Capital Spending Is Back: Preparing For A Corporate Real Estate Expansion

Posted by Anne Sheehan on Jun 11, 2015

Capital Spending Is Back: Preparing For A Corporate Real Estate ExpansionThe Great Recession left many businesses cash-strapped and looking for ways to “tighten the belt” around corporate costs. No exceptions were made for the U.S. corporate real estate (CRE) industry, which weathered its longest recession on record.

But with an improved economy (all of the major stock market indices were at or near record highs in April 2015), many businesses have emerged from a recession-induced hibernation.

Spending is on the upswing, with global commercial real estate consulting firm Jones Lang LaSalle (JLL) proclaiming that “capital spending is back.”

“After weathering years of recessionary cost cuts and spending freezes, many businesses have regained enough confidence in their balance sheets to make long overdue investments in facilities, equipment and other gritty but essential assets,” JLL reports

If you have a CRE portfolio, now might be the time to consider capital expenditures to improve or extend the life of physical assets like buildings, technology and equipment, acquire a new facility, or green-light a long-awaited expansion.

For example, a manufacturing business may have tolerated dated or inadequate production space for several years. Now, with improved market conditions and available capital, it’s ready to upgrade its assets. Another business may decide that it’s time to ditch its sterile, cubicle-laden office space for a more attractive, open and collaborative workspace that reflects their corporate culture.  

The availability of capital also facilitates CRE expansion. This can occur with the acquisition of competitors or complimentary verticals including the real and personal property. 

Regardless of the reasons for CRE acquisition, it’s happening more often across all property types. Of course, cost is always a concern when managing a portfolio. However, cost does sometimes compete with effectiveness as a top business priority, as a report by CFO Research and IBM reveals that 44 percent of executives surveyed say that effective CRE management is “most important” for reducing costs.

Consider these additional figures: 

  • 31%: Average commercial property tax overpayment by a U.S. company, according to an internal RPTA study 
  • #1: Reducing facility operations and occupancy costs was the top objective of finance executives surveyed by CFO Research & IBM.
  • 55%: Portion of finance executives who place CRE among the four largest components of corporate operating costs (Source: CFO Research & IBM)

Remember, whether you’re acquiring new commercial property as your business grows or by purchasing market share, it’s essential to manage your occupancy costs from the beginning. This approach should always include aggressive commercial property tax management.

Start by doing your due diligence and not leasing or buying more space than you need. Then, finish strong by making every effort to minimize your largest cost of occupancy, commercial property taxes.

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