Corporate Real Estate Ownership Under a Dynamic Business Environment

Abstract

Companies are increasingly faced with a dynamic business environment. Fundamental structural changes overlap with economic cycles and force decision-makers to act under uncertainty. This situation challenges corporate real estate management to adapt the provision of space to the new corporate situation. In this context, one of the most critical decisions represents the choice between the provision forms of ownership, rental or leasing. In the past, European companies in particular have held ownership to a large extent. However, doubts have arisen as to whether this strategy should be continued. Owning property is considered to be highly inflexible as it can often only be sold with a time delay or at a discount in the event of a quantitative change in space demand. This represents a first possible contradiction to the progressively dynamic corporate environment. Accordingly, this paper addresses the question whether the role of ownership alters in an environment charac-terised by change. To answer this question, six studies were conducted and summarised in five articles. In order to understand adjustments in provision strategy, it is necessary to understand its impact on corporate success. Maximisation of the company’s success represents the guiding motive for adapting the provision of space to environmental changes. Here, the first article develops a holistic framework for the relationship between corporate real estate management and corporate success as well as empirically testing its validity. This understanding, in turn, forms the basis for the subsequent studies and allows initial conclusions to be drawn about the impact of holding property on corporate success. In the three subsequent articles (2-4), which focus on Germany, the UK and Europe as a whole, a first step is to use balance sheet ratios to illustrate the role that real estate ownership has played for non-property companies in recent decades. Against the background of an increasingly dynamic corporate environment, possible changes over time would support the theory regarding the changing role of real estate ownership. An empirical investigation of real estate ownership and its influence on capital market performance allows initial insights about the importance of ownership strategy for corporate success. Although up to this point the articles pursue a similar objective, they then attempt to map the importance of real estate ownership for corporate success with different foci of investigation depending on the corporate situation. Thus, Article 2 aims to show that the contribution of real estate ownership to success depends not only on the core business as previous studies have shown, but also on additional business segments in which companies operate. This is of high interest because companies are increasingly expanding their existing activities with services by offering integrated solutions, resulting in new requirements for the provision of space. In contrast, Article 3 addresses the question of whether holding real estate actually reduces flexibility and, therefore, has a negative impact on a company’s success in the event of economic fluctuations. For this purpose, the impact of real estate ownership during economic upswings and downturns is to be compared. Article 4 then ties in with this line of argument. Due to the previously described long-term nature and difficult revisability, the importance of property should change, especially for companies under uncertainty. Thus, it should be shown that companies anticipate uncertainty by restraining their investment behaviour. If firms were to continue to hold on to property under uncertainty, then this could have a negative impact on their performance. The concluding Article 5 extends the previous research by establishing a link between current structural change and ownership strategy. Through a comprehensive survey of CREM decision-makers, companies are grouped according to the extent of their affection by structural change and examined with regard to a possible reaction in their ownership strategy. A differentiated analysis according to types of use and a query of ownership-reducing measures provides a more detailed insight into the types of use for which an ownership reduction could be considered as well as for how this could be implemented. This dissertation thus expands previous discussions regarding the advantageousness of real estate ownership by explicitly including the increasingly dynamic and uncertain corporate environment. At the same time, the underlying work complements previous studies focusing on Anglo-American and Asian markets by adding a European perspective. This not only provides a valuable contribution to knowledge but, in parallel, these studies provide practice-relevant insights into the possible consequences of adhering to or adapting current ownership strategies. However, the knowledge gained is not only relevant for non-property companies. An adapted ownership strategy would also have overall real estate economic implications for investors as well as service providers.