Technology Enablement

From the Experts: Top 10 Real Estate Issues

The Counselors of Real Estate (CRE) recently identified common cross-industry issues that are impacting real estate executives. These issues cover shifting demographics, capital markets, new uses of technology, and the role of sustainability.  My interpretation of the results are below:

  • Demographics: An aging population will have an impact on demand for real estate, however millions of new pensioners will push fund managers to focus on asset allocation decisions on stable asset classes, including real estate. On the other hand, the redirection of public funds to retirement systems will challenge the ability to provide basic services and infrastructure.
  • Capital Markets and Finance: Liquidity leads the list of concerns. Indeed, access to capital is causing uncertainty in many industries. Specifically for real estate, the capital "hangover" from previous over-allocations will continue to limit capital for some time into the future. That being said, there is a spark of hope as cash-strapped state and local governments create development opportunities by leveraging their hard assets through Public-Private Partnerships. The dynamics of political gridlock and global economic crises, paired with civil discord in pockets around the world are also concerning for future fundraising efforts.
  • Technology: the increased use of technology in process automation and alternative workplace strategies is shrinking the need for industrial and office space. Meanwhile, the internet is turning traditional "brick and mortar" stores into Amazon.com showrooms, as shoppers turn to web-shopping rather than cash-and carry approach, resulting in less demand for retail space.
  • Sustainability is well-integrated through global enterprise. From corporate governance and management to reporting systems and supply chains, executives are building sustainability into the fabric of their organizations. Real estate is still and will continue to be the primary focus in many corporations' sustainability strategies.

"Net Zero Real Estate" or the 11th Commandment: "Thou Shall Not Grow"

In a memo release on May 11, 2012, the President reinforced the policies laid out by Executive Order 13589 (November 9, 2011) and the June 10, 2010 Real Estate related Memorandum on disposing of unneeded Federal real estate, targeting $3B in cost savings by the end of FY2012. In essence, this latest directive provides insight into the expected outcomes of budget planning. It focuses on four areas for cost savings, including:

  1. Travel: spend 30% less than the FY2010 levels from FY2013 to FY2016.
  2. Conferences: conference expenses should be appropriate, necessary, and managed in a manner that minimizes expense to taxpayers.
  3. Real Estate: aggressively dispose of excess properties and make more efficient use of existing assets.
  4. Fleet: maintain a consistent acquisition and replacement schedule to save costs.

For our purposes, we will focus on real estate. The brief section in the memo reiterates the language from the June 2010 memo that led Agencies to establish a Cost Savings and Innovation Plan (often referred to as the CSIP, pronounced "SEE-sip"). In addition, the memo required that Agencies:

"shall not increase the size of their civilian real estate inventory, subject to exceptions as described below.  Acquisition of new Federal building space ... that increases an agency's total square footage of civilian property must be offset through consolidation, co-location, or disposal of space from the inventory of that agency."

An important clarification to this requirement stated that Agencies can, in fact, construct that baseline inventory including the excess or disposed space from the June 2010 exercise. Expect a follow-up from OMB to help Agencies better understand the specific requirements for planning and implementation.

You can find the actual memo here:

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