Separating Myth from Truth About Demand Forecasting When it comes to real estate portfolio management, demand forecasting is anything but easy. It involves gathering input from multiple sources— executive management, business lines, strategic planning, operational forecasts, economic trends, industry models—that may not be readily accessible to CREs. However, the implications of not actively participating in demand forecasting can leave you unprepared and, ultimately, be detrimental to your business. When you don’t plan for growth, you can fall short on space, which can affect productivity, employee engagement and agility in a changing market and compromise your bargaining position for new space. You can lose revenue—and continue to pay the price for missed opportunities. Or, just as important, if your business declines and you are not managing your real estate effectively, you could end up with costly space surplus. If you are scrambling to adjust your space needs, you are not presenting a good face to the market. The last thing you need in today’s volatile market is to be viewed as inefficient and unprepared.
One way to understand demand forecasting is to look at what it is not. Here are some of the most common myths around demand forecasting—and steps you can take to counteract them.
Myth 1: If it is not totally accurate, it is not useful.
Typically, organizations resist the demand forecasting process because they feel they may have incomplete information on the business needs or it is not the optimum time to plan. Nothing could be further from the truth. Demand forecasting should not be activity based but strategy based, and it should be built into the planning process—annually at a minimum, but also with an option to refresh as changes occur. Companies that only plan for known growth, rather than anticipated growth, can find themselves falling short, scrambling to find space after the fact or holding onto space that is eating into profit margins. No demand forecast is perfect, but it is far better to have a plan to work with as needs change than no plan at all. The real truth: Demand forecasting should be an integral part of the strategic planning process.
Myth 2: We have to rely on the business lines to know their business forecasts.
That’s the old way of looking at things—thinking that the only way to forecast is to work with “on the ground” information from the business lines. It often falls short, however, when the business lines have incomplete information or fail to understand or communicate their needs appropriately. The new way is to use integrated data from multiple sources and multiple perspectives, including national and local trends, probabilities, historical data, executive engagements, historical perspective, economic modeling and other aggregated data—as well as information from your business lines. This way, the business can feel further supported by the CRE and can help refine the final demand forecasts. The real truth: Optimal demand forecasting relies upon an integrated, multi-source perspective.
Demand forecasting in real estate defined: The process in which you gather current and future data to better understand the business’ anticipated need for space and determine how to align your real estate portfolio to the business requirements.
Myth 3: Once you complete the forecast, it is “one and done.”
Another way to think about demand forecasting is to view it as an organic process. Demand forecasting gives you a starting point, a touchstone for growth, a roadmap to success; however you want to think about it. From there, you have the flexibility to drive change, regroup and reorient your plan to reflect what is happening in real time. In fact, it is a best practice to build flexibility into a portfolio. The real truth: Demand forecasting is an active, not static, process.
Case in Point: Demand Forecasting in Action A large technology outsourcing company that was managing a complex environment of thousands of outsourcing contracts, worked with Jones Lang LaSalle to try to improve its demand forecasting efforts. The company had developed a tool to manage the allocation of staff to existing contracts, which provided access to headcount information and to date/time requirements. JLL then brought in a forward-looking dimension by linking into the new business forecasting application, which provided longer-term insights into business volume. The result was a tool which allowed the organization to capture shorter-term demand forecast based on known requirements from current contracts, as well as longer-term forecasts based on future contracts and estimated business volume. These improved tools and processes greatly helped enable the organization’s portfolio optimization efforts. In particular, they helped ensure that real estate delivered the right amount of space for the organization so that it neither spent unnecessarily on vacant space nor fell into the “not-enough space” pitfall that could potentially jeopardize its ability to service clients or take on new business.
Demand forecasting gives you a starting point, a touchstone for growth, a roadmap to success
Myth 4: Historical performance translates into future expectations.
Demand Forecasting Best Practices
Some companies look to the past to plan for their future, but as we have all learned from the recent economic downturn, the future can change dramatically on a dime. Today, global uncertainty, volatile markets and shifting demands put new pressure on businesses. Combined with the speed of change in a high-tech, wired world, most businesses find themselves in unchartered territory with little historic precedent. The future depends more on looking forward than looking behind. That said, lessons from the past still have their place. Although they are no longer reliable predictors of performance and growth, they can help an organization learn from experience and smooth out the rough edges that come with change.
Base Level Taking what businesses are telling you and building for that.
The real truth: Past performance can offer useful perspective, but not the full picture.
People
Process
Base Level Planning at only the site level or taking an ad hoc approach.
Leading Edge Methodically looking at many different data points.
Leading Edge Involving senior management and strategic planning in the process.
Technology
Base Level Simple Excel spreadsheets and non-integrated technology.
For more information, please contact: Michael Billing, Head of Portfolio Strategy
[email protected] +1 312 228 2638
Leading Edge Integrated data from multiple internal and external sources and systems.
Myth 4: Historical performance translates into future expectations.
Demand Forecasting Best Practices
Some companies look to the past to plan for their future, but as we have all learned from the recent economic downturn, the future can change dramatically on a dime. Today, global uncertainty, volatile markets and shifting demands put new pressure on businesses. Combined with the speed of change in a high-tech, wired world, most businesses find themselves in unchartered territory with little historic precedent. The future depends more on looking forward than looking behind. That said, lessons from the past still have their place. Although they are no longer reliable predictors of performance and growth, they can help an organization learn from experience and smooth out the rough edges that come with change.
Base Level Taking what businesses are telling you and building for that.
The real truth: Past performance can offer useful perspective, but not the full picture.
People
Process
Base Level Planning at only the site level or taking an ad hoc approach.
Leading Edge Methodically looking at many different data points.
Leading Edge Involving senior management and strategic planning in the process.
Technology
Base Level Simple Excel spreadsheets and non-integrated technology.
For more information, please contact: Michael Billing, Head of Portfolio Strategy
[email protected] +1 312 228 2638
Leading Edge Integrated data from multiple internal and external sources and systems.
