Redefining the Corporate Real Estate

A newer look at facilities and facility managers as corporate assets

 

VDM Verlag, 2008
ISBN: 9783639002676

(as published in the Commercial Real Estate Network, sep09, vol17, issue3)

In today’s work environment, the competitiveness of an organization is directly related with how effectively and efficiently that business manages its resources. Corporate real estate assets are termed as the fifth resource, after the traditional resources people, technology, information and capital. In addition, for many organizations, facilities-related costs are second only to the cost of labor.

Although these two characteristics should convince organizations that judicious management of their real estate assets is a major factor, expenditures on these buildings are generally regarded as a ‘sunk’ business cost, which cannot be avoided. The prevailing view for most companies is that the level of management associated with controlling facilities-related costs is not sufficiently demanding or sophisticated enough to necessitate the skills of a specialist or the attention of the business’s senior executives. Nevertheless, companies that want to preserve their competitive edge in the market are beginning to see the importance of treating their corporate real estate as an asset and manage them accordingly at the C-Suite level.

They recognize that corporate real estate/facilities fulfill two critical roles in supporting the work of the organization and the realization of its competitive strategy. The first role is to physically support the production process. Corporate real estate provides a central place for people to gather and for work to be done. The second role is the symbolic representation of the organization to the world. The physical setting of the organization is seen by its employees, customers, and suppliers as the embodiment of the company’s values and goals. A sound corporate real estate strategy harnesses both the logistical and symbolic power of workplace and puts it to work to complement the competitive strategy.

Failure to accomplish facilitating these business goals imposes heavy burdens on the organization and its users. These burdens may include lost productivity of people and activities housed in and served by the facility, increased operating costs to overcome the mismatch of needs and facility capability, or increased worker absenteeism and health care costs related to on-the-job stress. Furthermore, the goals of users or owners may change, leading to requirements different from those the facility was initially intended to fulfill. Many of the technologies of modern facilities, as well as the activities they shelter and support, have changed substantially in recent decades and are continuing to change. These changes lead to rising expectations about the services and amenities a facility should provide. Rising expectations can effectively shorten the useful life of a facility and are the essential characteristics of obsolescence. Accommodating rising expectations is often costly, but failing to accommodate change can be even more costly.

Office buildings are typically designed to last for at least 50 – 60 years, and in their initial 15 – 20 years they are expected to serve to the original function they are designed for. Yet, due to the rapid changes in technological advances, office buildings that are 20, 10, even five years old today can be subject to obsolescence. Even new buildings, under certain circumstances, are being renovated to meet the needs of the market before they become inadequate or ineffective due to obsolescence, or turn out to be redundant due to a change in demand for their services. Thus, in today’s world, it is reasonable to consider almost any property not categorized as part of the market’s new-construction stock as an “older building” that is eligible for renovation and/or adaptive reuse. Office buildings are one of the major assets of companies enabling them to maintain their competitive advantage. Successful and effective facility management of corporate assets means highly efficient personnel, which translates into minimum cost and maximum profit. Preventing office buildings from getting obsolete, adaptability to change and emerging technologies protects organizations from foreseeable and excessive costs. All of these facts demonstrate the indisputably important role that facilities play in corporate success.

To minimize the impacts of obsolescence, the aging of a facility should be regularly monitored against the possible changes related to the uses a building or certain spaces within the building are expected to serve (i.e., functional); the cost of continuing to use an existing building, subsystem or component in comparison with the expense of substituting some alternative (economic); the efficiency and service offered by the existing installed technology compared with new and improved alternatives (technological); or the broad influence of changing social goals, political agendas, or changing lifestyles (social, legal/political, market). Such changes are often embodied in the adoption of new standards or codes, rising expectations of performance, major technological change, major change in functional requirements, major organizational change, shifts in property values, poor maintenance or abuse of systems, or aesthetic shifts. These events and shifts spur obsolescence.

Many professionals seemingly use the term “obsolescence” whenever they judge that substantial action is needed to return a facility to full service, and they do not distinguish among the factors giving rise to this need. Yet, new facility uses and their new demands; new materials, technology, and procedures of construction and operation; new air pollutants; and new laws and regulations exemplify changes that lead us to alter design methods and expectations of acceptable service long before older facilities are abandoned. Similarly, changes in organizations, variations in urban real estate markets, and the opportunities presented by new equipment and materials often lead us to renovate long before facilities and their parts are worn out.

Today’s phenomenon for such a change is widely known as “Green Building”, and its leading advocate is USGBC’s Leadership in Energy and Design (LEED) initiative. LEED-EB: OM, short for Leadership in Energy and Design for Existing Buildings: Operations & Maintenance, rating system provides the single greatest opportunity for businesses to green their built environment. By implementing these green building strategies to existing buildings, organizations are able to increase their real estate value, while significantly cutting their operational costs.