Because property values loom large in both asset and cost calculations, effective corporate real estate management is increasingly important when it comes to value based assessments of a company. Typically the second costliest part of business after labor, real estate can easily bridge the difference between sustainable profits and financial failure.
For an example of the effect that inefficient management can have, a study by Peter J.M.M. Krumm and Peter Linneman examines the notably lower returns from corporate real estate portfolios in Europe compared to the returns for corporations overall. This indicates that a large amount of capital is trapped in corporate real estate assets when it could be invested to grow the company. Thus, it is critical, that those assets be arranged in a way that provides optimal solutions for your business needs.
In a corporate environment where most companies are making the mistake of under-attending their portfolios, some with plenty of capital to go around, this neglect can represent missed opportunities. If margins shrink, or competition intensifies, paying too little attention to one of your largest assets can become a serious and costly error. You may miss an opportunity to relocate one of your distribution centers to a space that will mean lesser miles and fuel costs for your trucks, or perhaps decreasing time spent traveling between your own locations and your customers.
Often, managers will focus on the finances of corporate real estate once finances become tight, meaning they can probably do a lot more with their portfolio to keep the business running smoothly. Some logistical tools include:
- Comprehensive analysis, encompassing all corporate properties
- Long term planning that examines how properties fit together regionally and globally
- Clear division of tasks between managers and operators
- Coordination of corporate, operations, and real estate strategies
- Transparent cost structures
- Professional management of maintenance expenses and real estate improvements
The simplest rule for maintaining a strong portfolio is that corporate real estate management should receive the same degree of attention as the financial practices associated with core business practices. In the same way that having the physical space is critical to facilitating your business, having a sound corporate real estate portfolio is a necessary component to solid finances and improving your EBITDA.
Emphasizing the importance of corporate real estate management, therefore, is an important step in realigning the culture of financial planning. When your real estate strategy is integrated with your overall corporate strategy, the entire business can be managed more effectively.
