The future
of CRE
Operating in an environment that is more complex and challenging, the role of the Corporate Real Estate leader is becoming more multi-faceted.
The CRE function in an age of complexity
Delivering positive and productive workplaces within an effective and financially efficient real estate portfolio has always been the goal of Corporate Real Estate teams and their leaders. Yet, as findings from this latest edition of (Y)OUR SPACE ably illustrate, delivering against that modus operandi has become much more complex for two main reasons.
First, the pandemic has released the genie of flexible working from its bottle. While responses to our survey show that most organisations expect an office-centric future work style, there is no doubt that the 'where' of work will be more flexible for more people. Our relationship with the office will invariably become more fluid and flexible and, for some, a choice rather than an obligation. Practically, this means that CRE leaders will need to work harder to create a compelling, enticing workplace experience alongside a first-class working environment. It also means that 'typical' (pre-pandemic) office occupancy levels are unlikely to be achieved consistently throughout the working week. Managing a more variable footfall in the office while sustaining a positive, connected workplace experience and delivering financial and operational efficiency is the greatest challenge now facing CRE leaders.
That challenge is all the more complex due to the second reason. The significant global economic headwinds characterising the immediate post-pandemic period make delivering an exceptional, experiential workplace more costly and difficult. In turn, inflationary and fragile operating conditions heighten stakeholder scrutiny around office utilisation and the return achieved on corporate investment in the workplace and across the corporate portfolio. Although only 39% of (Y)OUR SPACE survey respondents have an explicit cost-saving target as part of their real estate strategy, real estate is often found in the crosshairs when the macroeconomic environment becomes more chastening. Recent discussions with a range of CRE leaders illustrate that attitudes towards real estate cost management are more advanced than they were 15 years ago during the Global Financial Crisis (GFC) - a time when business leaders asked their CRE teams to remove upwards of 20% of real estate costs by exiting space and more densely occupying the remaining space. But this more considered approach does not mean CRE teams are 'off the hook'. Instead, a cost control and mitigation mindset are at work, exacerbated by the current economic climate. This naturally brings more caution - and, on occasion, inertia - making sustained delivery against the modus operandi even more challenging.
A science, not an art?
So, where does this leave CRE teams and leaders? In a world where workstyle and workplace options are more variable, stakeholder scrutiny has increased, and a delicate balancing of cost efficiency and workplace effectiveness is required, the CRE function is becoming more data dependent. Two-thirds of respondents to the (Y)OUR SPACE survey saw their use of data to make real estate decisions as 'increased' or 'much increased' over the next three years (figure 1). In contrast, just 2% of respondents saw a future decline in their use of data.
Many years since the first discussions around 'big data' and its application to the CRE sphere, we are now (finally) entering a phase where 'to measure is to manage'. This is a function of both data supply and demand. On the demand side, business leaders require property data and metrics to endorse or underpin strategy, to execute that strategy tactically, or to illustrate to investors and stakeholder groups how their real estate is advancing broader corporate strategy objectives, such as ESG.
On the supply side, the increasing transparency of global real estate markets, the rise of SMART buildings that generate real-time data points (as noted in the second edition of (Y)OUR SPACE) and a stronger inter-linkage between real estate and other corporate data (e.g. HR-related datasets) all support the industry's transition towards a more numeric, scientific approach. Rapid and robust advancements in Proptech and data management, visualisation, and interpretation software also expedite this transition.
Figure 1 The growing complexity of the CRE function – % of respondents
Source: Knight Frank | Cresa 2023
Do you anticipate more global authority or more regional autonomy over decision making?
Figure 2 Regional Autonomy – % of respondents
Source: Knight Frank | Cresa 2023
CRE team activity, particularly transactional activity, is now driven less by gutfeel, a hunch, market opportunism, or a 'we've always done it like that' mentality and more by a specific business case built around evidence, data, and insight. In some senses, this leads to the demise of the 'global playbook' that many organisations developed to steer and guide the identification, procurement, fit out and operation of new sites towards specific universal standards. Delivering effective workplaces in a post-pandemic world requires greater sensitivity to the cultural differences in working style, workplace preferences and the attitudes of both employees and employers to flexible working that have become obvious since 2020.
This sensitivity may also lead to the greater empowerment of regional CRE teams over their global counterparts. 38% of respondents to the (Y)OUR SPACE survey anticipate more regional autonomy in CRE decision-making over the next three years, compared to 31% who envisage more global authority (figure 2). More tellingly, 64 of the 206 respondents to our survey who operate with a global remit anticipate more regional autonomy in the CRE function in the future - that's almost one-third. Of course, in reality, guideline parameters will still be issued via global playbooks in many organisations. Still, there will be far greater tolerance of different approaches that can better reflect cultural and geographical nuance at the workplace and portfolio level. It is all part of delivering more effective and purposeful places.
Collaboration is key
As the latest (Y)OUR SPACE survey results show, increasing organisational collaboration is one of the most critical strategic contributions that real estate can make to a business (figure 3). As the office becomes repurposed in an age of increased flexible work, a key rationale for the office becomes its ability to bring people together in person to problem-solve, create, and ideate. In so doing, the office also becomes an essential device in galvanising or enhancing corporate culture. This collaborative impulse is also found in the mechanics of the future CRE function.
55% of respondents to the (Y)OUR SPACE survey saw their collaboration with other business units being 'increased' or 'much increased' over the next three years (figure 1). As the scope of CRE teams broadens and the complexity of delivering at the workplace and portfolio level increases, so does the need to interact with other business departments such as HR, IT and finance. This makes perfect sense. Corporate real estate's transformation and/or enhancement cannot (and should not) be delivered in isolation. Creating a productive workplace environment requires strong alignment with IT systems and infrastructure, whilst more flexible workstyles can live or die on their ability to be adequately supported by appropriate hardware and software.
Similarly, transforming workplace settings (and hence supporting/influencing workstyles) needs to be fully aligned to HR policies to support better alignment between an organisation's people and its property. For example, our consulting teams have seen increasing utilisation of HR data (such as people's residential postcodes) to model the impact of prospective office moves on staff commutes. Such analysis has directly influenced the ultimate real estate decisions made, by reducing the risks associated with staff attrition.
Figure 3 Real estate as a strategic device – % of respondents
Of respondents see Real Estate as a strategic device
The top 5 strategies real estate is viewed as best supporting
- Talent attraction and retention
- Increased collaboration
- Cost management and mitigation
- Corporate brand and image
- Employee wellbeing
Source: Knight Frank | Cresa 2023
Conclusion
As the delivery of corporate real estate at both the workplace and portfolio level becomes more challenging and complex, the CRE team's management, focus and skills-set must be responsive and open to change. Whilst the age-old mandate of creating positive workplaces within an efficient and effective portfolio remains unchanged, how this is achieved is altering. It is a more scientific endeavour, one that draws directly on inputs from outside the CRE function and one that is multifaceted, moving beyond a relatively simple concern about floorspace and dots on a map towards a role that is about enhancing the interaction between people and property, the delivery of human experiences within physical environments, and the support of transformative business strategy but within distinct financial parameters.
All of this must be achieved with a growing awareness of, and sensitivity towards, geographical variance in market conditions, market practices and cultural nuance.
All this represents further evidence, should it be required, that in the post-pandemic world, corporate real estate is all about managing complexity.