Upflex CRO Michael Casolo and Newmark Global Corporate Services CEO Rick Bertasi talk proptech tools and solutions for cutting costs and boosting efficiency.
In the wake of the pandemic, technological innovation is rapidly changing the corporate real estate landscape — revolutionizing business processes, boosting transparency, speeding up transactions and more. The power of proptech is especially evident as companies of all kinds embrace the hybrid workplace and business leaders consolidate workspace management. With the right tech stack, companies can right-size real estate costs while providing talent with the flexibility they’re demanding.
According to Rick Bertasi, CEO of Global Corporate Services at Newmark, companies are finding the most success when adopting new proptech solutions when they start with the questions they’re trying to answer, and work backward to the right solution or tool.
“Proptech is the means to an objective, not the goal itself,” Bertasi said. “Business leaders may think, ‘what are we trying to achieve?’ and then identify which technology is best to get there.”
Last year, Newmark launched Optality — a dynamic portfolio optimization solution powered by Upflex technology—to support clients navigating the flexible and hybrid work landscape.
Upflex CRO Michael Casolo sat down with Bertasi to talk about CRE’s shift to proptech, and how enterprises are effectively saving on real estate budgets with innovative, tech-forward solutions fit for the future of work.
CASOLO: I’d love to hear your take on the evolution of the CRE role in managing a distributed portfolio. Today, for an enterprise company’s head of CRE, the job description looks very different than it did three or four years ago, especially with the ability to leverage new technologies and tools. How do you see CRE roles evolving? Are real estate leaders embracing more tech than pre-pandemic?
BERTASI: I have been in the CRE space — consulting with corporations around their occupancy — for nearly 30 years. Traditionally, a CRE department within an enterprise is staffed on a “run the business” basis, augmenting in-house capacity to do “change the business” work as needed by hiring consultants with specialized skill sets on a variable or project-by-project basis.
What we’ve seen is the industry trying to change ever more quickly as a result of the pandemic. From an occupancy standpoint, in-house CRE departments are contending with the need to run the business — which is dramatically different than it was pre-pandemic — and change the business, all at the same time. Companies’ use of space has already changed, so their real estate portfolios must also change.
The question for CRE business leaders is whether they have the resources and skillsets to change the business while running it. This is an exciting transformational challenge for everyone, though certainly, some find it stressful. Nearly every corporate occupancy portfolio in the world is going through the process of figuring out how to adapt to its new normal, even as it constantly shifts. A proptech tool like Optality is a game-changer for business leaders in this sense, allowing the deployment and tracking of a flexible and data-driven workplace solution as they evolve their CRE approach.
CASOLO: Newmark’s clients use Optality to help manage all this change and keep up with this new set of needs. What kind of feedback are you getting about how Optality is helping ease this transition?
BERTASI: Universally, we’re seeing enthusiastic feedback from our corporate enterprise clients using Optality. The technology platform creates the flexible work opportunities and spaces that employees need to be productive and collaborate, optimizing their work lives in new ways that don’t involve an hour-and-a-half commute.
CASOLO: How has this tool enabled companies to be more effective with their workspace spends?
BERTASI: Optality tracks consumption, performance, and customer satisfaction. Business administrators can securely and confidentially track retention, turnover, and absenteeism rates and run regressions to identify correlations between each. Candidly, fewer companies currently deploy these tools and do the math, primarily relying on perception for decision-making. However, this approach will continue to change as CRE functions develop more advanced capabilities.
CASOLO: Considering the economic headwinds we’re seeing right now, at Upflex, we’re seeing companies spending more consciously and tightening real estate budgets to reduce spending. Companies want to balance their budgets while providing an experience for their employees. How do flex solutions like Optality enable companies to right-size their real estate costs and offset fixed costs?
BERTASI: The use of proptech to enable companies to reduce spending while still maintaining productivity and output is crucial. CRE occupiers’ goal is to manage and reduce the cost of their consumption through variabilization while still delivering productivity and meeting enterprise business goals. Good proptech is a force multiplier in achieving that.
In the past, variable costs in real estate were possible; however, the cost of managing that variability frequently exceeded the benefit, generating negative net returns. Today, proptech — and Optality in particular — allows companies to reduce costs and make cost variabilization efficient. Because of Optality’s efficiency and scalable benefits, companies can reduce costs through variabilization and generate positive net returns.
One Optality client has reduced office occupancy costs by 80%. That’s 80% savings in what is typically one of the highest expense categories for any major occupier. That savings could be invested into core business growth and profitability or spent on employee experience components, R&D, or opening new markets. Any of those are better long-term uses for that company capital.
The corporate office will always be a component of real estate strategy. However, cost savings are uncovered in the variability. How do you create less fixed and more variability in the cost, which allows you to turn the dial?
CASOLO: At Upflex, we’ve advised some clients to begin with pilots, especially corporate multinational occupiers. It’s been a great way for companies to test what a hybrid strategy approach can do for their organizations while giving them enough data to apply the learnings and optimize their approach.
Meanwhile, as you’ve said, Optality is helping clients reduce their occupancy costs by as much as 80%. For companies looking to get started, what is the ramp-up time for these savings with Optality? How quickly do Optality clients realize these savings, and how are they applying the learnings from the data to get even better results?
BERTASI: The ability to implement the initial stage, prove the concept and demonstrate that the tech and reporting meet client needs takes around two to three months to complete. Though understanding client consumption patterns and seeing the data in action is almost instant, what may take time to realize is the savings because existing lease commitments are often sticky.
“One Optality client has reduced office occupancy costs by 80%.
That’s 80% savings in what is typically one of the highest
expense categories for any major occupier.”
Typically, a client has existing real estate obligations: long-term, multi-year leases or CapEx that has not been depreciated. Many components go into real estate savings from a profit and loss standpoint, and understanding the interplay of all of them is important.
Variabilizing consumption could be quick; however, those obligations may be sunk into the existing portfolio. Some companies can look at those costs and move forward, while others can’t afford the write-offs to accelerate the decisions before lease expiration and move more slowly. Ultimately, though, everyone will get there.
CASOLO: So, clearly, these lease expiration dates are a real opportunity moment for companies.
BERTASI: In most cases, companies use lease expiration dates as a prompt for change. Clients run initial stages before leases end to make well-tested decisions and thoughtfully approach the termination or adjustment of other real estate mechanisms. If a client can run initial stages early — aggregating six to eight months, or even a year, of data — it empowers them with more information and enhances their ability to be accurate in decision-making.
CASOLO: The opportunity is enormous for companies to launch a risk-averse pilot that provides them with real-time utilization data and employee engagement data.
But, for companies with long-term leases, the opportunity to launch a new real estate strategy is more challenging. What is the most significant transformation you see with these corporate occupiers with long-term leases? Do you see any patterns in terms of who’s going back to the office and how underutilized space is being leveraged?
BERTASI: In terms of occupancy in the office, it truly is on a case-by-case basis and depends on the proximity of employees. The consistent pattern is hybrid. Each company is making its own decisions, and most are doing so slowly to ensure they get it right.
CASOLO: We see the same across our broad range of clients at Upflex. Those embracing the future of work seem to all agree that the office must have a designated purpose to remain valuable. How are companies defining this new phase of purpose of the office?
BERTASI: Historically, companies assembled employees into large office blocks because the frictional cost of information sharing was too high outside the building. If an employee needed to talk to a colleague or collaborate on work, they walked down the hall or up the stairs or elevator and had a physical conversation or handed off a piece of paper. Today, technology largely addresses the issue of proximity. The purpose of the office is not necessarily tied to productivity, as we’ve proven you can manage productivity remotely. So, the office has evolved or needs to evolve, to be a source of culture, training, and mentoring — a place to foster collaboration.
Some still believe culture can only be created by proximity simply because that’s how we’ve all learned; decades ago, there were no alternatives. When we started work, phones were nailed to the wall with a cord, and e-mail did not exist.
Looking further ahead, new technology tools will continue to be developed, and people who are “digitally native” will, inevitably, establish different organizational cultures and norms and use new tools in ways we never have to date.
CASOLO: Ultimately, the office’s purpose will be subjective to an organization and its talent. In the meantime, though, as companies figure out those purposes, there is still demand for office space. Data shows office occupancy rates are above 50% in many cities for the first time since the pandemic. For companies looking to attract more employees back to the office, what are some best practices that Newmark has helped its clients successfully implement?
BERTASI: Newmark’s Workplace Strategy & Human Experience group regularly consults around this topic, always starting with, ‘what is the right answer for this particular client?’ The next question is, ‘how does the client make the journey from the current situation to that right answer’ and ‘what does change management look like for this journey?’
“The purpose of the office is not necessarily tied to productivity,
as we’ve proven you can manage productivity remotely. So, the
office has evolved or needs to evolve, to be a source of culture,
training, and mentoring — a place to foster collaboration.”
For every client, those answers will look different. The journey could be small or significant, but some level of change management is always involved. And for every client, the budget and labor circumstances vary.
CASOLO: In light of the economic headwinds and hybrid and remote work trends, how do you see companies making adjustments to or reductions in their real estate footprints and headcounts?
BERTASI: When it comes to the balance between the cost of labor and the cost of real estate, companies should always prioritize retaining talented people and adjusting real estate strategies to support that goal. Adjusting spend on real estate goes hand-in-hand with labor strategy. Companies must ask, ‘how does office real estate spending support and enable labor strategy, and how do we spend money wisely in doing so?’
Most companies today have an excess office footprint due to the hybrid utilization patterns that have emerged. However, from a hybrid standpoint, retaining a remote employee with an unused desk still leaves the desk with the potential for future occupancy. In contrast, if companies prioritize retaining physical workspace rather than employees, they risk losing the employee, who matters more to their productive outcomes than an empty desk does.
In terms of remote versus in-person employees, why do you hire a remote employee? When making well-informed, good-quality hiring selections, in my experience, the answer is because that individual is the best candidate for the job, whether in terms of capability, experience, personal output or ability to collaborate and achieve goals on a team. So, whether employees are remote or hybrid versus in-person should not be the first criteria companies should use when considering headcounts. These decisions really should be about the productive value of that employee.
CASOLO: It pays to be smart and sustainable with workspace consumption. Some Upflex clients are reducing costs by leasing office space in LEED-certified buildings and applying grants and energy-efficient subsidies toward utility costs. What should companies look for in a tech solution when investing in modern core technology systems?
BERTASI: From an occupancy standpoint, companies should complete an inventory, asking, ‘What do we have? Where? What are our liabilities? What are the key dates? And what information flows from that data?’ As the portfolio grows and becomes more complex, the ability to have that information accurately retained to optimize decision-making — Newmark uses in-house tools, such as Newlitic — understanding and visualizing data and strategies without having to look at point-solution software — is critical.
The second step is analyzing and determining the cost, asking exploratory questions like, ‘What makes employees productive? How do different solutions and approaches enable that productivity? What does it cost to provide the physical space for that productivity? Is the physical space needed, and if not, how do you move forward without it? Historically, companies have often over-acquired space — because they thought they would grow and didn’t — or under-acquired space — because they grew more than expected and ran out of space. Neither of which is an optimal outcome.
With all this information, a company’s head of CRE is, most importantly, looking to match the actual consumption curve to the actual supply curve. However, to reach that alignment, you have to variabilize some components of occupancy so that you can adjust it — almost daily. If companies can align in that way, then they will be as efficient as possible.