On January 1 of this year, new lease accounting standards from the Financial Accounting Standards Board (FASB ASC 842) and International Accounting Standards Board (IASB IFRS 16, or AASB 16 for Australia) went fully into effect.
The new accounting standards require that leases — including your real estate leases — will now be recognized on the corporate balance sheet. While these changes are intended to bring more transparency to your company’s expenses and liabilities, they also mean your real estate portfolio will garner increased attention from your C-suite.
First, as your leases begin to appear on the balance sheet, your real estate portfolio will have increased visibility and impact on your organization’s P&L. At the same time, you can also expect increased reporting requests. As your organization seeks ways to minimize the impacts of the new accounting standards, they’ll be looking to you to provide data about your real estate portfolio that you may not have been asked for previously.
What could be perceived by some as challenges can, in fact, be opportunities for you as a CRE professional. As your organization begins operating under the new lease accounting changes, it’s a perfect time to explore new ways to optimize your real estate portfolio and align to strategic priorities. With CRE now poised to capture more of the spotlight, you can rise to the opportunity by taking steps to lessen some of the fallout of the new standards and, in doing so, demonstrate value to your executive leadership.
Here are three ways you can help your organization successfully navigate the challenges of the new lease accounting standards, as well as chart a solid course for the future.
#1: Optimizing Space Utilization
Workspaces are continuing to evolve as evidenced by shifts in how office space is being planned and utilized. While open-plan offices were once in vogue, now office “neighborhoods” are gaining popularity. These flexible spaces foster brainstorming and collaboration when appropriate, while also providing private and quiet spaces for employees to focus on individual work.
Companies that offer remote work opportunities to employees are seeing an increase in underutilized space. And a growing dedication to employee well-being is resulting in strategically designed spaces with more daylight, quiet corners, and special acoustics that increase employee comfort and motivation.
As workplaces evolve to reflect these emerging trends, CRE must evolve, too. As your real estate leases move to your company’s balance sheet, you will want to be certain that you’re using your leased spaces to their greatest benefit and in ways that best serve your organizational priorities. You can optimize your space utilization by:
Understanding all of the costs associated with existing spaces and looking at your total cost of ownership
Gaining greater visibility into the performance of your real estate assets
Using data generated from IoT devices, like utility and occupancy sensors, to better understand current space utilization
Leveraging scheduling tools to increase utilization and person-to-desk ratios
#2: Increasing Your CRE Agility
Not only is the design and use of spaces changing, but so is the entire workforce — at an accelerated rate. An S&P 500 company now has an average lifespan of less than 20 years, down from 60 years in the 1950s. And in an effort to compete with the speed and adaptability of newer, more nimble firms, older legacy companies are having to change the way they structure internal teams.
Combine these factors with economic cyclicality, the expansion of new technologies like automation and machine learning, and fierce competition for qualified employees, and the questions for any organization then become how much space is needed, who is using it and when, and how well can it support employee satisfaction and productivity.
To be able to quickly address changing needs and reposition existing real estate assets, whether it’s acquiring shorter-term or more flexible leases, or turning to third-party spaces to provide alternative work environments, the net result is that greater agility in CRE is required. In fact, 67% of respondents in a recent CBRE survey believe that real estate portfolio agility is critical to their overall success.
You can increase your agility by:
Maintaining a single system to collect and aggregate all leasing information, with detailed terms and timelines for each
Identifying which facilities can be consolidated and which are no longer needed
Unearthing opportunities for expansion through comparison of long- and short-term leases and rent
#3: Establishing a Real Estate Center of Excellence
To be able to optimize space and increase agility effectively, you need to be able to draw upon a reliable, centralized source of data. It’s this centralized data that provides the foundation upon which you can build a center of excellence to help you prepare for the shifts ahead and strategically position your organization to meet them.
Your real estate center of excellence should encompass all of the necessary information about your properties and leases to act as a single source of CRE truth for your organization. It won’t just provide the data you need, but it will enable collaboration and knowledge sharing with other areas of your business, like Finance, HR, and others who play a part in CRE initiatives.
Equally important, you can use your center of excellence to standardize your CRE strategies, processes, and best practices. As you bring more rigor to your decision-making, you’ll find that documenting and formalizing your processes and best practices doesn’t just help you rationalize your real estate activities and decisions, it can elevate CRE’s role and influence to a higher level in your business. When you’re able to easily access and analyze data about your entire real estate portfolio, you can move beyond simply showing value to exponentially increasing the value you provide.
Armed with the right tools and information, you can help your organization minimize the impacts of the new lease accounting standards by optimizing your space utilization and lowering total cost of ownership. You can also increase your organization’s agility and response to changing workforce dynamics and real estate trends.
Center Your Real Estate Center of Excellence on IWMS
As regulations, economic cycles, and industries evolve, CRE will continue to play an integral role in optimizing workspaces and their associated costs. By establishing a real esate center of excellence around an Integrated Workplace Management Solution (or IWMS), you have the strong foundation you need to help your company navigate the challenges of today — and tomorrow.
With easily accessible data at your fingertips — everything from occupancy rates to property value to maintenance costs — you’re able to analyze how space is being utilized today and identify ways to increase efficiency. You also increase agility by collecting all leasing information in one place to quickly determine the most viable facilities in your portfolio and find opportunities to adapt and expand.
Supported by an IWMS, you can:
Access all of your property data in a single view
Facilitate collaboration with Finance, HR, IT, and others
Proactively identify cost-saving improvements
Link space use to lease term to strategic acquisition to make better decisions
Confidently make recommendations to your C-suite
To learn more about how you can help your company successfully navigate the new lease accounting standards, download our FREE eBook.
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