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Commercial Basis: HQ Strategy

Thought Leadership // Apr 03, 2017

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Commercial Basis explores how technology, branding and demographic preferences are shaping office and retail real estate in New York City. As these forces break down the barriers from where we live to where we work and shop, Lead Commercial Specialist Alex Cohen assesses the impact on real estate values and opportunities.

Last month Snapchat’s parent Snap, Inc. issued perhaps the largest and most significant initial public offering of 2017. One of the interesting aspects of this IPO was that Snapchat identified its lack of a corporate headquarters as a risk that could potentially undermine its growth and future revenue. Snapchat’s founders started the company in a Venice beach bungalow and have grown the business in scattered Venice and Marina del Ray locations. These are communities with a very constrained supply of available office space. Management has not articulated any plans to bring Snapchat’s staff together in a headquarters or even consolidate into fewer locations. A diffused workforce presents a challenge to collaboration, creating a consistency of culture and overall productivity, particularly in the innovation-based environments of TAMI (technology, advertising, media and information) companies. I previously wrote about how many TAMI companies like Google and Apple developed comprehensive and expansive workplaces filled with amenities that are intended to engage as well as attract and retain employees and embody the firms’ cultures (see: http://corenyc.com/culture/2016/10/commercial-basis-time-space-workplace/)

In New York City, Snapchat’s one principal office location is sited in the former The New York Times building west of Times Square. Here its growth has been haphazard as well, with new staff filling in virtually every available square foot leaving meeting and collaboration space virtually non-existent. One could argue that Snapchat’s apparent lack of a real estate strategy reflects the exclusion of real estate from overall business strategy. And this is not a common problem endemic only to new or fast growing firms.

Traditionally, the corporate real estate function has not occupied a position of prominence within most companies. As office space is typically the second largest corporate expense after payroll, most firms characterize real estate not as a platform critical to revenue and productivity, but as a cost to be managed and economized (even in growing firms) through measures like consolidation and densification (reducing square footage occupied per employee). The individuals who implement corporate real estate within a company are frequently perceived to be “order takers” and are often isolated from the actual C-Suite-based decision making process.

Truly progressive firms are starting to incorporate real estate within the C Suite, creating Chief Solutions or Chief Innovations Officer positions with principal responsibilities to rationalize a company’s real estate portfolio and integrate work place planning with the company’s overall business strategy.