business cycles and corporate shocks: building a robust portfolio virginia gibson...
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Business Cycles and Corporate Shocks:Building a Robust Portfolio
Virginia Gibson
LandSecuritiesTrillium FellowDepartment of Real Estate and Planning
The University of Reading Business School
Current Challenges
A recent survey of UK corporate real estate managers showed that nearly two thirds of
respondents were carrying surplus floor space and
in almost a quarter of cases this accounted for between 10% and 30% of
their overall floor space (FraserCRE 2003).
New Structures Emerge – Outsourcing
-BPR
Mid 80’s EmergingE-Business
Early 90s
New WorkingPractices/ AlternativeWorkplace Strategies
Corporate CycleGlobal
Repositioning
Reductions & Tightening of Operations
Repositioning
BroaderRetrenchment
Early 2000’s
Technology Downturn
Product/Service Lifecycle
New Product or Service Concept
IntroducedIdea Gains Support &
Acceptance
IDEA Joins Main
Stream
Competitors Create Knockoffs
Competition Grows
Original Replaced By
Next generation
15-25 yrs60’s
80’s 7-10 yrs
Product/Service Lifecycle In A Networked Global World
New Product or Service Concept
IntroducedIdea Gains Support &
Acceptance
IDEA Joins Main
Stream
Competitors Create
Knockoffs
Original Replaced By
Next generation
2000+ 3 months- 3 yrs
Responding to Business Change
Time: Months/ Quarters/ Years????
Sales?
Revenue?
Headcount? TheHockey Stick
Challenge
Responding to Business Change
Time: Months/ Quarters/ Years????
Sales?
Revenue?
Headcount? Determiningthe cut off
Point is Critical!
Adding Value or Mitigating Risk
What is the role of the Corporate Real Estate Manager in a volatile market situation?
Risk vs. Reward?
Risk management in CRE
• Awareness of risk exposure– Risks related to projects and the operation of
individual properties are reasonably well understood
– Balance between paying now or paying later less well understood
– More strategic CRE decisions have created financial risks that could have been mitigated
Strategic Business Risk
An unexpected event or set of conditions that significantly reduces the ability of managers to
implement their intended business strategy
Sources of Risk– Asset Impairment Risk– Operations Risk– Competitive Risk
(Simons, 1999)
Strategic Business Risk and CRE
• Asset impairment risk– Decline in value due to market macro / micro movements– Decline in value (brand) through failure to reinvest– Physical impairment -flood, fire, terrorist attacks
• Operations risk – Structural failure of an key operational facility– Legionnaires disease resulting in closure
• Competitive Risk– Competitors portfolio improves - location, design, layout– Changes planning regulations impede growth– Property costs increase eating into profits
Strategies and Risk
• Core-Periphery Portfolios• Alternative Workplace Strategies• Total Property Outsourcing
Core Portfolio(functional flexibility)
• Freehold / Long Lease• Control all aspects• Ability to change use
1st Periphery Portfolio(numerical flexibility) • Short Lease / License
• Some services expected• Ability to exit
2nd Periphery Portfolio(short-term flexibility)
• “Pay as you use”• Required at short notice• May be specialist space
Core / Periphery Portfolios
Source: Gibson and Lizieri (1999)
Alternative Workplace Strategies
Space • Cellular• Group Office• Open Plan• Combi office• Activity-based
Place • Central Office• Telework Offices
– Home office– Satellite office– Business Centre– Guest Office– Instant Office Use
• Personal office• Shared office• Non-territorial• Formal support• Informal Support
WHERE?WHAT?HOW?
Towards greater efficient and
effective use…..
Total Property Outsourcing
Corporate Real Estate Portfolio
FacilitiesManagement
AssetManagement
Ownership Funding
ONE CONTRACT
RetailOffice Warehousing
Core Space
Flexible Space
Conclusions
Can an organisation have a truly robust portfolio?
• Getting the balance of commitments right• Leveraging internal and external space to
deliver workspace solutions• Buying yourself options for the future