PART I: ALIGNING PRINCIPLES
In this first article of a two-part series, strategic planning expert Thea Hahn, a vice president in Corporate Solutions for Colliers International, analyzes the similarities in planning for the public and private sectors, and the considerations for each sector.
The intersection of the public and private sectors is well-documented, a real-life Venn diagram, and commercial real estate (CRE) provides rich context in which to further explore how these sectors intersect and stand alone, especially in reference to strategic planning.
The foundation for this article was initiated in a discussion with a colleague. The question arose: How does the process of strategic planning and analysis look different for both the public and private sectors?
In fact, much of the process is the same for both sectors.
Real estate, property and facilities are often the longest commitments organizations make. They are directly impacted by changing demands over time for labor, flexibility, technology, amenities, space and evolving business models. Strategic planning in every sector involves configuring an organization’s CRE portfolio to best support these operational demands. That portfolio structure includes physical location, facility type and layout, ownership or lease structure and costs.
The first step in analyzing CRE, at any level, begins with the discovery phase. The process is essentially the same, whether the asset is occupied by the public or private sector. The objective at this stage is to understand both the current state of the portfolio as well as the organization’s objectives. However, the underlying elements identified, at this point, typically differ depending on the public or private nature of the organization. While both groups work within constraints set by economic conditions, a range of stakeholder groups, and concerns such as safety and responsible resource consumption, private sector companies are foundationally profit–loss driven, while public entities are mission-driven. The difference in these drivers creates the strategic planning divergence between these sectors in CRE.
During the analysis phase, we often see that incremental rational decisions made over time have led to a suboptimal portfolio structure. The three common mismatches that typically occur are locational, financial or organizational. Location-wise, a private company’s customer base may have evolved, or the population served by a public sector organization may have shifted. A city or submarket which was moderate in cost when the organization was established may have developed into a desirable and expensive location. As a company grows, expansion to additional locations may have led to departments being spread across multiple buildings or cultural silos that are impeding effective operations. Identifying the gap between the ideal and the current state then allows the creation of a plan to move toward a real estate portfolio that is better aligned with the organization’s objectives.
Recommendations and plans are driven by the organization’s objectives and based on careful, metrics-minded analysis. Consider some of the questions we can ask in CRE strategic planning that will lead to appropriate outcomes:
- What is the regulatory environment for your industry/organization?
- What differentiates your organization? Are you a low-cost solution or a highly-differentiated premium service?
- How does your location impact your customers? Your suppliers?
- What are the most critical skills for your staff? Who do you compete with for talent?
- How will macro trends of automation, AI and the sharing economy impact your organization?
SIMILARITIES BETWEEN PUBLIC AND PRIVATE SECTOR STRATEGIC PLANNING
No matter the sector, organizations need to incorporate certain considerations into their real estate plans. The plan needs to answer questions of how much (and what type of) space, when and where is the space needed, and the cost. Ultimately, the goal is to provide space that works for occupiers—and to do so cost effectively while providing a framework for institutional growth—whether that growth is revenue-based, or in the efficiency and efficacy of services rendered.
While workplace consultants help companies identify what type of space and how much space is optimal it is equally vital to consider. the need to attract and retain talent in both the public and private sectors. Workplace innovation is one strategy for remaining competitive and attracting talent. Innovative workplaces are a necessity in today’s competitive workforce, no matter the public or private interest. The conversation around branding your business to attract talent and clients is a common best practice in CRE strategic planning, as are dialogues around changing skill sets and how technology and collaboration affect the modern workplace.
Location can be considered at the global or national level—“where can I find the labor force that meets my technical and financial needs?”—or at the metro level—“where are potential customers located?”—but is always a primary consideration in making the portfolio successful for its occupiers. Additionally, factors such as proximity to transportation or amenities are important to both sectors.
PBS NewsHour reports that U.S. companies are increasingly concentrated in large metropolitan hubs. These urban hubs offer large talent pools with young, highly-educated workforces from which to draw. But because of this concentration, employees are often driven to live in the suburbs to afford homes. As a result, commute times can be long and arduous. Pew, in their public opinion research, found that the number of commuters with travel times of 90 minutes or more increased by 63% between 2010 and 2015. These factors are all part of the analysis necessary when conducting an analysis and developing a CRE strategic plan.
As all these factors apply to both public and private sector organizations in CRE strategic planning, where do the sectors diverge? The differences may surprise you. We’ll explore them further in part two of this series: CRE Strategic Planning for the Public and Private Sectors Part II: Differentiating Factors.
Thea Hahn is a vice president in Colliers’ Boston office and brings broad experience in strategic planning, portfolio optimization and workplace. She develops actionable recommendations and solutions for public and private sector clients using a data-driven approach to documenting, analyzing and integrating multiple business drivers.