This has been a year of unprecedented change and turmoil. Current economic conditions have impacted many different markets, commercial real estate unequivocally being one. Businesses of all sizes have been disrupted by the pandemic, forcing many to layoff workers, ask for rent relief or go out of business altogether.
As recently as October 2020, the NAIOP Research Foundation reported that, while there has been gradual improvement in deal activity in the CRE industry, there has still been an increase in the percentage of tenants requesting rent relief, specifically those in the non-industrial sector, with office spaces having the highest increase, at over 12 percent within a one-month period. As the market continues to evolve, the industry is pivoting and looking at ways to maximize efficiency and reduce costs. With the shift to remote work in Q2 and Q3—and predicted to continue in some fashion for the foreseeable future—leaders are looking at budgets more closely and scrutinizing fixed costs.
IT in the crosshairs
It’s understandable that property managers and building owners are looking for ways to, for lack of a better phrase, “trim the fat.” Market forecasts have become increasingly difficult to predict. With many commercial tenants having shifted to a solely remote or hybrid workforce, their overall building needs have changed. Commercial real estate operators have been forced to re-examine their costs, which can put IT spend in the crosshairs.
But, why does IT become the bullseye for cost reduction? One reason is that there is often a knowledge gap between IT and leadership, meaning some business leaders don’t have the full picture of the core technologies needed to keep their business operating efficiently. This list can include everything from computers, phones, scanners, copiers, and printers, to cloud-based software and cyber security protocols. Managing an IT system is a 24/7 business, where users, buildings, networks and data centers are being supported across multiple time zones and performing routine maintenance/upgrades, day and night. Consistently delivering core IT services in the property industry is especially challenging due to the dispersed geographic presence of properties with heavy reliance on building networks at every site—not to mention the growing cyber risk to operations at each property.
When IT is an integral part of keeping the business operating, internal departments should discuss with leadership where any IT functions are lacking. From here, they can determine how to staff appropriately and acquire tools (such as management portals, ticketing and alerting systems, SEIM devices and analytics tools, network and cyber standards, etc.) to provide the required service and compliance to support all employees, regardless of their work environment, and comply with any industry or company-specific requirements, whether through internal hires or outsourcing.
When (and when not) to outsource
As the industry continues to grapple with the effects of the pandemic, CIOs and other CRE leaders need leverageable solutions to “keep the lights on.” In the remote/hybrid connected world, IT functions are critically important. For many property firms, it can make sense to outsource certain IT functions.
But, when does outsourcing seem like the best solution? In today’s cost-sensitive environment, property companies still managing multiple properties may not (or no longer) have the scale to meet all the required service levels economically. A Managed Service Provider (MSP) can handle the full spectrum of technology services that a building needs, including end user and network support. A qualified MSP can provide service desk support and a point of contact to fix computer, phone, and printer/copier/scanner issues, as well as a full suite of proactive and reactive services to ensure networks are always operating and secure. They can also be valuable for data center management, where an MSP will give you secure access and provide backups of all applications and data for in-house or cloud-based environments. Finally, MSPs can augment application support to help property managers resolve property management system issues with their vendors.
Outsourcing these functions can offer more flexibility, from a personnel and cost perspective.
A reputable MSP partner will be staffed by functional experts who are able to augment existing IT staff, spreading the workload of multiple clients. Having the MSP support means no additional internal hires are needed, reducing any overtime accrued and eliminating costs from added salaries, benefits, taxes, training and onboarding.
Likely the biggest benefit of MSPs is that companies only pay for the services they use, which is how this turns IT from a fixed cost to a variable cost. Commercial properties are often individual legal entities that have their own P&L, and owner/operators are usually restricted in what they can internally charge or allocate to properties within their portfolios. Having a third-party MSP who can contract directly with each property entity lessens costs. Because of the scale of client portfolios, they can take advantage of geographic clustering when on-site service is needed, and charges are only tied directly to the quantity of employees and/or workstations, network equipment, and server/storage devices. If those numbers go up or down, charges follow. If a particular property or group of properties is sold, clients no longer have that cost obligation. Having properties cybersecurity “clean” and proactively managed becomes an enticing selling point with the property buyers, especially if the buyer is a public entity or investing the funds of a regulated entity.
If property managers need assistance with technology at the property level, it can also be a valuable tool to outsource to a third party. These providers will handle technical due diligence, assess properties to create a secure network and assist with ongoing technical support and maintenance within the property management office and the building management systems. The right IT architecture can also make offboarding properties easier when they are sold as services can be easily transition and there are no continued costs.
Partnering with an MSP can make budgeting for IT services more efficient and consistent while scaling down the fixed cost target. It allows owner/operators to be able to dial up the service level of IT operations as much or as little as needed and enables them to flex with the shifting demand, such as acquiring or disposing of entire portfolios.
While there certainly are many benefits, there are instances where outsourcing may not be the right fit. Before making the decision to move forward with an MSP partner, property owners should ask themselves a series of questions to determine if this is the best solution for their IT operations:
- Is IT a strategic part of your business? If you are not sure, look where it sits in your org chart.
- Do you have over 100 employees?
- Do you have external compliance requirements (cybersecurity, audit, PCI, etc.)?
- Do you self-manage your properties? Can you charge internal IT costs to those properties?
- Do you have consistent coverage and backup for all your operational times zones and days of the week?
- Is your operating budget big enough to cover $400,000 of annual IT personnel cost (not counting licenses, equipment, and services)?
- Do you have clear visibility into your technology related costs and day-to-day activities?
If business leaders and IT departments answer “Yes” to these questions, then they likely do not need an MSP partner. Companies large enough to build internal technology capabilities should first focus on business applications, data intelligence, and artificial intelligence. These areas have tremendous payback potential in reducing headcount on the “front-line” as well as reduced errors. A help desk can often be seen as an “internal customer service,” if staffed adequately to cover all employees. Network and datacenter would be the lowest priority for internal investment, given the low perceived value and the commodity nature. Any property managers who answered “No” to the questions posed can begin researching to find an MSP that offers the solutions and flexibility to meet their needs.
As we continue navigating the new real estate landscape, property owners will be examining their businesses and looking for new ways to manage their teams and overhead. For companies with IT operations that need more support but have a limited budget, outsourcing to an MSP can help their IT and business leaders focus on their goals without sinking the bottom line. For those not outsourcing, internal teams can start by prioritizing business applications, data intelligence, and process automation, then work their way through other IT needs to effectively manage what they have on their plate. Regardless if companies are staying in-house or outsourcing, the important thing to remember is never cut back core services as they are key to support and security.