Delivering smarter and greener real estate portfolios post-COVID-19 through PMOs

Perry Knight

Director

North America

As the global economy starts its road to recovery, decisions around future real estate requirements are crystallising after a year of changing dynamics in how and where businesses work.

In March 2021, BP announced that it would be asking 25,000 of its employees worldwide to work from home two days per week – enabling a comprehensive review of property assets. Similar moves are being made across a huge range of sectors – from banking and insurance, to tech, media and FMCG.

While portfolio optimisation and rationalisation are not new, the scale and timetable for change is, with an increasingly urgent focus on the transition to net zero and raising productivity. In the US, data from the Association of International Certified Professional Accountants suggests that 20 percent of businesses are looking at a reduction in office space within the next 12 months. Such a wholesale review brings an opportunity for real estate teams to tackle an even bigger challenge than the one posed by the pandemic – that of decarbonisation.

Aligning real estate with corporate strategy

Achieving net zero has rapidly risen to the top of the business agenda, but it is only in the last year – spurred on by recognition of the fragility of our global ecosystem – that real commitments have started to take shape. From Ford to American Airlines, to Unilever and Nestlé, businesses in all sectors are adopting a net zero route map not for competitive advantage, but as a business-critical step. In the US specifically, the new Biden-Harris administration’s recommitment to global climate goals is further catalysing action from corporates.

But with bold commitments often made at board level, it is much harder to integrate strategies to achieve decarbonisation targets into the day-to-day execution of real estate projects and programmes – where decisions and delivery are regionalised and delegated to local representatives, supply chain partners and advisers.

Solving these challenges will require a much stronger role for centralised programme management with oversight for the implementation of policy, regulation and business strategy.

PMO 2.0

The rise of the programme management office (PMO) has been well-documented in real estate to support better investment decisions when it comes to implementing capital projects. As we emerge into a new age of corporate purpose and priorities post-COVID-19, the PMO is ready for a reboot in its scope and ambition.

To date, the core objectives of programme management have been relatively narrow – focusing on schedule assurance, cost validation and controls, governance and risk-level determination. At its core, the PMO is there to focus on the traditional ‘triangle of needs’ – time, cost and quality.

These are important priorities, but ones that are largely functional rather than visionary. The modern PMO needs to think more broadly in terms of a ‘polygon of needs’, taking into account net zero as one of its central objectives.

Unlocking a new way of working

In many cases, there is an opportunity to cross-pollinate ideas from other sectors, where the role of the PMO is to leverage the expertise of a supply chain working across a variety of industries.

In our own client base, which includes infrastructure and natural resources, we are already seeing best practice in this kind of objective-led delivery of major commercial real estate programmes.

A good example is in oil and gas – one of the early adopters of a PMO model – where health and safety has long been a central priority and metric against which success is benchmarked. Another is the residential real estate sector, where modern methods of construction are pushing boundaries in relation to production output – modular construction, 3D printing, remote sensors and inspections. These techniques are now being applied in other areas such as the technology and consumer sectors too.

While the objectives may be different, the principles are consistent in terms of integrating and embedding priorities into business practices across a portfolio of assets.

When it comes to decarbonisation, there is an even greater opportunity for collaboration because there is an increasing consensus on the objective and timetable on emissions: net zero by at least 2050, and ideally sooner.

Seeking partnership

By looking outside of the commissioning organisation and to wider partners, real estate teams will stand a better chance of delivering against decarbonisation goals. To take a recent example from the US, Wells Fargo announced in February 2021 that it would be installing approximately 30MW of new onsite solar generation assets in locations across seven states – combining its financial firepower with expertise from renewable energy business Ameresco. By bringing in experience this way, PMOs can draw on specialist skills to deliver against corporate priorities.

In other regions and sectors there may be an important role for government too. In the UK, we are working with the Mayor of London to create capacity and capability with the construction sector to support the retrofit of homes and workplaces.

Effectively, it is creating a market for whole-building retrofit, with a supply chain that organisations can then bolt-in to their own programmes. The job for the PMO is to understand this opportunity, seek it out and set the framework through which to bring it on board.

Setting up for success

While net zero is one of the most significant and complex challenges facing real estate, a portfolio approach if set up correctly can also be the framework through which to cascade wider environmental, social and corporate governance priorities – from addressing modern slavery and improving diversity to building digital skills and narrowing the inequality gap.

As businesses re-evaluate their real estate footprint post-COVID-19, there is a renewed opportunity to reshape delivery of projects and programmes to align with these goals.

Success will rely on building capability within the real estate team itself, so it is ready to play its role as an integrator and overseer of this agenda.

For further information contact:

Perry Knight
Director