Knowledge Center: Publication
Leadership in Real Estate: From 2010 to Today, and Beyond9/9/2020 Chantal Clavier
Real estate is where we live, work, and play. Our industry leaders have the power to influence social interactions, redefine work-life patterns, and help build healthy, vibrant, lasting communities.
The sector is in the midst of an extraordinary transformation: reimagining how buildings are used by putting the customer at the heart of its business model and using foresight and technology to anticipate future trends, behaviors, and the social and environmental values of buildings’ occupiers. The transformation is, as one CEO described it, “disruption by everything, everywhere, and all of the time.”
Real estate, often described as a “tanker” and “traditional,” is becoming more responsive, agile, and innovative across a spectrum of customer-centric experiences. We are seeing major changes throughout the industry, ranging from interactions with customers to the design and fit-out of healthy buildings that now must take into account their environmental impact on those living or working there to supply chain and modular construction to e-commerce. Changes also encompass real estate operations, digital capabilities, and a trend toward shorter leases.
Real estate has had a tremendous 10 years since 2010. In the wake of the global financial crisis, an enormous amount of capital has been raised and deployed, and the sector has broadened with the emergence of new real estate asset classes such as property technology (proptech) and alternatives better described as real estate operating businesses.
Increasingly, many real estate firms have become service providers of space and amenities. Consumers now dictate to a larger extent than ever how they want to be served. Some of these real estate operating businesses are dismantling historic models by challenging the structures and terms landlords saw fit to provide. As such, the relationship each real estate business has with the local community in which it operates becomes essential in sustaining this license.
People are now at the sector’s core
The biggest change within the real estate sector in the last decade has been the acknowledgment that people are now at the sector’s core. People—the employees, the customers, the community—are demanding the attention of real estate leaders today. This was less obvious in 2010. The shareholders’ and investors’ aspirations are still a priority, but now they tend to be managed better as CEOs prioritize matters differently and pure financial returns are no longer the only focus. Our study shows that company culture and employees have superseded returns and investment as priorities. The human experience and interaction with the industry, not just the bricks and mortar, are a priority for many leaders today. Though the current need to actively drive growth and returns day to day may tip the scales back temporarily, the longer trends are consistent because they are recognized as truly sustaining growth and profit.
All CEOs are aware that investors will invest only if they can make money. However, even investors, especially large pension funds and some sovereign wealth funds in particular, have a major environmental, social, and corporate governance (ESG) agenda and are supporting this trend. CEOs are being encouraged to create balance, and managing that increasingly delicate balancing act is part of the complexity of being a leader today.
More change ahead
What does the next decade hold? Much more change. Some changes will be bold, involving reimagining and redefining businesses, assets, teams, and projects as values shift, while others will be transitional. A backdrop of unpredictable market cycles and increasingly tense geopolitics including Brexit negotiations will continue to result in an increase of public-to-private deals, capital inflow from new and old investors, changing firm ownership between generations, and continued M&A. CEOs need to be ready for hostile takeovers and digital-first challengers, and they must remain open to new partnerships, sources of capital, and new ways of doing business—all of which is made especially challenging by the ongoing COVID-19 pandemic.
To help understand this wave of change, I spent more than 150 hours with more than 100 key leaders in real estate, learning about their collective strategic thought process in the sector, weaving together, for the first time, comprehensive insights into one report. The purpose of the survey was to explore how real estate leaders are tackling the myriad challenges 2020 and the new decade will bring: how they support themselves with the right teams by identifying and bringing in the talent needed to reshape their organizations and deliver the innovation and changes required—all while delivering growth and healthy returns.
The crisis has accelerated the challenges
The most obvious and easiest observation to note from our study is that the issues that were keeping real estate leaders awake at night before January 2020 have not been eclipsed by the COVID-19 crisis. In fact, the crisis has accentuated, accelerated, and added to those anxieties.
Our survey shows that CEOs want to make a positive impact in their role for the long-term benefit of the business, the community, and the individual. As such, the role is evolving, and we found that 83% of those surveyed believe the role of the real estate CEO will change over the next 10 years, with 76% seeing a change in the ideal competencies of the CEO who will follow them. This should make the boards of real estate companies pause and reflect on whether succession is strong within the firm and if there is enough diverse talent to choose from. We expect that real estate CEOs of the future will be both from the sector as well as from other connected or tangential sectors that are asset heavy or consumer oriented. To reflect this, we have been spending time assessing the talent both inside and outside the sector.
What “inclusion” means in real estate
In addition, our report shows that in FTSE 350 real estate companies, only three women in executive committee roles have P&L responsibility—a concerning trend, as these financial responsibilities tend to be a common path to CEO and board positions. This again highlights the need to balance gender in real estate businesses to create well-rounded and well-represented firms. One of the most striking data points in this context shows that over half of the real estate leaders we spoke with believe they lead a business that has an inclusive culture. It’s clear that more investigation and developmental work is needed within the sector to help leaders understand what “inclusive” truly means and where the industry is falling short.
Talent, teams, and culture
We believe that the leaders who will successfully manage their businesses through the next decade are the ones building around themselves a broad support system. This includes the right executive talent and a strong strategy around talent acquisition, development, and promotion, including hiring a strategic CHRO as well as considering how to structure executive rewards to encourage cultural and behavioral shifts, and making the best use of their (hopefully) increasingly diverse boards.
Leaders today are ready to shift gears quickly and efficiently, not in the least when it comes to the skills they need to develop. They are rethinking talent development with the knowledge that younger executives respond well to inclusive cultures, reverse mentoring, and coaching, creating room for fresh perspectives. Greater investment is needed in the development and performance of people within real estate by real estate companies, and they should be unafraid to move away from traditional programs. However, change largely comes from the top. CEOs, the executive committees, and boards have the responsibility to push this agenda.
Increasingly, companies are moving to shared responsibility models, which recognize that a CEO alone does not always have the answers to every major problem. This leadership style encourages a culture of cross-collaboration that is increasingly recognized as a vital foundation for success. Companies that follow this type of model often succeed in creating a culture that is supportive, purpose-driven, and inclusive. In our experience, it is the best way we have seen for leaders in the sector to accelerate their organizations’ current performance and leadership development. It is important, however, to have clearly defined roles in the executive committee and to ensure that there is a real sense of autonomy as much as there is one of collaboration. This, in turn, ensures action is taken and decisions are made, avoiding paralysis by committee discussions.
At this particular moment in time, having real estate knowledge at the helm will prove invaluable, but having that alone will not be enough to outperform expectations. Genuine change will take time, but embarking on that journey is a business-critical priority in order to ensure both the resilience and success of any real estate company.
The timer has started.
I hope you find this report and its insights helpful and thought-provoking. Thank you to the senior executives who took the time to discuss these topics with us.
To understand what this evolution means to real estate companies and their leaders, we spoke with more than 100 CEOs and other C-suite executives from property companies, private equity (PE) firms, and fund and investment management companies. Our initial conversations took place in the last quarter of 2019 and first quarter of 2020, and we revisited the key findings with some leaders in July 2020. We found that COVID-19 has acted as an accelerating factor for a number of strategies that were already in process.
The interviews were mostly conducted face-to-face, with a minority by phone. The majority of respondents were based in Europe, with a variety of local, regional, and international remit.
To read the full report, flip through the interactive version above or click the download button for the PDF.
About the author
Chantal Clavier (firstname.lastname@example.org) is a partner in Heidrick & Struggles’ London office and leads the Real Estate Practice for Europe and Africa. She is also a member of the CEO & Board and Diversity & Inclusion practices.
The author wishes to thank the senior executives who generously spent time sharing their insights and knowledge for this report.