By Ken Ashley
ATLANTA (May 7th, 2011)
In a rousing opening session to the CoreNet Global Summit in Chicago’s Navy
“Movin on Up.” The ditty signaled real estate’s increasingly important role in Corporate America. And it certainly makes sense given the many millions in savings that real estate directors have delivered over the past several years.
The Summit is held twice annually in the United States and is considered the confab for corporate real estate service providers, economic developers and so called “end users” who control tens of millions of square feet of America’s corporate office space. A combination of networking, trend swapping, and education dominate the conversations and panel discussions.
As for the Chicago Summit, another old song comes to mind describing the mood: “Shiny Happy People” by REM. It is clear that the world is looking up in commercial real estate based on the number of attendees (greater than 2,000) and their disposition (lots of smiles). We noticed a significant reduction in “Sharpie Name Tags” which occurs when someone is in transition and simply takes a Sharpie to their old company’s name. Plus there were lots of new faces from every corner of Corporate America eager to learn the craft of commercial real estate.
So what are some of the trends we heard?
Traditional news media were certainly present, but more than ever we saw many real-time postings and tweets documenting snippets of panels and social
conversations around the Summit. It was interesting to see trends immediately documented and witness a virtual play-by-play of some of the events. We met well respected CRE bloggers Bob Cook and Duke Long in person (they really exist; who knew). CoreNet Global itself is working hard to facilitate social media and did a good job of providing tools and support for Tweeters and Bloggers of all types.
Concern About On-Going Value Add
Multiple commercial real estate (CRE) leaders responsible for large portfolios expressed concern that their CFO’s expect ongoing savings. The CRE’s said they feel good about meeting plan in 2011 and even 2012, but are worried beyond that time for two reasons. First, the market is “clearly recovering” in terms of economic costs of office space. Secondly, many are adding headcount, which requires margin for growth in portfolios. Increasingly, CRE’s are turning to workplace strategy to deliver value to CFO’s. In the end, this means more employees in less space.
Tug of War
Speaking of growth, CRE’s feel like they are negotiating with business unit
leaders, who insist they are growing at a rapid clip – 10% or more was a common refrain – and the mandate to keep cost in check. The CRE doesn’t want to miss plan because of false expectations of growth. They are taking the posture of “trust but verify” in terms of real proof of need from the business units.
We will write more about this in another post, but there is some serious debate about the so called 4th place. Home, then business, then Starbucks are 1, 2 and 3. The thought has been to create a secure environment similar to Starbucks. This new ideas has evolved into the so called 4th place. But one significant CRE leader told us they are dismantling the approach at his company due to under-use. It seems that employees like to stay in proximity to their work groups and friends, so they are not using these touch down centers are frequently as envisioned. So much for Generation Y’s much vaunted desire for free-range office.
Cash is King
One panel discussed the still “dynamic tension” between cash and accounting (FASB and GAAP) in terms of commercial real estate decisions. The panel concluded that decisions should be made on the financial and business impact, as opposed to accounting impact. “FAS will change again, but you should tie portfolio decisions to business strategy and in ways that best support the company. “They went on to say that short lease terms, which allow flexibility and seem to be in vogue, could bring great “asset intensity.” This means they soak up a lot of corporate cash. The message is clear; “Don’t put your cash in the walls, put it in your business” even if the lease term needs to be longer to amortize landlord dollars.
Blocking and Tackling is Still Important in CRE
There were a number of great panels on strategy covering workplace, sustainability, and everything in between. Those are always well received, but we observed a number of younger CRE’s with a thirst for learning tactics that advance skills and help improve service delivery. We were encouraged to see so many new faces in our industry and their desire to become excellent at their craft.
It’s a Wrap till Atlanta in the Fall
The commercial real estate industry, which was the subject of doomsday headlines as recently as six months ago, is without a doubt bouncing back. We see this as a great early predictor and barometer of corporate growth. Companies are largely bullish on the future (as represented at Chicago, at least) and they have billions in cash just waiting for the right opportunity. They will be hiring, buying and spending on all fronts over the next year.
Of course there are naysayers, but based on what we heard and tweeted about in Chicago, if you stand in the way of growth, you’ll be singing Lynyrd Skynyrd’s “Give Me Three Steps”!