Developing Space Consolidation Strategies
10 High-Impact Moves to Reduce Total Cost of Occupancy
Develop real estate strategies that begin with Line-of-Business considerations, labor availability, space market conditions and sustainability priorities—resulting in both cost savings and carbon footprint reduction.
Portfolio optimization, in its simplest form, can be defined as ensuring a company has the right size and build-out of facilities, in the right locations, at the right time, and for the right cost. As companies continue to experiment with hybrid work—resulting in under- utilization of assets—they increasingly need to right- size their office portfolios and reduce the oversupply of space.
The mantra of CBRE’s Portfolio Strategy Consulting team is “Clean data is the rocket fuel of portfolio optimization.” Any optimization initiative should first begin with accurate data—both real estate portfolio data and proper forecasting of seat demand data (see High-Impact Move #1).
When CRE&F leaders are equipped with the right data, portfolio optimization decisions are fact-based and can have a marked impact on a company’s income statement and balance sheet.
Portfolio optimization can:
- Improve terms of existing leases not scheduled for exit/consolidation
- Enable better workplace and collaboration spaces through more specific tenant improvement negotiations
- Mitigate risk by leveraging agile space
- Consolidate locations through business unit, country, metro and asset-level space strategies
- Examine different markets for labor availability and diversity
- Improve overall efficiency and business performance
- Explore long-term sustainability considerations
How to Begin?
Portfolio optimization can be quite overwhelming. It’s a herculean task—but can certainly have an outsized impact on reducing Total Cost of Occupancy (TCO). Many CBRE clients ask, “Even when I have my data in order, where do I begin?”
CBRE’s Global Portfolio Strategy Consulting team has developed a seven-step process for CRE&F leaders to follow, particularly as it relates to tackling portfolio optimization amid an evolving future of work:
- Explore alternative hybrid workplace policies and measure the impact each has on future space demand across lines of business. Quantify the various cost implications.
- Develop a future workplace vision for your company, including defining the “why” of the office, locations, square footage, collaboration space, technology and experience.
- Develop alternative optimization strategies (including financial analyses), noting which facilities to exit, when, and the impact on those employees.
- Determine the actions and costs to renovate existing spaces to accommodate desk sharing and improve the employee experience (e.g., more collaborative space, technology), along with carbon impacts.
- Identify potential risks and mitigation strategies.
- Develop the business case, rationale and implementation plan for the proposed actions/solutions.
- Communicate the new portfolio and site goals to transaction and projects partner(s), with instructions to be creative in their implementation tactics.
Many companies have been holding underutilized space since the outset of the pandemic, anticipating employees’ return to the office. Corporations are now considering a future in which all employees do not return to the office five days a week and the resulting impact of hybrid work policies. Senior leaders are tired of paying for unused space and shareholders want to know what savings can be realized and how soon.
As return-to-office plans solidify, CRE&F leaders must be proactive and ensure they have a comprehensive portfolio optimization strategy in place that provides a path to value creation and improved business performance.
- A multi-national conglomerate with a significant international footprint is using office utilization analysis to right-size the footprint, especially in international locations, which is impacting 100+ sites.
- A professional services firm has decreased its footprint by 45% through adoption of event-based future office.
- A financial institution is reducing its total footprint by over 50% in one metro area, consolidating multiple older office facilities into two modern hub offices, one downtown and one in the suburbs, in response to a new remote and hybrid work model.
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