Devising a strategic commercial real estate plan in today’s market is challenging, especially after five years of recession and facing an uncertain future. But this process of developing a complete macro understanding of your CRE portfolio is paramount. Awareness of how your sites interact with one another as well as how they interact with your customers and vendors will help you in making those key financial and logistical decisions.
In an address given by Michael E. Porter to a meeting of real estate professionals at Harvard University in 1989, there are two fundamental questions in CRE strategy:
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You must understand your industry and your competitive environment
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You must decide how to position your organization within that environment.
The first point begins with reading our situation. After five years of stagnation in both supply and demand, what changes will we see in 2013 and 2014? Will workers continue to move closer to their jobs so they can work longer or more flexible hours or will new telecommunication technologies weaken this trend? Or with gas prices as high as they have been, how will transport costs change?
There are a couple of ways to address the second issue. Porter saw a need for organizations to narrow and refine the scope of their CRE. From a logistics standpoint, will it be beneficial for you to increase the number of locations to more quickly serve your customers, or cut back on your sites as a way to have more centralized regions? Be careful in answering that, as many companies will jump the gun and expand or contract to rapidly. Perhaps a relocation or two (if anything at all) would be the answer this kind of issue.
But the elephant in the living room for 2012 is newly proposed accounting standards for CRE leases that should be decided upon in the last half of the year. The new standards, adopted to conform to international practices, will shift CRE leases from operating expenses to capital assets and liabilities. Some estimates have pointed to increases in liabilities of U.S. companies by as much as $1.5 trillion.
This may induce tenants to own CRE rather than lease it. It also might drive shorter-term leases.
The accounting changes means the CRE manager who keeps his job through 2013 will do two things right away:
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Schedule a lunch with the finance/accounting department.
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Engage agile CRE management software to evaluate strategic commercial real estate goals.
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