Restructuring corporate real estate to contribute to business profitability : four case studies in Sweden

Balancing demand and supply is at the heart of the corporate real estate planning challenge. Real estate commitments, which are often long-term by nature, are at odds with the quickening competitive environment in which many companies operate today. The “structuring dilemma” is grounded in the uncertainty of a company’s external environment, as well as in the ways the company’s corporate real estate decision-making processes respond to uncertainty. The need for flexibility has seen most companies opt to divest from owning to leasing real estate. However, leasing also does not ensure ultimate flexibility if the durations of the leases are long and if the lease agreements do not contain options to renew and/or terminate the lease; and expand and/or contract space. Case studies were undertaken at ABB Sverige AB, TietoEnator AB, Siemens AB and Pharmacia AB, to investigate how these companies were matching their corporate real estate (CRE) to their corporate business strategies. The companies had identified real estate as contributing to business profitability. Although only one company had a formulated real estate strategy, they were all pursuing real estate goals to minimise long-term real estate costs and to optimise the use of space. Lease durations were being matched with business projections and options were embedded in the leases for flexibility. However, further investigation in all the companies is needed to evaluate the contribution of real estate to business profitability through measures such as the percentage of real estate costs to total business costs.