In a rapidly evolving landscape, one of the safest methods for corporates to preserve cash is to quickly reexamine their capex in real estate. Despite executing impactful strategies in Capex management, most corporates struggle to get return on invested capital (ROIC). Firstly, their Capex management in real estate is not the core business, considering the need of the hour always remains maintaining operational efficiencies. Secondly, managing Capex for corporates has simply become a black box where they find it difficult to scale or adapt to market dynamics.
Over the time, the challenges for corporates have only magnified, especially post the outbreak of the pandemic. Several organisations had to drastically cut down on their workplace expenditure as the travel restrictions resulted in necessitating remote and hybrid work models. This further burgeoned the complexity for corporates in managing real estate, while organizations operating on the Opex model made it through better by implementing this expenditure strategy resulting in multiple value additions.
Balancing Capex with Opex
Traditionally, real estate is viewed as a treasure, a long-term investment and a part of wealth creation. However, with the pace at which the business environment is changing, many corporates are now rethinking about their Capex models. They are now prioritizing to balance Capex with Opex to align real estate strategies with growth needs and market dynamics. The strategy cultivates a more resilient approach to manage real estate, simply by scaling up or down, mitigate risks without incurring heavy expenditures and long-term fixed commitments. Instead, the companies can capitalize on Opex to enhance their operations and revenues aligned with market changes to seize new business opportunities and remain competitive in terms of profitability.
Enhanced agility, lowered risks
In the present business landscape, corporates are swiftly shifting away from Capex in real estate to enhance agility. When the market is constant, it is a strategic move to deter from owing or maintaining depreciating assets. Since real estate is subject to fluctuations, corporates must constantly look out for ways to reduce financial burdens that pose risks and are not aligned with market conditions.
To lower the capex, corporates can minimize large and upfront investments in real estate and explore other alternatives to remain cost-efficient. As part of achieving business excellence, they can allocate resources to scale their specific business operations that further enhance organizational resilience and navigate sail during uncertainties.
Cost-efficiencies, predictable cash flows
When it comes to enhancing cost efficiency, leasing instead of owning a real estate asset has proven to be a game-changer for corporates across the globe. Purchasing a commercial property requires a massive amount of investment, especially if it is located near IT or business parks. This can put substantial strain on a company's cash flow and limit its ability to allocate funds to excel in other critical areas, especially their core business.
On the other hand, corporates that consider focusing on the Opex model spread real estate costs over time to make the space easily manageable and predictable as per the business demands. Several expenditures such as manpower, maintenance, repairs and other related costs involved can be reduced with the leasing model. Corporates can utilize the same cash flow in seizing opportunities for business and other strategic expansions.
Flexibility and adaptability
There is a steep surge in the adoption of flexible workspaces. Adopting the Opex model with cost and scaling benefits along with other perks of saving time, manpower and other liabilities has emerged as one of the most instrumental reasons for corporates to adopt flexible workspaces. Furthermore, managed office spaces and coworking spaces are becoming an attractive option for corporates, given their customization services to tailor the space as per their business requirements and goals.
Bottomline
Besides expedited technology adoption, there can be many market challenges predicted with accelerated changes ongoing in the present business landscape. The strategy to move away from capex in real estate can be imperative, especially for corporates looking to maximize their cost efficiencies. Perfectly by balancing capex with opex, corporates can manage extensive real estate related cost saving measures and leverage resources to unlock business growth potential and use it as an efficient financial tool for critical situations.
