"Corporate Real Estate"

The following text is Gil Castle's final draft of the real estate column appearing in Business Geographics, January/February 1994

Copyright © 1994 GIS World, Inc.

Corporate real estate encompasses the ownership of, leasing of, easements on, and other financial interests in land and improvements by companies whose principal businesses are in non-real estate industries. Corporate real estate is a huge economic sector, accounting for an average of: three-fourths of the capital flowing into commercial real estate; 25 percent of the assets of most businesses; the largest budgetary expenditure after payroll; and two times net earnings.

An ever greater number of corporations are recognizing the importance of their real estate holdings to the company bottom line, especially in the current economic climate. For example, my article in the May/June 1993 issue of Business Geographics described how Chevron, AUTODESK, Sun Microsystems, and other major corporations manage their real estate assets with GIS technology. As summarized in the chart below, several current and emerging issues in corporate real estate can benefit directly from GIS tools and data bases.


"Rightsizing"

The amount of real estate needed by corporations has been decreasing. Despite the end of the recession, the media continue to report major lay-offs. During the last year, two-thirds of all new jobs created in the United States have been part-time or self-employment. Further decreases can be attributed to the emergence of the "virtual office" and the "hotel office." In the former, employees are provided with briefcase telephones, computers, fax machines and modems, and are expected to spend most of their time at current or perspective client sites; in the latter, to the extent employees are not on the road, they reserve in advance a temporary office or cubicle in their company's facilities.

The diminished need for space allows corporate real estate executives to dispose of excess real estate holdings and thereby significantly reduce costs. Moreover, since diminished demand combined with excess supply has turned the real estate industry into a buyer's market, the executives can also be more aggressive in their lease renewal negotiations vis-a-vis lower rents, greater landlord-financed interior improvements, etc.

How does GIS technology relate to these trends? The answer is twofold. First, as described in past (and pending) real estate columns of Business Geographics and in Chapter 5 of Profiting from a Geographic Information System*, GIS is very useful in several standard real estate analysis activities of real estate professionals, including corporate real estate officers. For example, the disposition of excess space inevitably requires a property appraisal; GIS can significantly increase the speed and reliability of selecting sales comparables for the appraisal (Business Geographics, November/ December 1993).

Second, GIS can be valuable in keeping tabs on where all the out-of-the-office employees are, and in matching those employees to client opportunities. Of particular relevance here are GIS tools developed for fleet management, emergency response, just-in-time inventory management, and so on; see Chapter 9 of Profiting from a Geographic Information System.*  The essential problem is one of tracking and efficiently routing a set of (human) resources distributed over space and time to a set of sites where those resources can be effectively utilized.


"Outsourcing"

Some corporate real estate activities, such as construction management, are needed infrequently. Others, such as brokerage, require specialized expertise, information, and contacts. The costs of these activities can be kept lower by periodically contracting with external organizations than by maintaining full-time resources within the corporation. Additional savings are possible through the development of strategic alliances, e.g., a corporation's commitment to use only one brokerage firm for all its transactions if that firm will charge commissions significantly below the prevailing market rate. Especially in times of rapid change and uncertainty, such "outsourcing" is financially attractive.

GIS can once again serve two roles. First, as with rightsizing, corporate executives will still want to conduct certain analyses on their own; an example is a property appraisal as an independent check on the broker's recommended selling price.

Second, since GIS employs location to integrate innumerable data bases, GIS can be an excellent foundation for an Executive Information System (EIS) for managing the subcontractors. A corporate real estate officer can, for example, have a GIS data base displaying the locations of all corporate holdings and relevant information about surrounding real estate conditions. By "clicking on" a given property, the officer can identify: what subcontractors are responsible for various outsourced activities; when the subcontractors most recently initiated an action; or how well those subcontractors are performing. To further illustrate the last point, if property management functions have been outsourced, the corporate officer might want to click on one of the company's properties to determine costs per square foot for janitorial services, security, landscaping, etc., and then click on other, non-corporate properties in the vicinity to determine if their costs for the same functions are higher, lower, or about the same.

A related trend is decentralization. Many corporations are disbanding their headquarters-based real estate groups in favor of letting corporate subsidiaries and branch offices assume direct responsibility for real estate-related decisions. A corporate real estate officer retained at headquarters can use GIS as an EIS for monitoring the activities of and maintaining quality control over these internal subsidiaries and branch offices in the same fashion as external subcontractors.


Miscellaneous

Strategic Asset Management. If market conditions are changing rapidly—i.e., rents, vacancy rates, and other key real estate financials are increasing or decreasing with above average velocity—a corporation might discover that it can make a lot of money or avoid losing a lot of money by buying, selling, or otherwise repositioning a property. GIS can be an excellent tool for monitoring market conditions everywhere a corporation has assets, and alerting the corporate real estate executive when a change should be considered (Business Geographics, July/August 1993).

Property Tax Abatement. The value of commercial real estate has declined in most markets in recent years—for office buildings, sometimes by 30 percent or more. A GIS can be used to show to the local assessor the distribution and magnitude of the selling prices of comparable properties, to demonstrate that the corporation's holdings have declined in value and accordingly should have a lower property tax bill. The savings can potentially be in four, five, or even six figures.

For Profit/For Fee Service Center. Some corporations have transformed their real estate groups into internal businesses which are expected to be financially self-sustaining. These groups pay for themselves via fees they charge other departments for their services. Their competition consists of those external firms which would be the recipients of outsourcing contracts. These groups can gain a competitive advantage by using GIS tools in the ways described above.

Will Rogers once said: "Even if you're on the right track, you'll get run over if you just sit there." A case in point would be the failure of corporate real estate executives to take advantage of GIS technology to better manage their companies' assets.

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* Gilbert H. Castle, Editor. Profiting from a Geographic Information System. GIS World, Inc. 1993.
 

Activity

Rightsizing:

•  Consolidation, Disposition, Leasing

•  "Virtual Office" and "Hotel Office"

Outsourcing:

•  Managing Subcontractors

•  Key Alliances

•  Decentralizing

Miscellaneous:

•  Strategic Asset Management

•  Property Tax Abatement

•  For Profit/For Fee Service Center

GIS Relevance

 

High

Medium

 

High

Medium

Medium

 

High

High

Medium

Source: Castle Consulting