Your company’s real estate should, in many ways, reflect the operations which it supports. In order to achieve this, corporate management should periodically implement strategic planning sessions in order to have clarity, as well as be able to quickly capitalize on opportunities in the market.
In reality, however, many businesses’ real estate decisions are executed in a compressed timeframe, meaning market conditions are often less-than-ideal. This often results in paying a premium in values or rental rates, or giving into unfavourable terms.
Today, commercial real estate is seeing a divergence of two groups of asset classes. First, industrial properties are generally seeing explosive demand due in large part to e-commerce and online grocery sales. Second, office and retail are facing an existential crisis due to the pandemic.
That said, opportunities in commercial real estate markets across the world will be abundant as we emerge from stay-at-home orders and trickle back into the office, malls, brick-and-mortar stores, and begin to travel. The events that have transpired over the past 18 months are but another example of a changing business landscape whereby those with the data and long-term planning in place are able to nimbly adapt and protect their core business from adversity.
So, let us further examine Strategic Planning, and how it can help you optimize your real estate holdings and portfolio, as well as navigate uncertainty through data-driven decisions.
What is Strategic Planning?
Strategic real estate planning is the process of examining a company’s real estate requirements and performance and aligning it with the needs of its core business while optimizing against budgetary and market constraints.
The three (3) key objectives of real estate planning and portfolio optimization should be to improve flexibility, increase values, and reduce costs.
Specifically, they should seek to answer the questions:
What does our current portfolio mix look like? What types of space do our operations need to fulfil our business objectives? How much space of each type do we need now or will be required in the coming 2, 5, and 10 years?
How can we optimize our market presence to more efficiently reach the labour pool, as well as our customer base?
And finally, given the constraints of the market – namely, values, rental rates, and alternative options – as well as the financial position of the business, how can we execute on our real estate needs?
Speaking generally, portfolio solutions should:
- Improve flexibility to the organization;
- Increase real estate values over time;
- Reduce operating costs when and where possible;
- Create synergies across organizational departments or between locations.
As well as try to remedy the ‘pain points’ impacting real estate decision makers, such as:
- Rising industrial rental rates;
- The uncertainty surrounding office and retail space;
- Rising industrial property and land values;
- Increasing development charges; and
- Inflating construction costs.
Not only can strategic market planning and other real estate solutions provide direct benefits to your real estate holdings and portfolio, but they can have a large impact on the business, its risks, and its bottom line.
Benefits of Strategic Planning
- Reduced operating costs;
- Better ability to smooth and forecast expenses;
- Mitigate sharp rent increases upon lease expiries;
- Long-term rent predictability
- Possible TIs or concessions from Landlord;
- Possible capital injection from dispositions or sale-leasebacks;
- Increased real estate holdings and portfolio valuations;
- Possible improved cashflow from leasing;
- Improved strategic location;
- Secure space for operations;
- Better access to labour pool;
- Proximity to transportation routes; and the
- Ability to make long-term RE decisions when market is in your favour.
Summary
Overall, Tenants and Landlords of commercial space are constantly looking for opportunities to improve flexibility, minimize costs, and increase the values of their real estate holdings and portfolios.
Strategic market planning, acquiring, disposing, consolidating, renewing, renegotiating, and relocating are tools that may provide immediate rent relief and capital injections or longer-term assurances in costs that enable more accurate forecasting. They can also give corporate management the confidence they need to meet their organizational objectives. Given the uncertainty and rapidly shifting commercial real estate market, it may be prudent to explore all pertinent options available in order to make the best decision possible.
