Corporate real estate can represent up to approximately 5%¹ of a company’s revenue. While many chief financial officers (CFOs) acknowledge the impact of real estate on the bottom line, they often overlook how real estate can enable their employees, products and customers — helping companies achieve top-line impacts.

Looking at real estate through a human-centric lens is key in achieving those impacts. Real estate spend is typically the second or third largest category on the income statement, almost always following people spend (e.g., employee benefits, rewards, programs). As companies evolve their strategies around people experience, they may need to consider how their real estate assets support these initiatives.

“When you ask CFOs, ‘How much did the company’s operating model change over the last 10 years?’ usually it’s quite a bit,” says Douglas Gottschalk, Principal, EY Americas Strategy and Transactions and Co-lead of Corporate Real Estate Consulting and Technology Services. “But when you ask, ‘How much has your real estate changed in response?’ typically, the answer is ‘not very much.’” This misalignment often means the company is spending too much money on real estate and, at the same time, hindering labor efficiency.

With CFOs under pressure to balance cost reduction and support growth, it is even more imperative for them to adopt a human-centric lens when evaluating their real estate portfolios. By re-evaluating real estate with both the needs and behaviors of its users in mind, CFOs can reimagine real estate footprints that better align with business goals — and move the top and bottom lines in the process.

Adapting real estate to new realities

Companies can begin to adopt a human-centric approach by acknowledging that the nature of work itself has undergone a significant shift. That means that in workplaces across industries, new real estate demands have emerged that are not being addressed.

With the rise of remote work, many offices are visibly empty, for example and these office environments are failing to entice people back. Similarly, warehouses are full of obsolete equipment or unsold products due to supply chain shifts and challenges and manufacturing environments are evolving as robotics technology augments the work of people.

“Whether in an office environment or manufacturing plant, human beings are working together to produce something and the way that’s being produced has changed,” says Gottschalk. “If companies’ new real estate demands resulting from this are not met, vacancies and other inefficiencies will result.”

With Moody’s predicting office use will reach only 50% to 60%² of pre-pandemic levels over the next two years, it’s time for CFOs to adapt and streamline their real estate portfolios to these new realities — and avoid retrofitting their future workplaces into an outmoded real estate footprint.

“Sometimes, the CFO will walk the halls and say, ‘This place is half empty; we need to get people back,’ which absolutely might be the solution,” says DeJeana Chappell, Workplace Strategy Solution Leader, EY CRE Consulting and Technology Services. “But before jumping straight to the conclusion of getting people back, CFOs can invest time in understanding why people aren’t coming in,” she adds. “Is it because of the space? Is it because of the commute times? Doing that diligence as part of the decision-making process is key.”

Cost and communication complexities

Understanding the true cost of a company’s real estate portfolio tends to be difficult to measure —especially for companies with a lot of locations — but proper diligence is critical to get it right.

“When you’ve got a thousand locations and they’re all on five-year leases, that means every other day there’s a lease event that is happening,” Gottschalk says. “That’s a lot of transaction activity that is difficult to accurately track.”

“The costs across real estate are difficult to measure, too,” he adds. “Where do you put all of that? Being able to maintain it in an integrated database can be difficult and expensive. Communicating up to the CFO doesn’t happen as often as one would think.”

The potential for real-time communication about real estate may be hindered by the numbers and competing processes involved in managing large, global and often complex portfolios. But even when real estate is centrally or regionally managed, there may be data ownership issues, legacy systems and other challenges for companies to grapple with.

“Some organizations have a decentralized model where site leaders across the business can make local decisions on real estate and costs are managed within a specific business’s P&L,” says Chappell. “These independent site decisions could make it more challenging to manage the enterprise-level strategic impact required to usher in organized change at scale for workplace experience and to achieve portfolio optimization goals.”

Partnering for success

As CFOs pursue cost-cutting measures by re-evaluating the real estate portfolio, they need to prioritize their people’s interests. That requires partnering closely with HR, which can help CFOs gain insights into the essential needs and behaviors that may need to factor into their real estate decisions. These factors include how people perform their jobs, the types of activities that might draw them into an office, the skill sets the business needs to hire for, the cities that are best for attracting top talent and the opportunities they have to bring workers together for optimum effect.

“The biggest bang you get for your buck in real estate and workspace is from bringing your people together to innovate, to collaborate, to problem solve and to team build,” Chappell says, “and many of today’s workplaces don’t support that in a way that’s impactful for people experience and business performance.”

“If you have a hundred people, you likely don’t need a hundred seats in the same way you traditionally did before,” she adds. “There’s a lot to be done in really understanding your people and tying that back to cost.”

Summary

To support their people in a meaningful way, companies need to think about space with both cost savings and human centricity in mind.

CFOs can accomplish this by adapting their real estate portfolios to new workplace realities by creating space plans based on the businesses’ operating models. This requires partnering with HR and having a good understanding of real estate costs and other critical information. Effective governance and change management, including strong leadership from the CFO, are also key to re-evaluating the real estate portfolio with its users’ needs and behaviors in mind. If companies focus on their people while they develop their real estate strategies, they can both save money and deliver better outcomes for their workforce, thereby creating value for the business

¹ Hartmann, Steffen; Linneman, Peter; Pfnur, Andreas; Siperstein, Boris; “Realizing the Value of Corporate Real Estate ManagementRealizing the Value of Corporate Real Estate Management,” Zell/Lurie Real Estate Center, Wharton, University of Pennsylvania, 2017

² Fagan, Kevin; Rosas, “Ricardo, Stabilizing Office Utilization Rates Will (Eventually) Support Recovery of Office Occupancy Rates” Moody’s Analytics, February 2023