Accounting Implications of Lease Rationalization Programs

How to account for right-sizing a corporate real estate portfolio in today’s changing business environment.

By Tim Kolber & Matt Hurley | August 30, 2022 at 01:13 PM

Stock illustration: Rising cost of office buildings. Credit: nespix/Adobe Stock.

Organizations in almost every industry sector around the globe are changing how they operate in reaction to shifting capabilities, technologies, and customer and employee preferences. One way in which these changes are affecting business models and strategies is that many companies have realized they can function effectively in a virtual or semi-virtual environment. That discovery has put pressure on the C-suite, including CFOs, to reassess their real estate needs in the name of managing capital allocation and enabling a modern business model.

Although some companies continue to maintain or even expand their real estate footprint, other organizations have shifted from a “being in the office live” business model to a virtual environment that relies on Web-based tools for real-time communication and execution of day-to-day tasks. Even some companies that historically relied primarily on brick-and-mortar real estate for selling and marketing their services are now pivoting to conduct many core business activities online, within virtual marketplaces.

To that end, where employees work—and the extent to which they rely on brick-and-mortar real estate assets—are under review by many CFOs and their teams. Whether they are transitioning to a hybrid work model or moving marketing and sales activities online, they are initiating a real estate rationalization program that focuses on right-sizing the company’s real estate footprint to accommodate its evolving business structure.

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