The days of making a simple “real estate deal” is a thing of the past for most companies as the complexity of location decisions has intensified in the last decade. Local, national and global real estate decisions are being driven by factorsother than real estate for both small and large companies. Doing a simple lease renewal has become more complex than ever as companies want to make sure they are making a strategic decision that will enable them to attract talent, receive valuable economic incentives and enhance their ability to grow, increase profitability and become more competitive. Making smarter real estate decisions can improve a company’s ability to meet these non-real estate factors in their site location decisions. To help understand how this trend will impact your next location decision, I have identified five factors changing in the global corporate real estate decision-making process that need to be considered if you want to take your company to the next level.
1. Labor availability: Dominant location driver
Without exception, every business leader I work with says that staffing is one of the biggest challenges they face, especially when the economy is basically at full employment. As a result, the demand for labor, whether it be a software developer or a warehouse worker, has become one of the most critical location factors to evaluate for companies of all types including call centers, distribution centers, headquarters, manufacturing plants and software development operations.
To combat these workforce challenges, companies are wanting more advanced labor analytics, logistical analyses and commuter studies to help understand where to find talent. They are asking for in-depth analytics to understand the impact of relocation on their existing workforce and their ability to attract future talent. To help provide a solution, an in-depth site selection analysis must be conducted that includes submarket demographic analysis, identification of competitors, labor saturation modeling, wage surveys, workforce supply-and-demand analysis, commuter studies and employer interviews. This level of indepth analysis will position a company to succeed in a location with a five- or 10-year lease.2. Economic incentives: Complex negotiation and compliance
Economic incentives continue to gain exposure to C-Suite executives due to the current media frenzy on the topic. There is significant pressure within companies from their executives to make sure economic incentives are negotiated on lease renewals, local relocations and global relocations. However, I have found there is significant confusion within these companies on who is responsible for economic incentives. Is it the tax department, corporate real estate, human resources or the business unit? Even when the responsible party is located, their ability to know how to negotiate and perform the annual economic incentive compliance becomes even more challenging.
As a result, most companies demand full-service economic incentive solutions to make sure it is done correctly. They need someone to help identify, analyze, negotiate and perform compliance. This is a highly specialized skillset that does not belong in the hands of a local real estate broker or in-house company employee without economic incentives experience. It takes a unique individual or company with legal and tax expertise.3. Classic street broker: Thing of the past
Commercial real estate has become more complex than ever due to changing accounting rules, new technology and unique demands of companies. Historically, commercial real estate brokers often operated like residential brokers. They focused on a submarket or “neighborhood” and learned every corner of their territory. They both leased buildings and represented tenants moving around. These brokers have become known as “street brokers” who are offering companies a very simple, more commoditized service with minimal strategic value.
As the commercial real estate industry evolved (which was long overdue) over the last 20 years, the role of the broker has changed due to technology, demand for higher quality service and sophistication of tenants. The companies wanted a higher level of service and wanted to avoid any conflicts of interest. The term tenant representation emerged which has now turned into a corporate real estate service provider. This new breed of service provider is focused on the companies’ needs on a local and global scale. In addition, they also provide other services such as site selection consulting, logistical analysis, economic incentives, construction management and lease administration. This demand for more services has created challenges for the real estate firms as many of them fail to have any depth in these alternative service lines.
4. New corporate demand: Holistic solution to location decisions and entire real estate portfolio.
As mentioned above, companies have requested more and more services to help them make smarter location decisions to more effectively manage their real estate portfolio. The rationale behind this is very simple. They want to understand how to maximize the benefits of their location decisions while minimizing the implications of making a bad location decision.
Call centers and manufacturing plants are classic examples of projects that are employee intensive, capital intensive and can be located anywhere. Companies don’t care as much about the cost of the building. Their focus on labor availability, labor costs, accessibility by customers and/or management, economic incentives, tax climate, labor laws, and any geo-political risks. To evaluate these issues in an integrated manner is challenging without the proper resources or business partner to help you.
Similarly, companies also want to understand the efficiencies of their entire real estate portfolio. They want to know how labor conditions compare across their global locations to help optimize what type of workers to put where. They also want to standardize their workplace to reduce their global footprint and drive portfolio-wide efficiencies.5. Technology: Making location decisions complex but more effective
The Internet has changed the commercial real estate industry over the last 20 years. Within the corporate real estate sector, significant advances in technology and tools have helped companies make better location decisions and create efficiencies across their real estate portfolio. The following list highlights some of these tools:
As companies continue to demand more products and services, corporate real estate service providers, tax firms and application developers are going to need to develop solutions that will meet the changing needs of companies. This is a natural evolution in a sector that has been slow to adopt change. It is critical that you stay abreast of these latest trends in order to bring the latest tools and technologies to your company.