It isn’t news that we’re in challenging economic conditions. The rapidly rising Consumer Price Index, a changing federal funds rate, fluctuating global events ― these factors and others are contributing to major uncertainty.  

Being in commercial real estate often means trying to ride the waves. You put solid plans and processes into place to prepare for the lows as well as the highs. But with a potential dip on the horizon, CRE tenants are diving deeper into their approaches. Many are asking:

“In today’s climate, how do we strengthen our CRE portfolio?”

It’s tough to know exactly where we’re headed, but there are several strategies for getting in front of a potential recession and optimizing your real estate portfolio in a shifting market. Here’s a look at what you can do to protect one of your largest operating expenses.


Analyze the Data

Making your real estate portfolio more adaptable starts by understanding what the data is showing you.

Lease audits are invaluable to this end. Once you establish a clear picture of what and how much you’re paying for, you can come to the bargaining table in a stronger position for renewing a contract.  

But it’s not just the data in your own portfolio. It's the data around you that affects your sales, it’s the data that affects your landlord, and it’s the data that affects your customers.

For example, the ability to analyze a landlord’s financials — the loan to value ratio, how many months before that mortgage comes due, what the overall debt coverage ratio is ― can indicate the break-even cost for your location. Armed with that information, you can better set the market rate for your renewal or for a new opportunity.

And then there’s benchmarking data. What are your operational costs for data acquisition, industry information, and statistical analysis — so you can conduct benchmarking and see where you stand compared to your competitors?

Comparison data to gather includes:

  • Construction KPIs such as the use of materials, cost v. budget, and number of accidents
  • Lease costs, including rental rates, term lengths, and tenant improvement allowances
  • Market analysis costs that affect site approvals and the ability to forecast store performance

Once you have that data, it’s critical to put the standard work in place so you can act on it.


Act Now, Act Often, Act Decisively

Acting and maintaining actions going forward isn’t always easy. But analyzing your data and then leveraging what you can — your distribution models, business modifications, etc. ― will help insulate and fortify you as we enter a more uncertain economy.

So, where to start? There are always competing forces in portfolios, but here are items to look at.

Start Doing

  • Accepting the ESG impacts of flexible work. Forthcoming SEC requirements mean that companies may soon have to quantify their climate and other energy, social, and governance (ESG) initiatives.
  • Embracing the cost savings of flexible work. Lower costs such as not having to house as many people in your main office are going to benefit you — so lean into them.
  • Planning for a resultant decrease in related retail values. If you’re in retail, restaurants, or similar industry, your sales expectations may have been based on nearby building occupancy. With lower occupancy rates, understand that there may be a profit equation change to your business.

Stop Doing

  • Jumping to “final solutions.” Not everything will happen as quickly as you think it might. Look at what happened during the pandemic, where businesses added three-month extensions to leases as final solutions — and then operated under the effects of COVID for another 15 months.
  • Putting long-term leases on the table. Although required in some cases, the key is to be as open and as flexible as possible.
  • Spending capital too soon. We don’t know what the final office is going to look like, so figure out what your flexible workplace strategy is going to be before committing to your office plans.

Continue Doing

  • Staggering leases. Don’t let interim decisions create peaks in your portfolio.
  • Evaluating the impact of technology. To embrace flexibility and understand how to manage your overall portfolio, ultimately you need to use technology. And that leads to:


Make Skillful Use of Technology

In economic times where there are peaks and valleys, you must have tools that can help you keep all your data organized. For managing transactions, that means having a process that’s repeatable, reviewable, and accessible.

It may also mean having technology that allows you to compare scenarios. Being able to build out options with scenario comparison tools can lead to more informed renewal, remodel, and termination decisions.

Mobility is also vital. Be sure to consider:

  • Mobility and access in the field, at any time. Can technicians quickly receive and create work orders on-site? Is lease information complete, accurate, and up-to-date, however and whenever you want to access it?
  • Actions that are not just viewable, but executable. Maybe you’re doing a property walkthrough and notice an issue that needs to be addressed. A mobile app lets you take care of issues right then and there, so nothing falls through the cracks.

A side benefit of mobility is that it builds loyalty within your organization. A mobile app that’s easy to use and is always accessible helps builds buy-in from your employees for your CRE processes.

Lastly, technology can help make your data actionable. Software solutions, for example, can help you collect data, combine it with other data, and allow you to act on it ― say, to validate a decision — which is key to understanding how to leverage vital components at critical times.


Succeeding in Today’s Real Estate Reality

Preparing your business for an economic downturn is a daunting challenge, but it also is a great opportunity to evaluate how you can make the most of your commercial real estate. Learn more in our on-demand webinar How to Prepare Your CRE Portfolio for Potential Economic Dip.

We’d love to connect with you on this important topic. Find out how you can get in-depth knowledge on real estate lease management, share best practices with a collaborative tenant community, and meet up with us in Phoenix on September 11 at the NRTA Expanding Knowledge Conference.