As Corporate Occupiers Balance Costs Against Talent, Complexities Emerge

“There is a growing recognition that real estate is not just a cost to be managed, but an enabler of broader business transformation.” 

That is the central thesis of a recent article by CBRE executives Richard Holberton and Lewis Beck which focuses on whether people or money are driving corporate CRE strategies. In the European context, the emphasis has shifted from “talent” objectives to costs, reversing a previous trend, they noted. They argue that too great a shift could be counter-productive.

“Our research looks at to what extent companies are prioritizing cost management versus investment that helps them to attract and retain employees,” Beck explained in an email. “Examples of this may include better working environments, enhanced amenities, services that promote better health and wellbeing, or a more expensive urban location that has good travel connections and provides great availability for shopping and dining.”

The authors noted that there is good reason for attention to costs, including high natural gas prices, rising inflation and increasing interest rates that add to debt servicing costs. The talent position and state of labor markets could also be contributing to costs due to lower unemployment and a high rate of unfilled jobs.

The effect has been that some companies have moved from implementing strategies to simply planning them. The proportion of companies actually executing portfolio and workplace strategies slumped from 68% to 49% in the second half of 2022, while the share considering or formulating them rose from 32% to 51%.

But the authors argued the cost-talent trade-off is not a zero-sum game. Portfolio strategies such as hard cost-reduction targets are complex and can have unintended consequences, they cautioned, especially in an environment where employees can choose where they work. 

As an example of a comprehensive approach, they cited a portfolio review CBRE conducted for a major unnamed life sciences company. Its aims were to manage fluctuation in the level of space demand, address the different space needs of employees coming to work in the office, and “magnetize” the office by offering employees a better experience than home.

The plan was implemented by setting up an integrated strategic advisory function “responsible for managing 4.2million square meters of real estate and workplace data, developing portfolio and workplace strategies, workplace concept design and change management across 278 sites in 96 different countries.”

“A broad, holistic approach to portfolio strategy offers the best chance of ensuring that these are conscious and positive consequences, rather than unintentional ones,” the authors concluded.