HomeNewsletterLatest NewsletterReport: Businesses looking to minimize risk in their 2023 CRE portfolios

Report: Businesses looking to minimize risk in their 2023 CRE portfolios

Approximately 70 percent of senior real estate executives said their businesses want to add space as part of their 2023 real estate strategy, according to Visual Lease’s 2023 Commercial Real Estate & Leasing Trend report. However, 88 percent are planning for physical space needs just a year or less in advance — a significant jump from 2022 when just 35 percent of companies reported they were planning their physical space needs along the same timeline.

A recent report from lease optimization software provider Visual Lease revealed that businesses are shifting how and why they sign new leases in response to the evolving workplace and economy. This most recent change is a sign that businesses want to protect their ability to pivot in the event an unforeseen circumstance arises — such as the COVID-19 pandemic.

Senior real estate execs also noted that the chance to sublease as well as flexible lease termination as main reasons to negotiate into future leases.

The study, which surveyed 200 U.S. senior real estate executives at companies with more than 1,000 employees, also found that 52 percent of respondents reported their businesses plan to add new satellite locations and 28 percent are looking to downsize their existing spaces.

Increased interest in satellite locations and alternate spaces is also a sign that businesses are trying to meet the reimagined workplace’s needs — flexibility as a top priority, hybrid work arrangements, fully remote hires and shared workspaces. This year, 46 percent of senior real estate execs said shared desks or offices (booked as needed by workers) provide the best office working environment for their companies.

“In today’s macro-economic environment, business leaders have to be even more strategic with resource allocation,” said Robert Michlewicz, Visual Lease CEO. “As a result, companies are changing how they view their real estate and equipment leases. Once a widely overlooked area of the business, lease portfolios are now helping companies remain agile by providing opportunities for significant hard- and soft-dollar savings. The key, however, to accessing these many benefits is first implementing a strong lease controls framework.”

Additionally, 45 percent of respondents admitted their companies overpaid rent or expenses because of inadequate lease controls. The reason — more than 80 percent of real estate execs also admitted that their companies have not prioritized investing in dedicated technology, people and processes that are needed to manage their lease-related expenses properly. This is an especially costly error as lease-related costs are often a business’ second-largest line item.

“Without the right technology and processes in place, leases can very quickly turn into substantial liabilities, exposing businesses to compliance risks, failed audits, fees, damaged credibility and wasted resources,” Michlewicz said. “There is a major opportunity available to companies across all industries to safeguard themselves against these risks, and also, use their lease data to make better-informed decisions and successfully anticipate future needs.”

CRE still behind in ESG initiatives

The Visual Lease report also revealed a clear connection between and Environmental, Social, and Governance (ESG) programs. For example, 95 percent of companies do not have a fully established ESG program. Meanwhile, more than 40 percent reported they’ve yet to begin any ESG initiatives yet. However, almost all (99 percent) of execs surveyed believe it’s important for their company’s future leases to reduce its carbon footprint.

Click here to download the full report.

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