Inflation generates a ripple effect palpable across all industries—especially those that rely on commercial real estate. As prices and interest rates skyrocket, market inputs such as demand, capitalization, and financing capabilities drop.
The effects of inflation on commercial real estate, however, are not just witnessed at a macroeconomic scale. If you haven’t already, you will feel the pinch of rising interest rates as high operational costs. Of course, as inflation continues to spike prices, it will only be a matter of time before labor costs rise at a proportional rate as well.
All of these factors can compound, making it difficult for your business to operate during these financially challenging times. However, through commercial real estate optimization and diversification, you will not only survive the current market, but also inflation-proof your portfolio.
Here are four CRE strategies to help your business survive and thrive under inflation, and other unforeseen and unfavorable market conditions.
1. Optimize Your CRE Portfolio
Protecting your business from inflation begins with optimizing your CRE portfolio. When optimizing your portfolio, start by classifying your assets.
Commercial real estate often falls into one of three categories: supportive, unsupportive, or missing (gaps). Supportive assets add value to your organization, while unsupportive assets no longer support your organizational goals.
As a CRE owner, it’s your task to identify and classify assets in your portfolio, before determining a strategy to best manage each. Understanding your commercial real estate on this level before a period of high inflation will make managing CRE during financial crises much easier.
2. Cut Extraneous Operational Costs
Operational inefficiencies can seriously cost your business, and the effects of these inefficiencies are especially noticed during times of high inflation.
Undergo a current state assessment to understand and reduce unnecessary operational costs, including costs of goods sold, maintenance expenses, and utilities. However, be cognizant of how these decisions impact your long-term goals.
Many businesses tend to put talent and technology on the chopping block when cutting operational costs. Don’t make this mistake.
Talent and valuable CRE technology like lease management software are not liabilities, but assets. Without both, your business will stagnate or fall victim to long-term inefficiency and low productivity. Instead, reduce or eliminate underperforming programs or initiatives that do not exceed baseline key performance indicators (KPIs).
3. Automate Business and Commercial Real Estate Processes
While automation may require an upfront investment, companies have achieved average cost savings between 25% to 40% with intelligent automation.
When assessing your commercial real estate processes for automation opportunities, look for tasks that are repetitive and areas that impact your team’s decision making, including:
- Preventive maintenance equipment monitoring.
- Work order submission processes.
- Lease and other documentation management.
Automation, through tools like a CMMS, enables your team to make decisions quicker, dedicate time to more important tasks, and efficiently complete work. For your commercial real estate, automated technologies mean better organized documentation, fewer costly equipment repairs, and less downtime—everything you need to ride out an inflation-plagued market.
4. Practice Strategic and Proactive Planning
Inflation can bring about market volatility, and with it comes unforeseen contingencies that can affect your CRE.
Scenario planning enables your organization to avert most potential pitfalls. It involves a combination of strategic thinking and metrics to navigate hypothetical situations without risking ROI-impacting failures.
Planning for eventualities as you consider the above can streamline your decision-making in unprecedented market decisions and ensure outcomes align with company goals.
As you can imagine, scenario planning is not a process you conduct once. It’s a task that you must regularly perform as your goals, and the market, change.
Combat Inflation With CRE Portfolio Optimization
While portfolio optimization is always important to the health and profitability of your commercial real estate portfolio, it becomes mission-critical in light of events like soaring inflation. To learn more about CRE portfolio optimization and how to successfully execute it, download, “Portfolio Optimization: The Essential Corporate Real Estate Guide.”