Feb. 9, 2018
By: Bruce Rutherford, International Director, JLL Global Energy Practice Group
This is the third in a three-part series examining common real estate pitfalls energy companies should avoid. JLL’s Global Energy Practice Group will share market insights and real estate expertise with energy companies at the 2018 NAPE Summit, Feb. 8-9, in Houston. Visit us at booth 3111.
Common real estate pitfall #3: A real estate strategy does not exist or does not support the corporate strategy
Real estate is an inflexible asset in contrast to financial instruments, which can easily be bought and sold. To overcome or mitigate this inflexibility, companies should create real estate strategic plans. The most successful portfolio strategic plans have contingencies that assume things continue as they are, and for worst and best case scenarios.
The cost of not performing this exercise can be high. Most oil industry executives can cite boom-and-bust examples of companies that became entangled in ironclad property commitments during high oil price cycles, only to be saddled with financially crippling real estate burdens when prices reverse. On the flip side, during a market uptick, companies are sometimes unable to acquire real estate quickly enough to support their operations, and revenue opportunities are lost forever. Even in relatively stable times, many companies with dozens, even hundreds, of locations lack a strategic plan to consider whether some facilities should be combined for greater efficiency and cost savings or disposed of completely. This wastes money and reduces profits.
A real estate strategy is important not only to your operational and financial requirements, but also to the ability to attract and retain the talent a modern energy company needs. After compensation, real estate and its location are the second most important factors in recruiting and retaining talent. Real estate is also the platform upon which technology sits that connects talent to one another. This is why real estate strategies must support the overall HR and technology plans for the company.
Common sense and decades of corporate real estate experience clearly show real estate is fundamental to the success of the enterprise. Top management must therefore give real estate its due attention, and install the necessary organizational structure, data systems and strategic plans to avoid the obvious pitfalls of corporate real estate and allow the company to reach its full potential.
Stop by booth 3111 at NAPE to discuss real estate strategies specific to energy companies with one of our energy industry real estate experts.
About the Author
Bruce Rutherford is an International Director within JLL Houston’s Office Tenant Representation group and is also the global leader for JLL’s Energy Practice Group. With more than 33 years of experience, he has applied his expertise in tenant representation and commercial real estate consulting to numerous industries including insurance, banking, law, energy, energy services, and telecom.