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How can digital real estate transform the chemicals industry?
As businesses deal with disruptive forces that were compounded by the COVID-19 pandemic, digital-enabled real estate can be a differentiator.
In brief
- Continuous disruption is challenging organizations to upgrade the physical spaces where people work and products are made.
- Many companies are considering transitioning to digital buildings to realize gains in efficiency, employee satisfaction and environmental sustainability.
Companies across the globe, involved in all aspects of the chemicals and advanced materials industry, are facing a constantly changing business landscape that presents both challenges and growth opportunities. Even before the COVID-19 pandemic, these businesses were grappling with increasing competition, commoditization and other disruptive forces. Now, they must contend with additional complex issues such as rising energy costs, inflationary pressures, and new supply chains. To stand out in today's increasingly digital world, chemicals and advanced materials (C&AM) organizations must analyze every aspect of their operations.
More and more C&AM companies are realizing the importance of transforming not only office spaces but also shop floors and work areas within the yellow designated lines. Continuous disruption across C&AM industries has revolutionized the “what” and “how” of businesses — the products they make and the processes they use. Now, those same forces are challenging organizations to upgrade the “where” — the physical spaces where people work and the way their products are made.
Many companies are using advanced technology to deliver buildings that are more efficient, more sustainable and increase employee satisfaction. Such moves will require companies to be strategic, proactive and pragmatic in transforming the workplace.
1
Chapter 1
Impact on efficiency
Companies will take on less space, but the space will be smarter and better designed.
The nature of the chemical industry dictates a deliberate, strategic approach. The industry is fixed to the ground they’re on and a need for a long-term view of the business purpose for the existing land and improvements is also required.
As real estate planning in the industry accounts for the hybrid workforce and increased process automation, companies will be intent on saving money by mapping a footprint appropriate to the new realities about the future of work. That means taking on less space but making sure that space is smarter and better designed, using foundational elements of digital building technology, such as energy management tools, as well as capabilities such as the Internet of Things (IoT) and robust data infrastructure that enable more effective management of occupancy.
To get real insight into efficiency, building typology, and the best use of people across the entire real estate footprint, companies will need their data to be connected. They will also need to consider the implementation of smart manufacturing solutions, which can save time and money by providing real-time information on anything operating improperly and the availability of replacement parts.
For some C&AM companies, the COVID-19 pandemic offered the unexpected benefit of “discovered space.” Companies with a 70:30 ratio of production space to administrative space seized the opportunity when administrative workers began performing their duties remotely. Administrative space and some parking space could be repurposed and converted for small-scale production use, saving companies the cost of purchasing new sites. Similarly, an administrative building could be leveled to make way for a new plant. “Companies saw they could gain on their own grounds the potential of maybe 20% or 30% of new potential production facilities,” says Frank Jenner, EY Global Chemicals & Advanced Materials Leader. “That’s a real game-changer for the chemicals industry, from a real estate perspective.”
2
Chapter 2
Impact on people
The industry needs a better user experience, which helps attract younger workers.
Facilities management directly affects the workplace experience, and historically, this has been a crucial factor in attracting and retaining talent. But the trend toward hybrid work has decreased the time that office workers spend at company facilities, as per 91% of respondents in our latest global survey of C&AM corporate real estate professionals.
Some 94% of the respondents indicated that their companies haven’t made physical changes, or digital updates, to the workplace post-pandemic. Digital-enabled buildings, however, may give companies an edge in the increasingly competitive talent market. Elements include mobile apps to reduce workplace friction, smart lighting systems and smart parking solutions. Survey responses suggest that digital buildings yield broad benefits. Interestingly, 88% of the respondents shared that their digital investments were selected based on impacts on their people, efficiency and cost reduction.
“Even pre-pandemic, there was a dichotomy between tech at home and tech in the workplace, and that gap was widening,” says Francisco J. Acoba, Co-lead of the EY US Corporate Real Estate (CRE) practice. “From a collaboration standpoint, it only got worse. With smart IoT devices, everybody was doing some of this at home, whether it be smart shades, lighting, or voice control. Then, they would go into the office and be transported back 25 years. So, when the workplace of an organization doesn’t align with these new expectations and you do not have these amenities, you’re at a hiring disadvantage.”
The need for a better user experience is particularly important for the C&AM industry, which in some regions has struggled to attract younger workers. Leaders are focusing on corporate real estate to attract younger employees, thus adding pressure on developers and facilities managers to stand out from their competitors, by moving away from the minimum requirements to create real opportunities for innovation and growth in the industry.
With smart IoT devices, everybody was doing some of this at home, whether it be smart shades, lighting, or voice control. Then, they would go into the office and be transported back 25 years.
User experience is the primary driver of digital from an external perspective. From an internal view, digital capabilities offer insight into the true use of space. Companies learn how, when, and why each floor or workplace is being used, which provides meaningful insight for planning future workspaces and deciding how to right-size the real estate portfolio.
The pandemic prompted many companies to see that administrative facilities need to be set up differently today. This modernization involves adopting a new working culture that includes, but isn’t limited to, shared desks and fewer walls. Real estate managers are working closely with human resources professionals to determine what the new normal will be in the next 10 or 20 years and how companies should plan their investments. These decisions include determining what must be modernized and what could be shut down and converted from administration to production.
A particularly difficult question involves how to measure the benefits. “These tools are mainly about people, but how do you measure that?” said Doug Gottschalk, EY US Corporate Real Estate Co-Leader. “Is it about being more productive? Having a seamless experience? Liking the cool factor? Those all may be true, but are they measurable?”
3
Chapter 3
Impact on sustainability
Employees increasingly cite environmental sustainability as a priority in their career choices.
The sustainability benefits of digital buildings correlate closely with overall efficiency, but also to workplace experience and the desire of workers to be associated with socially responsible entities. A majority, 94%, of our respondents said environmental, social and governance (ESG) considerations have been incorporated into their overall strategic business plan. Additionally, 97% believe that key performance indicators have been established for building sustainability. Among other things, connections with IoT data can help companies reduce power usage. Leaving an overall greener footprint with an eco-friendlier approach also keeps companies in step with current and prospective employees, who increasingly cite environmental sustainability as a priority in their career choices. Some 94% of Generation Z believe companies should help address social and environmental issues.1
“Real estate management is much more than thinking about real estate as an asset, but also considering sustainability and all the new challenges companies are confronting,” says Florian Schwalm, an EY consultant based in Germany. “It’s not only the brick and mortar that we considered in the past; it’s the interface to operating equipment, to IT and to the regulatory framework environment, which is more and more challenging, especially in chemicals and life sciences.”
4
Chapter 4
The path forward to address digital disruption
Companies should vet digital opportunities by weighing several actions.
It’s clear that digital buildings can impact efficiencies, people and the environment – in all property types. To vet the opportunities digital can bring, C&AM companies should weigh several actions. Among them:
1. Include corporate real estate management as an essential part of enterprise strategy
A strategic view of real estate helps encode resilience into a company’s DNA. When the war in Ukraine began, for example, some chemical companies had to pivot from suppliers in Eastern Europe and find alternative sources of raw materials such as cobalt and nickel in the Asia-Pacific region. Finding the right plant facility, at the right scale, with the necessary energy and mineral sources can be challenging for corporate real estate managers in the sector.
Embedding CRE into the business strategy also gives C&AM companies the flexibility needed to focus on their core portfolio needs in the context of what aspects of the business may be added or jettisoned.
2. Conduct a careful assessment of needs before investing in digital
“You need ROI on people or ROI on operations to invest in digital,” Gottschalk says. The costs are substantial, and the results will have far-reaching consequences for the enterprise. Still, the cost of forgoing the digital revolution is obsolescence.
“To be successful, you have to understand real estate for offices, but also for production, labs, R&D, and energy and wastewater management,” Schwalm says. “You also must consider the relevant regulatory requirements. Beyond real estate assets, you have to consider the interface with IT and the interface with operating technology, as well.”
3. Gain a clear understanding of digital real estate’s effects across the organization
The advantages of deploying innovative real estate technologies are not lost on C&AM executives, based on their responses to our real estate survey. Some 88% are interested in the deployment of innovative real estate technologies, and 91% are curious about smart building options. Digital real estate impacts can include not only the impact on efficiency, people and sustainability, but also the tax benefits to be realized through both incentives and the capabilities of a smart building to pinpoint usage and enhance identification of tax risk. Understanding both the upstream and downstream opportunities in digital real estate can position an organization for transformative opportunities.
Thank you to Amanda R Alexander, EY Strategy & Transactions Manager, Corporate Real Estate, Ernst & Young LLP for contributing to this article.
Summary
Corporate real estate (CRE) represents a significant area that is ripe for digital transformation, especially within the C&AM industry. Top- and bottom-line improvements can be achieved, whether in people or costs or against the ESG front. Across the spectrum of building types, companies need to rethink their approach to real estate and carefully consider investments that set them up for future success – whether that means investing in new smart factories, digital buildings, high-tech R&D centers or upgrading relatively low-tech, immovable industrial facilities.
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