How companies are changing strategies on their corporate HQs
Corporate real estate teams are rethinking how much space they need and where it’s located
Premium headquarters have long been a key part of corporate real estate, but more companies are now exploring alternatives to traditional owner-occupier models, as well as considering new location choices.
Last year, several companies concluded sale and leaseback deals on their Europe-based headquarters. French energy firm ENGIE’s sold its still under construction global head office in Paris to Swiss Life Asset Managers for around €1 billion. In January, Finnish financial firm OP Cooperative agreed a €480 million sale and leaseback on its Helsinki office with a consortium of Finnish and South Korean investors.
While raising capital may have been a factor during the pandemic for some companies who own, rather than rent their space, more consideration is now given to factors such as location and amount of office area needed.
“More corporates are quickly coming to the conclusion that they don’t need a certain percentage of the space they currently own and occupy,” says Nick Compton, head of corporate capital markets, EMEA at JLL. “They’re rethinking their needs for the medium to long-term and asking if they should continue to own real estate, including their HQs.”
Norwegian telecoms group Telenor, for example, sold its headquarters on the edge of Oslo for around €500 million in October last year, while energy firm BP sold its London HQ to Hong Kong-based Lifestyle International and will lease the space for an additional two years while it develops alternative plans.
And it’s not just a big city trend; in July 2020, UK fashion retailer Next agreed the sale and leaseback of its head office in Leicestershire.
The alternative - holding on to excess real estate to become a landlord of unwanted or unused space - is simply not a core strategy for many corporates.
“A telecoms or energy firm will typically not want to get into property and the burden of leasing out space to another party,” Compton explains. “Owning and managing excess space is a distraction.”
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Rightsizing real estate is not the sole factor driving decision-making; a relocation to a new HQ address is also a way to make a statement on company brand, ethos or culture.
“If a company image is changing, then often it’s about physically showing that fact to both employees and sector analysts,” says Compton. “More corporates are wanting to show that they are changing path.”
Corporate demergers, where companies look to split their consumer and business facing operations, are equally a reason to rethink office space.
“That not only raises the question of how much space they need, but equally the kind of space sought,” says Compton. “Does one side of the business have its own unique requirements in terms of image, location or configuration?”
What’s more, ESG efforts and net-zero efforts are increasingly playing a part, with older buildings often harder to upgrade and meet tightning regulatory requirements.
“Energy consumption is a factor for many firms with buildings in need of major capital expenditure to successfully retrofit as part of their net-zero ambitions,” says Compton. “It’s an opportunity for a fresh start.”
Adapting to a new reality
While many companies are still taking a wait-and-see approach to decisions on their HQ and wider real estate portfolios, some companies are now going public on their strategy changes – and there’s a very wide range of opinion on exactly what that looks like.
In April, HSBC announced permanent home working for 1,200 staff while JP Morgan says around 10 percent of its 255,000 employees may work from home full-time. At the same time construction of its new HQ in New York will continue.
Others, such as PwC, are adopting more flexible work policies that allow staff to work from home for around half of the week. Indeed, JLL research found that the sweet spot for working from home is two days a week. Meanwhile, Barclays and Goldman Sachs are less enthusiastic about making work from home a mainstream part of their workplace strategy.
As more companies finalise their new look workplace strategy and assess what it means for their real estate, Compton believes more HQs could be up for sale.
“Factors which in the past may have seemed less pressing, such as their green credentials, will continue to become more pertinent,” he says. “Time will tell, but shifting work patterns, changing employee expectations and the financial implications of the past year’s uncertainty could see more corporate real estate released.”
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