Abstract
Very little work has been undertaken on the consequences of economic recession on Corporate Real Estate (CRE) and its realignment following strategy changes. Only those CRE portfolios with short term leases have a dynamic alignment capability allowing them to readily adjust to change. For those with longer leases this leads to the creation of a surplus property provision (SPP). This paper analyses the relationship between SPP and metrics for business and CRE through a period of significant change, by examining company annual reports using a distributed time lag auto-regression model. The results show an inverse relationship between SPP and profits but a positive relationship with both turnover and employment, suggesting that declining profits trigger the re-shaping of CRE. SPP is used to provide portfolio flexibility because of the lack of dynamic alignment capability. SPP increases as the commitment to short leases (<5 years) increases. The estimated time for SPP to revert to zero ranges from 3 to 9 years, but one category, financial services, is continuing to increase its liability. CRE agility has yet to be visible in the financial reports of companies, suggesting its impact remains limited, indicating the relationship between business parameters and CRE is more complicated than envisaged.
Highlights
Internal and external factors operate to influence and change an organisation and latterly have impacted the rate of change
Substantial increases were seen with the surplus property provision (SPP) and the total provision, in 2008 but continuing through the period
What the analysis has shown is a lack of Corporate Real Estate (CRE) dynamic alignment, which raises the question as to whether CRE agility has improved significantly over the last two decades (Joroff & Becker, 2017)
Summary
Internal and external factors operate to influence and change an organisation and latterly have impacted the rate of change. Change arises directly from strategic choice, such as business strategy, and from transformation in the external environment, such as economic recession. It can be through the likes of generational differences, but change is itself an influencer of business strategy, especially the speed of change. Neither consider CRE, despite its importance to the business (O’Mara, 1999). Both assume change to be a gradual transition, CRE re-alignment with a new business strategy would evolve. Increasingly these strategies have been challenged by more dynamic approaches. Transient competitive advantage (McGrath, 2013) assumes a short-lived competitive advantage in which business must continually change to find the short-term gain
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