Siemens Treats CRE as Profit, Not Cost Center

ISELIN, NJ—Global technology, energy and automation company Siemens Corporation sees huge value in treating its sprawling worldwide commercial real estate operations as a profit center, not a cost center, says Michael Kruklinski, head of the firm's real estate operations for the Americas.

In an exclusive interview with GlobeSt.com, Kruklinski described why Siemens decided to take the profit-focused approach.

“Many years back, the decision was made that real estate for Siemens would be managed professionally under one roof, and managed with a P&L,” Kruklinski says. “What that means is that we have full responsibility for all the buildings, offices, and manufacturing, and together with the busiensses wwe are driving decisions on when we are consolidating sites, when we are looking at new sites, when we think about lease extensions, and we're also responsible for disposal.”

The sheer size of the Siemens Real Estate portfolio alone sets it apart from its peers, at 160 million square feet worldwide. Employing more than 3,600 employees globally, SRE manages $4.1 billion in assets and generates $2.4 billion in revenue focusing on internal and external partners.

In the Americas, that responsibility extends to about 37 million square feet of commercial real estate space, Kruklinski says. Keeping vacancy rates below industry averages is a particular obsession among the properties that are split about evenly between leased and owned assets, and evenly between offices and industrial properties.

“We're running at two percent vacancy,” he says.  “Other corporations are a lot higher.” Kruklinski points to the 10-20 vacancy rate typical for similarly sized organizations.

SRE's wide range of facilities, from Healthcare Diagnostics to Manufacturing, in more than 30 countries globally locations, partnered with the ability to convert the function or configuration of a space, allows Siemens great fluidity with site plans, employees, and vendors.

Siemens business units must use the internal SRE services for their space requirements. “Very frequently, I meet with the business unit heads to try to understand where their journey is going, where are they growing, or if there is a decline in their business.” Kruklinski says. “We manage their real estate needs ahead of the curve.”

Decisions on site selection are driven mainly by financial analysis, he says, coupled with an understanding of the life-cycle of the particular division. “If it's project related we definitely might go with a lease, but if it's a really long time, it's probably more advantageous to own the site.”

Siemens approach to managing real estate is valuable in attracting experts in real estate and construction management to work for the firm or with it as consultants, Kruklinski says.

Nevertheless, he thinks the Siemens approach is unique to the company. “I've talked to other large companies, high-tech, automotive, and I have not found anybody who approaches it this way,” he says. “I think this is at the forefront of how people will manage corporate real estate. For other companies, I think it is a cultural change that has to take place.”

Correction, 8/26/2015: Michael Kruklinski is head of Siemens Real Estate for the Americas. An earlier version of this story rendered his title imprecisely.