December 30, 2002—Ernst & Young surveyed chief finance officers and chief operating officers of 103 European companies, but says while cost-cutting is top of the boardroom agenda, company chiefs are ignoring savings of up to 20% from a focused real estate strategy.
The objective of the survey, “Views of Corporate Real Estate from the Boardroom,” was to determine how well understood real estate was amongst the top decision makers. The responses show that the real estate industry has work to do to increase the corporate occupiers understanding of the potential that exists within their bricks and mortar, says E&Y.
Reducing the cost base (41%) and improving revenues (32%) were considered the most pressing commercial challenges facing businesses, along with expansion into new markets, the ongoing recruitment and retention of key talent and risk management.
The responses fell into two distinct areas of focus that of cost management and maintaining/building the business. E&Y says that, in their experience, property solutions can help to meet both these needs but frequently “an external catalyst is required to achieve the optimum solution as in-house teams frequently lack the combination of resources and knowledge of up to the minute real estate solutions”.
The survey identified the initiatives businesses are undertaking in order to address the challenges they face from the downturn in the global economy. Over 80% were implementing some form of cost reduction program, yet 37% received no management information on their real estate, and 55% had no real estate strategy.
“Ernst & Youngs experience is that sustainable savings of up to 20% can be achieved by undertaking a focused review of the real estate portfolio,” says their report. “But this highlights a common theme that has emerged from the survey; real estate appears to lack management focus, and therefore its potential is misunderstood and opportunities are being overlooked.”
Other initiatives included the outsourcing of non-core activities, consolidation and disposal of non-core assets. “There are significant real estate implications and opportunities with each of these initiatives, which are often overlooked,” continues E&Y. “The finding that 19% of organizations did not consider the real estate function until the implementation phase supports this. When asked specifically what real estate initiatives the businesses were planning to undertake in the next 12 months, the responses showed little emphasis on property performance, and a notable shift towards releasing capital tied up in real estate through disposal and securitization.
“This gain in popularity of property securitization (19% of the survey respondents planned property securitization over the following 12 months) is noteworthy, as it suggests a lack of understanding at the executive level of the optimal solutions to be applied to the property asset base. Supporting the theme of real estate being misunderstood is the statistic that 18% of the respondents had undertaken no real estate initiatives in the last 12 months, and 31% had no plans over the next 12 months. This might suggest that not all options have been fully considered.”
—Fiona Perrin
Reprinted with permission; copyright 2002 i-FM
