Mainly for Students: CRE can be a barometer for change

At the start of my academic career, 35 years ago, we introduced corporate real estate to cynical students as a natural progression from strategic facilities management. At that time, CRE was not really on the radar of property professionals. Now, if you visit any real estate website, CRE, while not necessarily called that, is centre stage. For example, recently JLL’s splash page asked: “Is your office still fit for business?” That question is at the heart of CRE – an understanding of a client’s business and the people that make it function successfully. While companies may talk about “occupier services”, the fundamentals of CRE are about aligning an organisation, its processes and its people with its real estate assets. Before the millennium, I could not have imagined a world where a company like JLL produced a report like From Productivity to Human Performance (as it did in 2020), or Cushman & Wakefield’s research in 2022, Workplace Design for the Neurodiverse Helps Everyone. Even in 2013, Cushman & Wakefield produced a report examining the workplace needs of introverts versus extroverts. Yet I still hear of companies getting it spectacularly wrong, by not embracing the diverse behaviours and workstyles of employees. What is CRE? A good starting point is the work of Ranko Bon, writing back in 1994, who set out three key dimensions of real estate: Financial asset The economic value of real estate, represented as a fixed asset on the company balance sheet. This dimension resonates with the professional label of asset management. Physical asset The physical provision of land and buildings. The buildings provide a physical envelope in which an organisation performs its core business. This resonates with real estate development and property management. Operational asset The space inside a building that has an operational value to an organisation. The operational asset relates to the organisational space and service provision. This resonates with facilities management or workplace management. However, these three dimensions miss the all-important human asset and the increasing significance of ever diverse employees. This and the wider challenges of businesses in the 21st century have put CRE at the heart of corporate success. This intersection of the many dimensions of business, people and the planet drives the model of what is called Corporate Real Estate Asset Management (CREAM). This model looks at how alignment of the organisation (its purpose, processes, position and paradigm) with its people in the right place (buildings and location) using the right procurement strategy (flexibility, continuity and agility) that supports environmental, social and governance objectives can, if correctly aligned, boost performance and productivity. Corporate Real Estate Asset Management Source: Barry Haynes, Corporate Real Estate Asset Management: Aligned Vision, Journal of Corporate Real Estate, 2012 The pandemic accelerated an increased, global adoption of hybrid, flexible working, driven by the increasing power of employees and commitments to ESG. Understanding that “me” work can be done at home or in a third space, the hybrid way of working focuses on a new subset of requirements needed to get people back and productive in a “we” or team-based context. Many occupiers are now saying that they need to move to less space, different space, better space and more agile space; this will be explored further in the second article. How did we get here? CRE has had a twisting history of development and does not sit comfortably in traditional real estate silos. CRE demands a thorough understanding of both the design and configuration of real estate (through both the architect’s and real estate consultant’s lens), and the management of organisations and people (the management consultant’s lens). In pioneering CRE to the UK education curriculum, I started with FM or, more accurately, what we could now call strategic FM. I brought the founder of one of the first centres for FM education to Sheffield Hallam University. Initially focused on costs, it soon switched to performance and productivity. A quarter of a century ago, the talk was all about “from basement to boardroom”, demonstrating the impact of real estate on the performance of a business. Some of the most significant research in strategic FM came from Johnson Controls, a manufacturer of climate control systems, which by 2015 was one of the world’s largest FM providers. Its strategic FM business, Global Workplace Solutions, was acquired by CBRE Group for $1.475bn (£1.214bn) in September 2015. This acquisition was a major milestone in the development of CRE in real estate practices. CoreNet Global, founded in 2002 and now with a membership of more than 10,000 and representing half of the Forbes Global 2000 companies, is significant in focusing the diversity of CRE into one association and raising the profile of CRE as a discipline. Yet CRE consulting still sits hidden in plain sight in many practices, under occupier services or workplace strategy. Most worryingly, it is absent from many real estate and MBA courses worldwide. This is especially concerning when you consider the potential impact of CRE. Why is CRE significant? CRE is proven to be significant in many different contexts, largely around productivity. According to Gallup’s State of the Global Workplace: 2023 Report, employees who are not engaged or who are actively disengaged cost the world $8.8tn in lost productivity – equal to 9% of global GDP. CRE can even be regarded as a serious strategy to improve national productivity. In a 2023 study by Andreas Pfnür and Kevin Meyer, what they called real estate optimisation (or alignment) could lead to a 13% increase in labour productivity in Germany, equal to €178bn (£155bn) a year. This equates to 16 years of actual historical cumulative national productive gains. For an organisation, a classic Harvard Business School case used in the CREAM textbook illustrates that, while a 10% increase in real estate costs can boost the bottom line of an organisation by 10%, a corresponding 10% increase in productivity (through alignment) can boost the bottom line by 58%. This is the elusive “holy grail” of CRE that consultancy firms are aiming to achieve. CRE can help to attract and retain staff, providing safe, convenient, motivating and productive workplaces that drive wellbeing, ESG and, with careful and personalised alignment, individual and team productivity. It plays a major role in disrupting physical real estate and the coming together of end users and providers of real estate products. The past 30 years have seen a transition, nicely summed up by Steven Skinner, the UK chief executive of development organisation at HB Reavis, from “lazy wholesaling of office space to the retailing of office space”. When long leases, upward-only rent reviews, onerous repairs and other lease clauses are stripped away, and agile businesses demand flexibility, developers must understand their end users so much more, as the stable cash flows of the past are no longer guaranteed. Armed with this understanding they can provide targeted, added-value products that drive tenant retention and additional revenues. According to architect Gensler, improvements in the workplace environment could yield a 20% increase in employee productivity. Any office tower that does not provide significant amenities, including wellness and co-working space, will struggle. Attention to detail of air quality, through UV filtered air conditioning, the ambition to achieve LEED Platinum rating and extensive amenities, from restaurants to wellness facilities, should be backed by a commitment to curating a productive employee experience. An excellent example of the coming together of developers and CRE is ICD Brookfield Place in Dubai. Its website demonstrates how CRE and the needs of end users have shaped the solution, evidenced in their own marketing presentations. Where do we go from here? Hopefully this article has introduced the concept and importance of CRE, especially post-pandemic. Covid-19 created the perfect storm to reshape CRE, and there is much evidence of a flight to quality, agility and on-demand real estate being serviced by those involved in CRE. Further reading Corporate Real Estate Asset Management: Strategy and Implementation (2nd edition, 2017, Routledge) by Barry Haynes, Nick Nunnington and Timothy Eccles Reworking the Workplace: Connecting People, Purpose and Place (2023, RIBA Publishing) by Nicola Gillen and Richard Pickering From Productivity to Human Performance (2020, JLL) Workplace Design for the Neurodiverse Helps Everyone (2022, Cushman & Wakefield) Nick Nunnington teaches corporate real estate, property management and valuation at Neapolis University, Pafos, Cyprus. Paul Collins is the editor of Mainly For Students and teaches at Nottingham Trent University Photo © Pixabay/Pexels