Creating Resilience

Four Ways Retail Organizations Are Future-Proofing Their Real Estate Strategies

By: Mike McAlister & Erin Plivelich

June 4, 2024 3 Minute Read

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Facilities management (FM), capital allocation and portfolio optimization provide opportunities for retail organizations to innovate and transform their real estate strategies to ensure future success.

Leveraging Industry Collaboration

Retail organizations are uncovering synergies cross-sector and cross-industry to help meet business objectives as companies continually seek ways to further optimize facility performance, decrease cost and enhance customer experience.

A potential solution has emerged: a smart building utopia, with one system for a fully integrated life cycle so that costs and critical asset condition can be prioritized in a multi-year plan. Ideally FM spending directly links to the health of a building's assets. However, implementing this connection poses a challenge. Consider retail stores: How do smart building controls affect total cost of ownership? This includes figuring out when to repair or replace equipment. For example, a large national retailer optimized their HVAC systems to reduce overall load. This data, combined with information on unit efficiency and repair costs, can inform better business decisions about repair or replacement. Different climates also play a role—a store in a harsh environment might need replacements sooner than one in a mild climate, regardless of industry. The key to more informed decision making starts with a solid foundation of asset-level data, and while some retailers are further along on the journey than others, a solution for rigorous life cycle asset management remains the ultimate outcome.

Another area in which organizations are learning from each other is in sustainability practices and goals for net-zero emissions. While many companies use centralized governance for sustainability, where top-down goals dictate actions, it's crucial to empower project teams with flexibility. This fosters innovation beyond the typical lowest-cost approach. Regardless of the project, consistent leadership is key to achieving sustainability goals, especially as upcoming regulations will likely lead to stricter standards for developing baselines, reporting carbon emissions and tracking progress towards commitments.

Addressing Today’s Most Pressing FM Challenges

Retail organizations are considering how facilities management is facing a confluence of challenges: a shrinking workforce, the need for a centralized data platform to manage assets and a desire for more collaborative relationships with suppliers. Technological advancements offer promising solutions to bridge the labor gap through automation and data-driven insights. For example, a large national retailer is leveraging AI within their video surveillance to automatically detect everything from potential life and safety hazards in their locations to the condition of the American flag waving out front to decide when to replace it. This not only improves the occupant experience but also supports facility and operations managers in ensuring their locations are safe, secure and up to date.

Using Capital Planning and Allocation to Improve Project Delivery

To improve capital project delivery, retail organizations are making key changes to their capital planning and allocation processes. First, organizations are using longer-term plans, sometimes five or more years, to secure funding and equipment commitments, helping to avoid delays in delivery and allow for the opportunity to make portfolio-wide changes and updates. In response to the ongoing effects of inflation, some retailers are taking proactive measures to address anticipated cost increases by factoring escalators into the budget. As stakeholder expectations evolve, there is growing focus on ROI transparency and ensuring all stakeholders understand each project’s value and benefits.

Driving Changes in Portfolio Strategy

Rising costs and the ability to secure CapEx funding are posing challenges to portfolio growth for some retail organizations. Therefore, many are seeking innovative solutions to avoid stagnation, such as utilizing external data analytics to optimize site selection or conducting a post-mortem analysis of unsuccessful expansions and applying those learnings at scale to future growth initiatives. To mitigate rising construction and materials costs in the built environment, an increasing number of retailers are considering modular, prefabricated components, which can offer a faster, more cost-effective option to bring new store locations online.

Content in this article was presented during the CBRE Institute Global Forum in March 2024.

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