NorCal utility company saves $42 million and advances net zero goals through portfolio optimization

A Northern California (NorCal) utility company’s real estate portfolio had expanded over decades. As a result, it had become overgrown, costly to maintain and inefficiently used. Recognizing this inefficiency, the company sought to optimize its real estate portfolio in a way that wouldn’t impact the customer experience.

Historically, every employee had an assigned desk or office, and employees who traveled among facilities sometimes had multiple offices. Numerous customer service centers were sprinkled across the utility company’s operating region. Then, the COVID-19 pandemic significantly affected the demand for these facilities. In the post-pandemic years, many employees continued to work remotely or in a hybrid model, and many of the utility company’s facilities were almost vacant.

The company partnered with JLL to develop and execute a portfolio strategy that would lower costs while minimizing impact to operations and customer experience. JLL provided a team of cross-functional experts to serve as an extension of the company’s internal corporate real estate team and advise on a holistic approach.

Starting with a strategy

The utility company had limited internal staff and few data and analytics tools for building a holistic, data-driven improvement strategy. It also faced regulatory roadblocks impeding its ability to divest properties and implement desired cost-saving tactics.

Using JLL’s advanced portfolio analytics tools, the team helped the utility company develop an end-to-end strategy for right-sizing the portfolio and reducing operating costs by millions annually. For example, the team analyzed commute times to the utility company’s facilities to assess the impact of office consolidations and relocations on employees.

Occupancy planning also played a role, to ensure that administrative offices retained the right kinds of workspaces in the right combinations for a hybrid workforce. To improve operating efficiency, the project team analyzed workflows to plan departmental adjacencies, optimize occupancy and prevent over-crowding in the newly consolidated portfolio.

The utility company decided upon a three-part strategy in which it would: 1) divest excess customer service offices; 2) consolidate its under-utilized portfolio in San Francisco’s East Bay submarket; and 3) consolidate its service centers.

Bringing the plan to life

With the final strategy in hand, JLL partnered with the utility company to execute the plan. In 2021, the company identified an opportunity to divest excess customer service offices—an action that would require approval from the California Public Utilities Commission (CPUC). JLL had previously helped the utility company divest 10 offices, but the CPUC initially denied the utility company’s new divestiture request.

In response, JLL and the company gathered extensive customer-use data and analytics, and developed studies to demonstrate both the benefits of closing specific customer service offices, and the nominal impact on California residents. Equipped with these studies, CPUC granted the company permission to proceed with the remaining divestitures.

On behalf of the utility company, JLL negotiated lease terminations, improved surrender terms, renegotiated leases of retained properties and sold owned assets. Ultimately, JLL helped the company close 65 customer service sites totaling 1.1 million square feet, including 19 leased locations. To accelerate cost savings, JLL’s Project and Development Services (PDS) team was able to decommission 32 sites within the first year of executing the portfolio strategy—averaging 2.5 sites per month.

The facilities could not simply be closed, but had to be fully decommissioned to position for sale or for release to landlords following lease terminations. JLL helped the company minimize waste and optimize the value of furnishings and equipment through auction and recycling strategies, and restored the leased properties to their original condition for return to the landlords.

A shift in work style from 100% onsite to hybrid created an opportunity to relocate the company’s headquarters, and reduce, realign and consolidate its East Bay portfolio. In 2023, JLL used its industry-leading portfolio analytics tool to perform an in-depth, site-by-site analysis and decision matrix to identify which sites to retain, consolidate or dispose of to best meet the organization’s evolving needs.

Sites selected for consolidation included service planning, engineering and vegetation management—the team that keeps tree branches and foliage away from power lines. Ultimately, the company consolidated five offices into one, reducing its East Bay footprint by 50%, from 1.8 million square feet to 900,000 square feet, while maintaining sufficient space for future growth.

Securing results and preparing for the future

Across the entire real estate portfolio JLL helped the company apply use studies, occupancy planning, facility management tools and workplace strategy to better plan for current and future occupancy and building equipment needs. The work encompassed developing seating plans for the hybrid work model, and implementing a workspace reservation system at key properties. JLL also helped the company reduce its own emissions and utility costs, while tracking the recycling and reuse of discarded furniture, copper, cables and other items.

“This utility company adopted a forward-looking, holistic approach to right-sizing its portfolio with a close look at the real-world needs of employees and customers,” said Jim Hines, Director of Project Management, JLL. “As a result, the organization was able to reduce its occupancy costs significantly while supporting customer service and employee satisfaction.”

Ultimately, the utility company was able to shrink its footprint by 1.74 million square feet across 75 sites, and annual cost avoidance of $36 million. The utility company also achieved an additional $2+million in initial cost savings, and generated $3.5 million in cash from property sales, resulting in a total project value of $42 million. In addition, the smaller footprint removes more than 500 employee cars from NorCal roads.

“The optimized real estate portfolio has reduced utility company’s operating costs by millions of dollars annually and is helping advance its net zero goals,” said Joy Naseath, Account Director and Executive Vice President, JLL. “And, its 15 million-plus NorCal customers benefit because the portfolio savings are passed on in the form of reduced electric bills.”

JLL is currently working with the utility company to implement the third part of the plan—service center consolidation. As of June 2024, JLL continues to analyze and identify sites for consolidation while also acquiring sites and facilities to help the company build a streamlined, state-of-the-art portfolio of customer service centers.