If you manage a real estate portfolio, you’re probably feeling the pressure to reduce costs and improve efficiency. But you can surprise and delight your CFO without trimming excess space. Corporate real estate expert Denis McGowan walks us through some innovative solutions for optimizing and monetizing real estate portfolios.
Corporate real estate is expensive, so improving portfolio efficiency will likely be a top priority for many.
Though it’s top of mind for a lot of workplace and real estate leaders, efficiency doesn’t have to be limited to trimming excess space. It can also include earning revenue or maximizing the value from your existing space, maintaining the flex that the hybrid working era demands. Optimization and monetization are a balancing act, and while metrics for assessing the efficiency of real estate portfolios are changing, technology can help us along the way.
Let’s dive in by getting a handle on real estate portfolio efficiency in general.
Real estate portfolio efficiency: What it means and why it’s important
Real estate is one of the largest capital expenditures in any organization, and companies must balance the challenge of continuing to make a profit whilst reducing costs.
The first step to cutting costs is understanding your current performance—then, you can measure it and begin to transform. Having the right tools to understand how your space is performing and being able to measure and benchmark it is key. You need data sets to gain insight, measure that performance, and change it.
Assessing the current efficiency of a real estate portfolio
Historically, you would use the traditional methods of square feet per head and cost per head. Going forward, you’ll have revenue per person and square feet per experience; you’ll measure how people feel about the environments you create. Achieving a positive ROI by measuring effectiveness via square feet per head and cost per head is virtually impossible in the hybrid realm, as not all spaces are being used like they used to. We should have been doing it all along, but measuring effectiveness by revenue and cross-referencing it with employee sentiments is a much more relevant way to assess portfolios.
By combining revenue goals and allowing spaces to be rated by employees in the moment (think Tripadvisor) we’re developing calculations that consider two of the C-suite’s top priorities: revenue and employee experience.
Balancing space optimization and monetization in real estate portfolios
I worry about the word “balance” between space optimization and monetization because neither makes the employee happy at work.
They only create dollar capacity for the organization, of which a percentage must be invested. If you want to have a human-centric workplace of the future, savings need to be reinvested in creating the right experience.
Space optimization and monetization are both enablers and not outcomes. The outcome is about giving people a place to work, whether at home or remotely. Monetizing the space that they’re enabling is creating the capacity for enterprises to invest. That investment needs to be put back into supporting the human being, whether it’s changing a policy, adding other places to work or changing physical environments.
Successful strategies for maximizing real estate value and efficiency
During my time at Standard Chartered Bank, we did a great job maximizing our real estate because we believed in the strategy of: “Twice the experience, half the space.” We wanted to deliver twice the experience as a real estate organization and to achieve that, we would optimize and monetize the space to create capacity to invest. We wanted to focus solely on driving up the employee experience, and the office space literally was just the enabler of it.
Over time, we learned we wanted to deliver twice the experience in less space rather than being prescriptive with half. The target of “half”’ was merely a distraction where we were measured by the bookkeepers. It’s by focusing on twice the experience leveraging whatever assets you have to hand, whether it’s dollars or space, that ensures you can invest in the experience piece.
That’s why I keep talking about enabling and enablers. To me, they’re not outcomes. The outcome is the employee experience, and employee happiness counts.
Lifecycle management for long-term efficiency and profitability
The pandemic showed us just how uncertain the world is, so the best workplace strategy for long-term efficiency and profitability focuses on flexibility. This requires multiple strategies at every location and building.
A flexible workplace strategy allows spaces to be breathable, which goes beyond a single floor or a building in a particular location. Creating access to breathable space, whether within your footprint or adjacent to it, gives you the ability to contract or grow through third parties and global agreements that give you far-reaching space.
The key is the interaction; you want to create connection points. It doesn’t matter where you meet your colleagues; it’s just about meeting them, so a collision is as good as a connection. You want employees to come to your own spaces ideally, but in reality, there are lots of third-party spaces that are appropriate for connections and collisions. From co-working spaces and coffee shops, employees should be able to sign into an app and see who is in close proximity to them and meet somewhere for the day or part thereof.
After you pilot some of these things, measure them and analyze the employees’ feedback. This habit of continually assessing your spatial offerings and understanding how people actually feel about them allows you to build rich datasets that are able to adapt to changes with agility.
Opportunities for optimization and monetization in the lifecycle
Cost is always going to be pressured. When the CFO shouts, you typically use those moments to reset and rethink.
Many groups want to change and improve their work output, so looking for early adopters is key. Having data sets that allow you to respond quickly to a CFO when they ask for help to improve profit margins is always a challenge, but when looked at positively is a great enabler to change. Core ESAT/employee satisfaction is also a great enabler to drive change, poor ESAT results get the Head of HR focused in real time.
How space serves people is an important factor in employee satisfaction. There are many other things, like remuneration, but connecting with colleagues and having collision moments with them is important to people.
Once you set your standards and playbook, 80% of your work is repeatable. If you need to fit 1000 desks into a space, you don’t need an expensive architect. What you need is a platform like Saltmine and then focus your savings/investment dollars on the 20% of the space that’s really important, which is the experience. So, that includes social spaces, meeting areas (both formal and informal), and places to grab coffee and food.
Don’t spend all your effort in the areas which are typically “cookie cutter” areas—e.g runs of desks—take the time to focus those investment dollars on what’s important, the 20%.
With Saltmine for example, you can pump all your data in and learn from every project you do so that AI and machines can do the cookie-cutting going forward.
At some point, I think Saltmine and AI will also do the 20%, but at the moment, that’s where you need to focus and talk to your employees and the client. That 20% is where the differentiator for space comes in, and once educated on what and how to do it, people will get really excited and want to spend more time with colleagues.
How organizations can monetize their real estate portfolios
Given the uncertain world we live in, organizations have an opportunity to monetize excess space without giving it away forever and embrace becoming an organization with ever-changing space demands.
Could they consider bringing in an operator to manage their excess space? Can they monetize the excess space while waiting to use it, rather than gutting it out and selling or subleasing?
Why not earn some revenue on it by isolating it from your core operational portfolio? You can bring in an operator to leverage your furniture and your fit-out because we’re finding that co-working operators are getting a premium for desks that we would not get by simply subletting. It’s also good for your carbon targets due to its reuse and avoidance of landfill.
Experiment with monetizing it in this way for shorter durations, like 12 months, rather than trying to offload it for three or five years, and you might see a better return.
Innovative solutions for monetizing your real estate
Data is the key to monetizing your portfolio. You need technology to run analytics and benchmark against it quickly. A toolset that allows you to run scenarios is also key, so you can test and change through a technology platform rather than having to implement the change.
Running a suite of scenarios through the technology stack can help you deploy it in small pieces rather than doing a full-scale refurbishment or a full-scale change test, testing it, and getting feedback.
Tools allow you to reduce turnaround times for mundane tasks, giving you the capacity to focus on important things and get your client excited about them. To me, that’s the collaborative areas, the meeting suite, the reception, the cafeteria, and the auditorium. They represent 20-30% of the space, but they’re not the boring runs of desks.
Why spend expensive money on architects and design firms when you can have a phenomenal system like Saltmine do it for you? If you have a platform with your playbook embedded, you can design 80% of the space in probably 20% of the time.
Conclusion
Making real estate portfolios efficient and monetizable is key to enabling organizations to evolve to the demands of a hybrid working environment.
You’ll always need rich data to measure and benchmark performance, but traditional metrics won’t cut it any more—understanding the experience of spaces is more insightful than mere square feet per head or cost per head.
Managing efficiency and profitability might also involve rethinking how employees can also get that experience outside the office, such as through supporting face-to-face interactions with colleagues in third-party spaces and incentivizing connections.
Either way, we should spend less time on mundane tasks and more on what’s important: the experience.
Enterprise workplace leaders and teams should explore opportunities to optimize their real estate assets while considering the employee experience. But if any of this seems overwhelming, don’t worry; I’m in favor of small, incremental changes to help organizations focus on their strengths and quick wins
Optimizing your portfolio doesn’t have to be all done at once; an incremental approach can make a difference and provide valuable insights for bigger projects. Check out the blog here.
About the author
Denis McGowan joined Osborne and Company in 2023, focusing on Build to Suit (BTS) developments supporting multinational corporations (MNCs). With a 35-year international career as a senior property leader in prominent organizations such as Standard Chartered Bank, American Express, and Nortel Networks, Denis brings invaluable expertise to his role.
As the recent Global Head of Property at Standard Chartered Bank, based in Singapore, he was responsible for managing the Bank’s global property portfolio. Under his leadership, the efficiency of the portfolio improved significantly, reducing from 16 million to 11 million square feet across 60 markets. He also oversaw an annual P&L responsibility of approximately $800 million.
Denis’s extensive end-user operational experience ensures that Osborne and Company can deliver client-focused solutions, whether financial or operational, meeting the diverse needs of their clientele.
Enjoying our blog? Be sure to subscribe to stay up-to-date on Saltmine's original content with the form below!
