1. Business Cycles and Corporate Shocks: Building a Robust Portfolio Virginia Gibson LandSecuritiesTrillium Fellow Department of Real Estate and Planning The University of Reading Business School

2. Current Challenges A recent survey of UK corporate real estate managers showed that nearly two thirds of respondents were carrying surplus floor space and in almost a quarter of cases this accounted for between 10% and 30% of their overall floor space (FraserCRE 2003).

3. New Structures Emerge – Outsourcing -BPR Mid 80s Emerging E-Business Early 90s New Working Practices/ Alternative Workplace Strategies Corporate Cycle Global Repositioning Reductions & Tightening of Operations Repositioning Broader Retrenchment Early 2000s Technology Downturn

4. Product/Service Lifecycle New Product or Service Concept Introduced Idea Gains Support & Acceptance IDEA Joins Main Stream Competitors Create Knockoffs Competition Grows Original Replaced By Next generation 15-25 yrs60s 80s7-10 yrs

5. Product/Service Lifecycle In A Networked Global World New Product or Service Concept Introduced Idea Gains Support & Acceptance IDEA Joins Main Stream Competitors Create Knockoffs Original Replaced By Next generation 2000+ 3 months- 3 yrs

6. Responding to Business Change Time: Months/ Quarters/ Years???? Sales? Revenue? Headcount? The Hockey Stick Challenge

7. Responding to Business Change Time: Months/ Quarters/ Years???? Sales? Revenue? Headcount? Determining the cut off Point is Critical!

8. Adding Value or Mitigating Risk What is the role of the Corporate Real Estate Manager in a volatile market situation? Risk vs. Reward?

9. Risk management in CRE Awareness of risk exposure –Risks related to projects and the operation of individual properties are reasonably well understood –Balance between paying now or paying later less well understood –More strategic CRE decisions have created financial risks that could have been mitigated

10. Strategic Business Risk An unexpected event or set of conditions that significantly reduces the ability of managers to implement their intended business strategy Sources of Risk –Asset Impairment Risk –Operations Risk –Competitive Risk (Simons, 1999)

11. Strategic Business Risk and CRE Asset impairment risk –Decline in value due to market macro / micro movements –Decline in value (brand) through failure to reinvest –Physical impairment -flood, fire, terrorist attacks Operations risk –Structural failure of an key operational facility –Legionnaires disease resulting in closure Competitive Risk –Competitors portfolio improves - location, design, layout –Changes planning regulations impede growth –Property costs increase eating into profits

12. Strategies and Risk Core-Periphery Portfolios Alternative Workplace Strategies Total Property Outsourcing

13. Core Portfolio (functional flexibility) Freehold / Long Lease Control all aspects Ability to change use 1 st Periphery Portfolio (numerical flexibility) Short Lease / License Some services expected Ability to exit 2 nd Periphery Portfolio (short-term flexibility) Pay as you use Required at short notice May be specialist space Core / Periphery Portfolios Source: Gibson and Lizieri ( 1999 )

14. Alternative Workplace Strategies Space Cellular Group Office Open Plan Combi office Activity-based Place Central Office Telework Offices – Home office – Satellite office – Business Centre – Guest Office – Instant Office Use Personal office Shared office Non-territorial Formal support Informal Support WHERE? WHAT? HOW? Towards greater efficient and effective use…..

15. Total Property Outsourcing Corporate Real Estate Portfolio Facilities Management Asset Management Ownership Funding ONE CONTRACT RetailOfficeWarehousing Core Space Flexible Space

16. Conclusions Can an organisation have a truly robust portfolio? Getting the balance of commitments right Leveraging internal and external space to deliver workspace solutions Buying yourself options for the future