That way, the company gets to control the space without having to worry that it will face an increased cost of occupancy in the future. It also gets the benefit of lower costs of occupancy due to having a long-term structure in place.
Need Space Strategy
These spaces should be split into two camps. The most strategically important spaces or the spaces that are located in markets that are likely to experience rent increases in the future should be leased on a long-term basis, similar to a traditional corporate real estate strategy. The less strategic spaces can be converted to temporary spaces or leased on a short-term basis. In the event that the company's need for office space shrinks, it can easily give these spaces up and focus on its core "must" and long term "need" space.
Want Space Strategy
Given the ease of allowing workers to hotel, telecommute or work from the road, "want" space is no longer a necessary part of many corporate real estate strategies. Furthermore, if the company's other space is built using open floor plans, they should be able to accommodate these workers on a temporary business until the corporate real estate strategy can be adjusted. For more on managing real estate for a mobile/flexible workforce, read this.
Using this basic strategy will allow your company to shrink or expand its portfolio based on changing business goals & demands.
The Bottom Line
Trifurcating a company's space offers two opportunities to save costs. It eliminates the amount of vacant space carried while limiting the proportion of space that is carried with higher-cost flexible leases. Instead, the company gets stability where it needs it, flexibility when it needs it and establishes a culture that can temporarily add workers without also bearing the cost of additional space.
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