Strategic Real Estate Consultancy- APC Flashcards
What is the role of real estate?
Real estate plays a vital role in helping most businesses and organisation to achieve their strategy and objectives. It drives collaboration, improves efficiency, and a physical tool for marketing the brand. It is often the second largest operating expenses for organisations.
What is a real estate strategy?
A strategy reviewing how a real estate portfolio can be optimised and used to help a company reach its objectives and goals.
How do businesses measure performance?
Businesses will typically have KPIs to track relevant business metrics to show progress of business goals. Setting goals may include increasing profit margin, increasing efficiency, or capturing bigger market share.
KPIs could look at operating margin, net profit margin, return on capital, or benchmarking against industry standards, processes or comparable evidence.
What have you learnt about strategic real estate consultancy from your experience in this area?
I have learnt that real estate is vital to many organisations but is often underperforming in its contribution to business value an therefore strategic advice is increasingly important to maximise success of the business.
How can real estate strategies improve business performance or generate financial savings?
Business performance can be improved by analysing their real estate portfolio, occupational costs, and development land. Strategies may include:
- Reduce their real estate portfolio to realise savings and improve efficiencies.
- Relocate to markets which command lower rents to reduce costs.
- Use virtual technology - automation / digitisation to reduce costs.
- Focus on sustainability / renewable energy to lower utility costs.
- Outsource some services e.g., IT to reduce costs.
- Develop greenfield or brownfield land to optimise their existing resources.
- Lease vacant premises (to a private individual, company, serviced operator etc.) to generate a rental income.
What are some aspects to improve the office quality?
Wellness - from providing an equipped kitchen with amenities (e.g., fresh fruit and coffee), biophilia, break out areas, mindfulness space for prayers, yoga, exercise etc.
Collaboration & Efficiency - Activity based working: areas for private calls teamwork, private study, etc to meet employee needs and promote productivity.
Building amenities - cycle racks to promote sustainable transport & exercise, showers / lockers, a gym / health suite.
How do long term versus short term real estate strategies differ?
Short term strategies may consider and evaluate the progress and challenges in the present and create an action plan to improve the performance and overcome challenges in the short term.
By contrast, long term strategies may assess a comprehensive framework that comprise business objectives / goals to be met within e.g., 5 years+.
Short and long term strategies may ultimately differ in scope and execution. Ideally, short term strategies tie into long term objectives, however short term goals are likely reactive to meet business needs. Additionally, the execution of short term strategies depend on current operations, whilst long term strategies are based on whether short term goals are met.
What is benchmarking?
Benchmarking is a strategic management tool used by businesses to compare their processes, products, or services against industry comparables, standards, or best practices. This comparison provides valuable insights into areas of strength and weakness, guiding efforts to improve performance and maintain competitiveness in the market.
How have you gained an understanding of your client’s organisation and it’s strategy? How is it impacted by the market it operates in?
Reading through the organisation chart, setting up meetings with different team leads across the organisation to understand their role. Reading through the Estates Strategy report, engaging with ministerial white papers.
Impacted by the economy, budget dictated by spending reviews and amount allocated by HM Treasury. IN terms of office/retail market, DWP benefits due to strong covenant strength as a government department. Conversely, landlord’s can be less keen to let their property to us due to stereotypes/negative image of DWP and its customers. Can also be limited for options due to the regional markets we operate in, often very small and rural.
What is a hybrid working model and how / why is it impacting real estate strategies?
Hybrid working is a flexible arrangement where employees have the option to divide their work time between the office and remote locations. Covid-19 acted as a catalyst for more businesses to adopt this model, however it is not unanimously adopted.
By giving people flexibility over how they work, organisations can retain the benefits of collaborating in person, with the innovation which comes with that, whilst offering better work-life balance. It can positively impact employee engagement, productivity, and staff retention.
Hybrid working gives companies more room to choose the locations that will ensure they attain the optimal talent mix, which can also support an organisations diversity and inclusion objectives.
Hybrid working requires a business to change and invest - some of our clients are adopting a piloting approach, where they set aside vacant space to test creative workplaces to learn how they operate and can formulate real estate strategies to be implemented across their portfolio to support a hybrid model.
Disadvantages of hybrid working may include a loss of social connection, reduced collaboration, productivity dependent on the quality of the workplace, less recognition, and the risk of burnout.
How can real estate strategies support a business’s company culture?
There is a growing recognition that if offices are to be relevant, they must not just mirror, but incubate and celebrate the cultures of the organisations that occupy them.
Organisations must strike a balance between space efficiency and workplace effectiveness. Half-empty offices are inefficient - offices that fail to support teamwork and culture will prove to be ineffective in the long run.
The physical office environment needs to cater for diverse methods of learning, from technology-enabled group presentations to quiet reflection and spontaneous interactions.
What does the emergence of AI mean for businesses and real estate strategies?
Artificial Intelligence (AI) is increasingly being used in the Commercial Real Estate (CRE) sector to integrate and analyse large datasets to produce recommendations based on predictive analytics, help with contract and lease document reviews, optimise energy use and assess risks, with positive implications for time, costs and performance.
How and what data can be used to deliver effective real estate strategies?
When the right data is applied in the right way, the impact on an organisation’s real estate strategy can be transformational.
Fundamental uses for corporate clients includes using automated reminders and actions around key milestones in the leasing process. Ensuring clients are alerted to impending critical dates such as lease renewals encourages them to be better prepared, and allows ample time to assess the market or even begin to negotiate alternative deals if necessary.
Data can highlight risks and opportunities, and can help organisations anticipate them - a critical skill in heightened uncertainty.
Can you provide an overview of the current market trends at play within the Commercial Real Estate Sector?
A recent report by JLL highlighted that 60% of office works prefer to work in a hybrid style with a mix of home and office working - this preference could impact overall demand for commercial space and change the way it is utilised with a shift to space that can accommodate hot desking, breakout space, lounges, collaboration space and a range of meeting rooms.
A recent RICS Modus Report highlighted that around 70% of Commercial Space in London currently falls below the mandatory EPC B rating. Whilst the government has scrapped plans to increase EPCs to C by 2027, and B by 2030, an alternative plan has not been announced.
- The cost of upgrading space to reach 2030 sustainability standards is expected to cost circa £40 psf which may result in a larger demand for commercial space with an EPC rating above a B rating.
- With commercial landlords selling off second tier space within their portfolios to afford the EPC upgrades, Knight Frank highlighted a significant increase in the number of European investors who plan to refurbish and repurpose them whilst benefitting from a significant currency advantage against a weaker pound.
What key challenges does the Global Economic Recession present to your area of surveying?
- Rising inflation rates of around 10-11% have resulted in the Bank of England increasing the base interest rate which has subsequently caused a large increase in borrowing costs.
- Creates additional challenges / pressures on developers, building owners, and operators who are facing greater pressure on budget plans undertaken prior to interest rate rises.
- Financial viability of new developments / ongoing maintenance programmes may not stack up with borrowing, energy, and labour costs rising.
- Shift to home working and hybrid working has resulted in a scaling back of office space requirements where projects for prime office space have now been repurposed or postponed.
- Greater demand for online shopping has lead to high streets / shopping centres being less attractive, creating greater pressure on retailers.
- Demand for logistics space / data centres has remained strong which are closely linked to the growth of online retail and big tech companies.
- Rising inflation has resulted in a net reduction in fee income in real terms as Clients demand that previous fees levels are maintained where possible with rises n fee proposal being limited despite rising inflation.
What affect has the conflict in Ukraine had on the UK Property & Construction industry?
Due to the high dependency that Europe has on Russian gas and oil, the conflict in Ukraine has resulted in significant energy price increases.
This means the cost of production of building products that require high energy input have also increased, including steel, bricks, plastics, and ceramics.
The conflict has intensified an already turbulent market that was previously effected by Brexit, Covid-19, Industrial strike action, rising energy and fuel costs, and inflationary pressures.
Impacts also include delay and disruption caused by materials and goods shortages affecting deliveries, cost overruns and possible arguments around the triggering of suspension or even termination rights.
How has Brexit affected the UK Property & Construction industry?
Movement of Personnel is restricted with free movement ending on 31st December 2020. UK now has a new global immigration system. Employers are required to register as sponsors to recruit from overbroad.
Movement of Materials - under the UKs trade agreement with the EU, most traders will not have to pay tariffs when moving goods between/across borders, but will have to meet relevant Rules of Origin for their products. Price of goods moving across the border is expected to increase dure to the additional border checks and administrative work - cost increases and availability issues in respect of steel, plastic, cement, and plasterboard.
Tell me about your involvement with the provision of strategic consultancy advice to clients.
I work for the DWP’s Estates Strategy team as a portfolio planner, primarily working on the customer facing portfolio. However, I also support the Leasehold Team and BoH Strategy teams, producing real estate solutions mainly through business cases.
How would you formulate strategic advice to your client in respect of the relocation of their premises / de-risking their investments / prioritisation of development sites?
- Requirements Assessment: Understand the clients specific needs and objectives for the relocation etc - e.g., what are the reasons for moving. Is it to expand, downsize, improve efficiency, improve quality? Consider factors such as space requirements, budget, growth projections, and industry specific-factors.
- Location / Project Analysis: Evaluate potential locations based on proximity to clients, suppliers, and employees. Consider accessibility, transportation infrastructure, and local amenities. Research business environment, regulatory climate, economic stability of new area - i.e., undertake due diligence.
- Financial Stability: Conduct a cost-benefit analysis, comparing the expenses associated with relocating (moving costs, lease agreements, fit out, operational costs etc) to the potential benefits (increased productivity, access to talent etc). Consider short and long term financial implications.
- Risk Assessment: Identify potential risks related to the move. These could include business disruption, employee morale, or regulatory challenges. Develop a contingency plan to mitigate risks and ensure a smooth transition.
- Stakeholder Communication: Communicate transparently with employees, clients, and other stakeholders. Explain the reasons behind the strategic advice and address any concerns. Report the strategic advice in an appropriate form i.e., ‘Requirements Deck’.
How do you convince your client that your advice offered the ‘best’ solution to their needs?
To demonstrate my reasoning behind my strategic advice, I report a live document with all the relevant information relating to that specific project, showing the existing site, shortlist of options, analysis of the scenarios, HR data etc. Using this, I can discuss the strategy with the client to explain why my adopted strategy is the best or most suitable, and I can dispel any concerns and they can seek internal approval from the decision makers.
What is strategic real estate consultancy?
Engaging the services of advisor to better understand an organisation’s business objectives and produce an appropriate real estate strategy based on those goals/objectives.
What areas might a consultant provide strategic real advice on?
- Portfolio evaluation & strategy e.g. asset optimisation, acquisition and disposal planning, benchmarking (metrics) of the portfolio, site inspections/audits
- Site specific location strategy e.g. looking at footfall, demographics, transport, environment, amenities to work out if a site is in the optimum location for different requirements
- Workplace strategy
- Real estate property management review e.g. advice on property data systems, FM, budgeting
Why is strategic real estate consultancy important?
Real estate is usually the second highest expenditure after people costs. Often businesses don’t use property strategically or understand the advantages a good strategy can create
What is DWP’s organisational structure?
At the top of the organisation, Sir Peter Schofield is our Permanent Secretary and he works with Liz Kendall, the Secretary of State for Work and Pensions to set the strategic direction for the department are directly responsible for departmental expenditure.
Then we have directors for finance, digital, risk, security, people & capability, operations, strategy & transformation, fraud/disibility/health/universal credit, social security/disability/pensions policy and corporate transformation, in which Estates sits which is the directorate I work in.
What are DWP’s key strategic objectives?
To improve people’s day to day lives, help them build financial resilience and a more secure and prosperous future for all.
Within Estates:
-Smaller, Better & Greener (comes from the Government Property Strategy 2022-2030)
-To transform places and services, e.g. Workplace Transformation change programme or Local Services of the Future programme
What does DWP do?
Responsible for welfare, pensions and child maintenance policy. it it the UK’s biggest public service department and provides the Station pension, working age/disability/ill health benefits to 20 million claimants and customers.
What are the key takeaways from the ‘Get Britain Working’ White Paper?
The White Paper was published in November 2024, it contains the government’s proposal to reform employment, health and skills support to tackle economic inactivity and support people into good work:
-Through the launch of Skills England to try and boost the nation’s skills
-Partnership approach between the new jobs and careers service and skills and health (combining Jobcentre Plus with National Careers Service)
-Localism- creating more good jobs across the country
What are DWP’s biggest challenges?
-There is a cliff edge of lease events in 2028- 95% of leases expire
-Budgetary constraints, there’s not enough funding to do everything we want to, are limited by the Spending Review and the amount that HM Treasury give approval for
-Size & condition of portfolio- largest government commercial estate (c.820 active sites and c.635 jobcentres), the quality of the estate is poor, ageing and a legacy of historic underinvestment.
-Rising costs due to the condition of the estate and poor economic climate in UK
What is the difference between a KPI and benchmarking?
Key Performance Indicator- a measure of a factor critical to success.
Benchmarking- comparing the performance against others/a standardised baseline to make targeted improvements
What are the methods for appraising options for real estate strategy?
- A cost benefit analysis (e.g. when producing a business case, look at a do nothing option, a big change and middle ground options- compare financials/people story of the options)
2.SWOT Analysis- look at the contrasting strengths, weaknesses, opportunities and threats
3.PESTEL analysis- political, economic, social, technological, environmental, legislation (ranking subjective elements against a criteria and weighting them according to importance to provide a score and improve decision making)
When advising your client, have you considered statutory obligations?
- General Data Protection Regulation and Data Protection Act when handling data, using it and storing it
- Health & Safety at Work Act 1974 when attending site visits to review site options for the relocation of an office
- Minimum Energy Efficiency Standards (2018)- useful indicator when reviewing portfolio & considering potential acquisitions (minimum E, and possibly a C by 2028 and B by 2030)
- Landlord & Tenant Act 1954- security of tenure is a strong preference of the client, important for acquisitions
What RICS documentation is important to consider when providing strategic advice to your client?
The 2022 RICS Practice Information, ‘Strategic Public Sector Property Asset Management’ (defines strategic asset management, drivers for change e.g. technology/climate change/constrained resources/place making/adaptability, sets out how data should be used)
RICS Guidance Note (2022) Sustainability & ESG in Commercial Property Valuation and Strategic Advice
What were the options you considered when advising your client on the Ilford office?
- Retain & Invest (12.5 million, 1000 sqm too large)
- Do nothing
- Divest and Acquire New
- Colocation with local authority and Outward MOTO with another government department rejected due to scale
What were the options you considered when advising your client on the Birkenhead site strategy?
- Retain & Invest (25 million investment needed, 3000 sqm too large)
- Do nothing
- Divest and Acquire new
What were the strategic requirements for a new office in Stratford?
- 650 FTE
- 2000 sqm
- Accessible
-Ritual washing/WUDU facility due to staff demographic profile - Close to public transport
- EPC B or above
-Modern, good amenities
-Ministerial criteria:
What were the strategic requirements for a new office in Birkenhead?
-1400 FTE
- 4000 sqm
-Accessible
- Better location and transport connections to existing
-EPC B or above
- Ministerial criteria:
What is FTE?
Full time equivalent- used to count hours worked rather than the number of employees. Useful for headcount analysis- given 40%-60% attendance in the office, it is a more efficient way of calculating the number of desks needed in an office.
Calculated by dividing the number of hours worked by the standard full time week
How did you know how much space you needed?
FTE- The future demand is provided by Workplace Transformation, a change programme who partially fund the project.
I then worked with a Relationship & Demand Manager, our core link with the business, to produce a space model. You enter the number of FTE and % office attendance which provides you with the number of desks needed and other requirements e.g. tech bar, wudu, meeting rooms, canteens etc. Based on standard benchmarks, the model calculates how much space is required.
How did you align your recommendation with your client’s objectives for an East London office?
I made sure to establish the client objectives from the outset and the goals for the project. I kept the client engaged throughout the process, regularly meeting with them and providing updates. I recommended that site options were discounted that didn’t meet requirements e.g. Sugar House island, not accessible, Here East, not enough toilets to be compliant with workplace design standards.
Recommended an option that was smaller, better, greener and met Cabinet office goals of OPE.
Recommended discounting of retain and invest option due to high cost of investment, limited ability to carry out works, issues with site and didn’t meet strategic portfolio goals. 50 million to do the project
How did you align your recommendation with your client’s objectives for an office in Birkenhead?
Recommended that retaining and investing in the site was not a good option. 3000sqm too large for requirement, in an inferior location, not well connected, poor quality building. 25 million of investment needed to bring up to standard. Not Equality Act compliant.
Recommended rejection of alternative site option, Cheshire Lines, as it was in similar condition to the existing building and would only meet smaller estate goals.
The recommended option, acquiring Irvine building meets OPE as a LA owned building, EPC A, right sized for requirement, in central business district and part of regeneration plans. Annual running costs cheaper and lower one off investment costs. Overall more expensive by c.10 million (divestment cost, cost to move, people costs, inflation/VAT/IFRS16)
What is the 5 case model (Green Book)?
Best practice methodology for government when producing business cases to ensure best value is achieved.
Includes the;
1.Strategic Case (strategic fit, meeting organisation goals, property strategy and synergy with other projects)
2. Economic case (best value to society, including social and environmental effects- demonstrated through CBA of the different options)
3. Commercial Case (viable and fair procurement, well structured deal between public sector and service providers e.g. C&W, Denton’s, Mitie)
4. Financial case (affordability and funding of preferred option, whole life cost of project)
5. Management Case (that the project can be successfully delivered- e.g programme dates, clearly defined roles, specialist advisors, risks management, contingency arrangements)
