Why Corporates Are Shifting from Capex to Opex in Real Estate
John Thomas, Managing Director, Assets Xperts explains the benefits of the increasing trend amongst corporates of shifting from Capex to an Opex model in real estate.
Real EstateCapexOpexCorporateBusinessReal EstateAug 23, 2024
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.
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.
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.
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.
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.
Frequently Asked Questions
What is the main reason for corporates to shift from Capex to Opex in real estate?
The main reason is to preserve cash and enhance agility in a rapidly evolving business landscape.
What are the benefits of balancing Capex with Opex in real estate?
The benefits include aligning real estate strategies with growth needs and market dynamics, and enhancing cost efficiency.
Why are corporates adopting flexible workspaces?
Corporates are adopting flexible workspaces due to the cost and scaling benefits, as well as the perks of saving time, manpower and other liabilities.
What is the impact of the pandemic on corporates' real estate management?
The pandemic has further burgeoned the complexity for corporates in managing real estate, especially with the shift to remote and hybrid work models.
What is the bottomline for corporates in terms of real estate management?
The strategy to move away from capex in real estate can be imperative, especially for corporates looking to maximize their cost efficiencies.
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