Corporate real estate: an introduction

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Corporate real estate an introduction

• Geoff Keogh
• Property
• University of Aberdeen Business School

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Module aims and objectives

• Study objectives
• To generate awareness and understanding of real
  estate in a business environment
• To examine the contribution of real estate to
  business value
• To integrate financial and strategic aspects of
  real estate
• To relate techniques of market analysis to
  strategic choice in the use or holding of real
  estate

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Module aims and objectives (contd)

• Learning outcomes
• To comment critically on competing approaches to
  the management of corporate real estate
• To advise on the development of integrated
  business and real estate strategy
• To design and undertake appropriate research on
  corporate real estate problems

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Module aims and objectives (contd)

• Professional and transferable skills
• ability to search for and extract relevant
  information and data
• critical analysis and synthesis of published
  material
• techniques for the strategic analysis of real
  estate as a corporate asset
• report writing and verbal presentation skills
  through coursework preparation
• management of individual and team-based
  consultancy/research exercises

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Teaching schedule

• Topic coverage
• Introduction to CRE
• CRE and corporate strategy
• CRE and corporate finance
• CRE issues in retail
• CRE issues in business services
• CRE issues in industry and logistics
• For detailed teaching schedule see course guide.

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Teaching method and assessment

• Teaching method
• 1 two-hour lecture or seminar per week
• Workshops to support group work on an occasional
  basis
• Module assessment
• 1 group project and presentation 25 (nb group
  mark)
• 2 individual assignments 2 x 25
• 1 one-hour examination 25

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Key references

• Avis M, Gibson V (1993) Property Management
  Performance Monitoring, Oxford Brookes
  University/University of Reading
• Avis M, Gibson V, Watts J (1989) Managing
  Operational Property Assets, GTI, Reading
• Journal of Real Estate Research (1999) vol 17,
  no3 (Special issue on corporate real estate)
• Journal of Real Estate Research (2001) vol 22,
  no1/2 (Special issue on corporate real estate)
• Weatherhead M (1997) Real Estate in Corporate
  Strategy, Macmillan, London

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Defining Corporate Real Estate (CRE)

• CRE is industrial, office and/or retail
  space..in use by businesses..(which) impact a
  companys business operations and future cash
  flow in numerous ways beyond any investment
  return received from the ownership of real
  property. CRE managementto maximise the wealth
  of its stockholders (Manning and Roulac 1999)
• At the same time that real estate decisions are
  specialized, they are also highly integrating
  inasmuch as corporate real estate decisions cut
  across all functions of the business. Corporate
  real estate has direct impacts on the enterprise
  in manifold ways..is closely linked to the
  information function.is closely linked to
  financehas major marketing connections..(sends
  ) multiple messages (Weimer 1962, cited by
  Manning and Roulac 1999)

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Defining CRE (contd)

• The concept of CRE brings together all the
  perspectives typical for real estate financial,
  occupational, and those linked to business
  strategy and management.. (Kaleva and
  Olkkonen)
• Accordingly, this concept raises the
  significance of corporate real estate management
  above the traditional facilities management
  concept. (Kaleva and Olkkonen)

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Defining CRE (contd)

• CRE management is The management of a
  corporations real estate portfolio by aligning
  the portfolio and services to the needs of the
  core business (processes) in order to obtain
  maximum added value for the businesses and to
  contribute to the overall performance of the
  corporation. (Krumm, Dewulf and De Jonge)
• CRE management is..The economic, efficient and
  effective acquisition, integration, co-ordination
  and disposal of real estate resources in order to
  achieve (ever changing) organisational goals.
  (Gibson)

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Defining CRE (contd)

• CRE as a corporate resource (Gibson)
• essential resource/factor of production
• key part of infrastructure
• organisational asset/investment
• working environment
• marketing and PR tool

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CRE management

• Value added services and products (Krumm)
• knowledge of business and management processes
• economies of scale in acquisition of products and
  services
• alignment in use and management of real estate
  and real estate services
• collection of scarce expertise
• confidentiality and availability of information
• formal and informal networks
• risk sharing
• speed of action and transactions
• providing high quality services at competitive
  prices
• strategy formulation, anticipation and innovation

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Potential gains from effective CRE management

• UK businesses losing up to 18bn pa through
  inefficient use of property
• Potential to increase gross trading profits by up
  to 13
• Property is rarely on the boardroom agenda
  despite often being the second highest business
  cost after wages
• Owner occupiers waste space compared to tenants,
  losing up to 9.5bn pa
• Hot desking etc could save 6.5bn pa
• Feasible to save 1.3bn pa on facilities
  management
• potential saving of 300m pa by appealing rates
  bills
• Many businesses could release cash by sale and
  leaseback of property assets
• (from RICS Property in Business- a Waste of
  Space?)

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Economic significance of CRE

• UK private sector office, retail and industrial
  property is worth 400 bn (34 of total business
  assets)
• Property and construction services worth 120bn
  in 2002 (12 of GDP)
• Business property 17 of UK fixed tangible
  assets
• UK commercial and industrial property is 64
  owner-occupied and 36 tenanted
• Tenants use op to 1 less space per employee
• Tax burden on UK business property 1.8 of GDP
  higher than each of UKs top 5 trading partners
• (from RICS Property in Business- a Waste of
  Space?)

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Potential focus of CRE management activity

• Improve data and analysis
• Systematic collection of property information
• Financial analysis (eg property cost per business
  unit, property cost per employee, etc)
• Introduce management tools
• Affordability ratios, benchmarking, occupational
  density
• Internal rent charging, owners emulating tenants
• Active property management, lease management
• Contract management, outsourcing
• New working processes
• Hot desking, hotelling, teleworking, etc
• Technology up-grades
• (after RICS Property in Business- a Waste of
  Space?)