Blog August 20, 2020

Space planning, occupant comfort and cost-cutting are biggest drivers in commercial real estate – even before COVID-19

By Jack Harrison

There is little doubt that COVID-19 and lockdown have had a profound and lasting impact on how commercial tenants are viewing their real estate. The devastating global economic impact of the crisis has left a huge proportion of corporate occupiers looking for ways to control and even slash costs – whether retailers struggling with shuttered stores and then a sobering lack of footfall, or enterprises with large parts of their office spaces, warehouses and other properties now painfully underutilised.

Furthermore, as lockdown is eased, other factors come into consideration: the requirement for social distancing, stringent hygiene measures and other restrictions; the urgent need to ensure employees, customers and visitors all feel safe and reassured as they go about their work in business settings. These now put space planning and space usage, well as occupant comfort and efficiency, at the heart of conversations about changes businesses are facing in light of the pandemic.

Space planning as a portfolio strategy

But it’s not all about COVID. The priorities and trends shaping strategies for real estate occupiers were already firmly on the radar of organisations, according to a report from MRI Software and independent research and consulting experts Verdantix. We spoke to top real estate and financial decision-makers at a broad range of organisations just at the time the global pandemic led to a wholesale shift to homeworking and impacted other ways in which businesses operate.

Interviews with leading executives from global enterprises such as ABB, Oracle and Vodafone showed that 72% identified space usage maximisation as a major trend affecting their property strategies, while 67% named occupant comfort and productivity. The respondents ranked their most important real estate priority as cost reduction (47%), with a further 37% identifying it as their second biggest priority – for a total of 84%. We would expect these numbers to now be even higher, given the stark reality of the coronavirus crisis and the havoc it has wreaked on households and businesses.

It is clear that COVID-19 has placed significant financial pressure on companies around the world and efforts to control spending will only intensify, leading many organisations to examine how they can use space – not only safely, but more efficiently going forward. Technology can play a critical role here, providing data that can be used to make informed and accurate decisions while space management can be optimised to create both a healthy and productive work environment.

Tooling up to deal with lease management as more than just a COVID priority

Lease flexibility to support operational agility was third on the list of top real estate priorities (19%), behind presence in prime locations (25%). Lease flexibility, however, will likely now be seen as a more urgent priority by many corporate occupiers as they take stock of their property portfolios and assess their options in the current climate – looking at where they are making a profit, where they are not and what they can do about it.

But again, the challenges go far beyond the impact of COVID. Many companies are still looking for help in navigating the challenges of lease management and ongoing compliance under new and tighter lease accounting changes (ASC 842 and IFRS 16), and the vast majority are looking for technology to help them, our research showed.

The in-depth interviews, which took in the 53 decision-makers’ views on proptech investments, looked at how they were using technology to deal with the requirements of the new lease accounting standards. Nearly two-thirds (63%) said software was an indispensable or effective means of speeding up compliance, while just 6% failed to see it as essential to meeting their reporting obligations.

In discussing how to maximise value from these investments, the respondents identified the leading critical or strong benefits of software for lease data management as:

  • Data centralisations and scalability (70%)
  • Enabling data-driven internal discussions (66%)
  • Reduction in erroneous data/ ensuring data consistency (64%)
  • Process control via data change tracking (59%)
  • Speed of data capture via automated data extraction (53%)

Commenting on how real estate software provides value, the interviewees offered key insights:

  • “The core benefit of software is that it massively helps co-ordinate the data reporting process, saving time and improving internal communication. If you have more accurate data, you make better decisions faster.” – Finance Director at an oil and gas firm
  • “By putting everything in one place, the opportunity is to avoid complications when assembling data. You can compare location, as well as payment and escalation terms, all in the context of IFRS.” – Senior Finance Manager from a retailer
  • “Software standardises and centralises data storage practices and gives us more time to double check accounting calculations. I can have peace of mind when reporting the results to key stakeholders outside the finance department.” – Chief Financial Officer of an electrical and electronic manufacturing firm

Pulling teams together moving forward

It is evident that real estate and finance teams the world over need to pull together to meet the many challenges they now face. Once again, the research showed this was the direction businesses across the Americas, APAC and EMEA have been taking. The interviews revealed that, going forward, 70% of the respondents saw their teams either collaborating more closely or merging together. As one head of real estate at a telecoms firm told the researchers: “We are working to make the property team more financially astute and the finance team more portfolio-aware.”

The more organisations enable cooperation across departments, geographies and teams – and provide technologies and approaches to support that – the better equipped to mitigate the impacts of the global financial crisis and put in place strategies for future success.

Download the report here to see the full results of our research.

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