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3 ways CRE and facility management can influence corporate strategy in 2019 and beyond

How you can become more strategic in light of the new accounting changes

Summary

Now that new FASB and IASB lease accounting standards have gone into effect, you may be wondering how you and your real estate and facility teams could be affected. With your real estate leases now appearing as liabilities on the corporate balance sheet, CRE has a huge opportunity to become more influential.

   Your real estate portfolio is likely to get more attention from executives and investors moving forward. And so will the leasing and space management decisions you make.

You can wait for that to happen, or you can get ahead now by:

  • Optimizing your real estate portfolio
  • Identifying ways to reduce space costs
  • Gaining more influence in your organization

Read this paper to learn more about the three ways you can help your organization successfully navigate the challenges of the new lease accounting standards, as well as chart a solid course for the future.

Introduction

On January 1 of this year, new lease accounting standards from the Financial Accounting Standards Board (FASB ASC 842) and International Accounting Standards Board (IASB IFRS 16, or AASB 16 for Australia) went into effect.

The new accounting standards require that leases — including your real estate leases — will now be recognized on the corporate balance sheet. While these changes are intended to bring more transparency to your company’s expenses and liabilities, they also mean your real estate portfolio will garner increased attention from your C-suite. Click here to make sure your organization isn’t put at risk by the new lease accounting standards.

First, as your leases begin to appear on the balance sheet, your real estate portfolio will have increased visibility and impact on your organization’s P&L. At the same time, you can also expect increased reporting requests. As your organization seeks ways to minimize the impacts of the new accounting standards, they’ll be looking to you to provide data about your real estate portfolio that you may not have been asked for previously.

What could be perceived by some as challenges can, in fact, be opportunities for you as a CRE professional. As your organization begins operating under the new lease accounting changes, it’s a perfect time to explore new ways to optimize your real estate portfolio and align to strategic priorities. With CRE now poised to capture more of the spotlight, you can rise to the opportunity by taking steps to lessen some of the fallout of the new standards and, in doing so, demonstrate value to your executive leadership.

#1: Optimizing Space Utilization

Workspaces are continuing to evolve as evidenced by shifts in how office space is being planned and utilized. While open-plan offices were once in vogue, now office “neighborhoods” are gaining popularity. These flexible spaces foster brainstorming and collaboration when appropriate, while also providing private and quiet spaces for employees to focus on individual work.

Companies that offer remote work opportunities to employees are seeing an increase in underutilized space. And a growing dedication to employee well-being is resulting in strategically designed spaces with more daylight, quiet corners, and special acoustics that increase employee comfort and motivation. Click here to learn more about creating a workplace to meet the needs of today’s agile workforce. 

As workplaces evolve to reflect these emerging trends, CRE must evolve, too. As your real estate leases move to your company’s balance sheet, you will want to be certain that you’re using your leased spaces to their greatest benefit and in ways that best serve your organizational priorities. You can optimize your space utilization by:

  • Understanding all of the costs associated with existing spaces and looking at your total cost of ownership
  • Gaining greater visibility into the performance of your real estate assets
  • Using data generated from IoT devices, like utility and occupancy sensors, to better understand current space utilization
  • Leveraging scheduling tools to increase utilization and person-to-desk ratios

8 Questions to Ask When Evaluating Your Real Estate Efficiency

As your C-suite becomes more interested in your property leases and their associated costs, you can take the helm by proactively identifying opportunities to be more efficient. Here are eight questions to get you started:

  1. Which of your leases have the best utilization? And which have the worst?
    Identify those properties in your fleet that are raising the tide, as well as those that could be dragging you down. Hone in on what’s working and what’s not, so you can replicate success.
  2. Can you move people from other business units or nearby locations into a single space?
    Evaluate opportunities to consolidate based on geography, paying particular attention to upcoming lease expiration dates.
  3. Can you occupy a smaller area or floor?
    Seek out ways to improve utilization—and generate income to offset costs—by consolidating your team in a smaller area and subletting the remaining space.
  4. Can you sublet space for more than you’re currently paying?
    Research available market data to help you determine if this is possible and, in doing so, create an even more compelling revenue opportunity.
  5. Do any of your leases have buyout options?
    Explore purchasing over leasing—particularly if the location is good—to create advantages like adding a potentially appreciable asset to your balance sheet, stabilizing overhead costs, and providing flexibility to manage the property to suit your needs.
  6. Is there an opportunity to terminate a lease early?
    Weigh the short-term penalty against the resulting long-term savings to determine if it’s worth exercising this option.
  7. Can you redesign the space to increase utilization?
    Consider other ways the space could be used or configured to maximize utilization. Sometimes the answer isn’t eliminating the space, but reworking it to better meet your needs.
  8. Are you leaving enough capacity to not disrupt the business?
    Be sure to strike a balance between efficiency and flexibility. While you’ll want to tighten up where possible, you don’t want to feel too squeezed or be unable to support flexing business needs.

#2: Increasing Your CRE Agility

Not only is the design and use of spaces changing, but so is the entire workforce — at an accelerated rate. An S&P 500 company now has an average lifespan of less than 20 years, down from 60 years in the 1950s. And in an effort to compete with the speed and adaptability of newer, more nimble firms, older legacy companies are having to change the way they structure internal teams.

Combine these factors with economic cyclicality, the expansion of new technologies like automation and machine learning, and fierce competition for qualified employees, and the questions for any organization then become how much space is needed, who is using it and when, and how well can it support employee satisfaction and productivity.

To be able to quickly address changing needs and reposition existing real estate assets, whether it’s acquiring shorter-term or more flexible leases, or turning to third-party spaces to provide alternative work environments, the net result is that greater agility in CRE is required. In fact, 67% of respondents in a recent CBRE survey believe that real estate portfolio agility is critical to their overall success.

You can increase your agility by:

      • Maintaining a single system to collect and aggregate all leasing information, with detailed terms and timelines for each.
      • Identifying which facilities can be consolidated and which are no longer needed.
      • Unearthing opportunities for expansion through comparison of long- and short-term leases and rent.

#3: Establishing a Real Estate Center of Excellence

To be able to optimize space and increase agility effectively, you need to be able to draw upon a reliable, centralized source of data. It’s this centralized data that provides the foundation upon which you can build a center of excellence to help you prepare for the shifts ahead and strategically position your organization to meet them.

Your real estate center of excellence should encompass all of the necessary information about your properties and leases to act as a single source of CRE truth for your organization. It won’t just provide the data you need, but it will enable collaboration and knowledge sharing with other areas of your business, like Finance, HR, and others who play a part in CRE initiatives.

Equally important, you can use your center of excellence to standardize your CRE strategies, processes, and best practices. As you bring more rigor to your decision-making, you’ll find that documenting and formalizing your processes and best practices doesn’t just help you rationalize your real estate activities and decisions, it can elevate CRE’s role and influence to a higher level in your business. When you’re able to easily access and analyze data about your entire real estate portfolio, you can move beyond simply showing value to exponentially increasing the value you provide.

Armed with the right tools and information, you can help your organization minimize the impacts of the new lease accounting standards by optimizing your space utilization and lowering total cost of ownership. You can also increase your organization’s agility and response to changing workforce dynamics and real estate trends. Click here to learn more about measuring actual space utilization of your real estate portfolio. 

Center Your Center of Excellence on IWMS

As regulations, economic cycles, and industries evolve, CRE will continue to play an integral role in optimizing workspaces and their associated costs. By establishing a real estate center of excellence around an Integrated Workplace Management Solution (or IWMS), you have the strong foundation you need to help your company navigate the challenges of today — and tomorrow.

With easily accessible data at your fingertips — everything from occupancy rates to property value to maintenance costs — you’re able to analyze how space is being utilized today and identify ways to increase efficiency. You also increase agility by collecting all leasing information in one place to quickly determine the most viable facilities in your portfolio and find opportunities to adapt and expand.

Supported by an IWMS, you can:

      • Access all of your property data in a single view.
      • Facilitate collaboration with Finance, HR, IT, and others.
      • Proactively identify cost-saving improvements.
      • Link space use to lease term to strategic acquisition to make better decisions.
      • Confidently make recommendations to your C-suite.

More than ever, you also need to partner with your finance team to share a single source of truth that allows you to rationalize and measure the impact of CRE decisions.

An integrated workplace management solution (IWMS) with robust lease management and financial reporting capabilities will provide the centralized data access your entire crew needs to align your efforts.

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About Trimble Real Estate & Workplace Solutions

As a global specialist with over 35 years’ experience, we help customers transform the way they plan, manage, and optimize their real estate portfolios, buildings and workplaces through cloud-based CAFM & IWMS software. With Trimble technology you can improve real estate performance, space utilization, and workplace experience; while reducing costs and ensuring your organization meets financial compliance. Learn more at: https://realestate.trimble.com/