Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
Barry VarcoeBarry Varcoe is Director of Strategic Development for Johnson Controls, Inc.
Keywords: Short-termism, Tenancy, Property management
It is now a commonly accepted observation that there is a growing conflict between the indigenous speed of thought, action and change of commerce, and the property industry's ability to adequately respond. It is now evident that the pressure that this gap causes will in turn lead to significant change throughout the property industry. Several examples are apparent already; more are to be realised at a general level. This short paper collates some of these changes in the context of improving the property industry's "fluidity" at four levels.
Fluidity of availability
The pressure for increased fluidity of tenure has already led many to broadly cluster properties within their portfolios with respect to their likely length of occupancy. Long-term "core" accommodation is owned or held on a long lease, medium-term (one to five years) is on shorter leases (or longer ones with good break provisions) and the short-term and/or remote requirement is increasingly being met by the burgeoning serviced-office sector. Increased sophistication will come as real estate groups consider tenure duration at a portfolio level with respect to at least two new perspectives -- commitment and control (Deeble, 1999). By using probability modelling they should be able to achieve a much improved understanding of both the minimum amount of space they should be committed to for different time periods, and similarly the maximum amount they should have control over (i.e. a right to occupy, but not an obligation).
Fluidity of capital
The globalisation of capital markets has made the availability of capital a commodity. Its affordability is another issue, however, and many organisations are looking much more closely at the often significant amounts that are tied up in its property. Many innovative financial vehicles are appearing that offer the potential to unlock and redistribute this capital, based on operating lease type arrangements, but these tend to be focused more at an asset by asset level, particularly in the commercial sector. Portfolio level operating leases is a logical further step for some, but there are inherent consequential dangers regarding duration commitment and unit cost. More generally, it is to be hoped that investment analysis within real estate becomes consistently more sophisticated, and that multiple scenarios and risk be considered before decisions are made.
At another level there will also be an increasing consideration of the trade-offs to be had between property and IT/communications investment, with the probable consequence being more for IT and communications, allowing a consequential less for property (on the basis that a better "wired" office can be used more intensively, meaning that less of it is needed for a given amount of demand).
Fluidity of use
Organisations have been looking at and taking advantage of "time" as a resource for a number of years, typically through a range of non-conventional workplace concepts sometimes collectively known as "alternative officing". The next step forward could well be to take advantage of the improved efficiency and effectiveness to be gained by "change in time" - allowing work settings to be re-configured in little time for little or no cost. Static design and static layout will become a thing of the past, and accommodating the needs of the minute, hour and day will be "business as usual".
Fluidity of management approach
The professional disciplines still predominate, and their influence has caused too many functional "silos". The information revolution dictates that decision-makers today must have access to a complete perspective of relevant issues, not a detached and incomplete patchwork. The first step will be an integration of the all too often separate disciplines of FM, design, occupancy planning, project management, property management and transactions/agency, at least from an information perspective, to create a true asset by asset perspective of how the workplace is meeting all the various needs of its various stakeholders. Beyond that there should then be aggregation of the assets to achieve a true portfolio perspective, thereby enabling fluidity and responsiveness to the organisation as a whole.
If the property industry fails to move quickly enough to change this, almost certainly others will do it for them. The consolidation of enterprise resource planning and customer relationship management systems into the new breed of "enterprise resource management" systems will push this if nothing else does. They will embrace infrastructure resource management, which will not only force the cohesive management of all aspects of "property", but will place it firmly in the context of the overall "production platform" of the organisation (including IT, finance, HR, etc.)
Fluidity of existence?
Without doubt the property industry is beginning to change fundamentally, and there is far more to come. It is in transition, the unabating pace of change in society and business at large forcing it to face up to its structural deficiencies. Indeed, some of its newest components, such as FM, may in time be seen to have been merely a transitory phenomenon - a hitch-hike on the road to a new horizon.
Reference:Deeble, K. (1999), "Financing corporate real estate: a raw materials procurement approach", The Corporate Real Estate Portfolio Alliance, April.