Don’t Overlook Your Largest Asset Class: Value Creation through Enterprise Real Estate Optimization

Abstract

Enterprise real estate assets are one of the largest largest balance sheet assets and second largest operating expense, after only human capital. Despite being material to the capital stack and financial performance, many public and private enterprises have not historically prioritized optimizing real estate. The strategic importance of enterprise real estate has elevated dramatically with the recent COVID-19 pandemic, with operating costs, utilization, and the workplace being re-evaluated by almost every entity. This newfound materiality has created a monumental opportunity to contribute new research and theory on real estate optimization relating to financial performance, productivity, talent retention, DEI, ESG, and cultural competency. The following research proposal is designed to undertake qualitative and quantitative research through a mixed-methods protocol to develop new insights on how to better align real estate with business strategy, measure the financial impact of real estate’s contribution to enterprise value, and apply these findings to enhance workplace culture and productivity. The mixed-methods protocol consists of two related studies. Both are anchored in developing a better understanding of whether real estate optimization is being proactively executed in public and private enterprises as a driver of financial performance, shareholder value, and productivity, and how optimization is being measured in terms of real estate and human capital optimization. The proposal includes an introduction, literature review, data approach and methods, data analysis, discussion of the results from both studies, expected contribution, timeline for completion of the dissertation, and concludes with new theory and insights on an under-explored frontier in corporate strategy. In Study One, semi-structured interviews were conducted with 10 subjects producing key themes from the literature review, interview codes, and practical experience, and theoretical assertions that optimization is possible when there is: 1) a centralized real estate function; 2) alignment between real estate and business unit strategy; 3) real estate has a seat at the table for long range planning, and; 4) a financial dashboard to measure the financial and earnings impact of real estate optimization. In Study Two, a Qualtrics survey was used to gather quantitative data from 48 subjects producing results based on dependent variables of: 1) enterprise real estate function contributing earnings and shareholder value, and 2) enterprises having a dashboard to measure the financial and earnings impact of real estate optimization. The key findings from Study Two are that enterprise real estate optimization is not universally mandated, practiced, measured, or prioritized as a driver of shareholder value and earnings. The evidence from the survey in this study reports efforts to foster alignment by providing a “seat at the table” for some real estate teams in long-range planning; however, the operating frameworks necessary to achieve real estate optimization within many enterprises are not in-place, such as financial dashboards, KPI’s, and enterprise real estate team’s mission to deliver earnings and shareholder value. Examples of this factor include survey results for Question 6 (whether there is untapped potential and cost savings, earnings, and workplace productivity in the enterprise real estate portfolio), where over 85% of the respondents agreed that there was potential. However, this one survey question finding could be interpreted as there being a lack of prioritization, or enterprise barriers to facilitating optimization. This possibility is meaningful because there is no logical reason why any enterprise would not want to generate new earning and shareholder value in any area of their business, especially from their largest asset class. Study Two further highlighted this key finding of 85% agreement on the untapped potential coming from a sample population of experienced corporate real estate and senior management respondents, of whom 80% have more than 10 years of experience, with over 50% having more than 20 years, and where less than 50% have a financial dashboard and data analytics to measure real estate optimization, earnings, and shareholder value from real estate optimization. These combinations of findings are at the core of the primary research question and were significantly helpful in answering why these enterprises are not more proactive about real estate optimization. Through the combination of Studies One and Two, and the synergistic results of both, it is exciting to share new insights and contribute more robust findings and theory on enterprise real estate optimization.