Using specialist corporate real estate service providers can bring much more than just cost savings, writes Paul Bray.
Real estate can be a millstone around the necks of major corporations. It often accounts for up to 40 per cent of on-balance sheet costs, and in a recession the only way to significantly curb its impact may be to reduce the size of the millstone.
“The most significant way to make an impact on costs is to shed square footage, and that requires people who know how to do it in challenging markets,” says Matt Pullen, European managing director of global corporate services at CB Richard Ellis (CBRE), the world’s largest commercial real estate services firm. “The window of opportunity may be narrow, and in-house property management teams often lack the depth and breadth of experience, skills and market knowledge required to take advantage of it”, says Pullen.
Shedding footprint may be the ultimate way to save costs, but efficiency improvements can also deliver significant benefits. “By introducing improved space efficiencies and alternative working practices, businesses can easily reduce their office requirements by 20 per cent, and with more aggressive planning by more than 50 per cent,” says Pullen. “If created with a clear vision that ties directly to real company values and goals, and delivered with a strong cultural change management programme, these programmes can also improve employee engagement.”
Corporate real estate (CRE) outsourcing can embrace facilities management, transaction management, project management and lease administration. On top of these sits what Pullen calls an “intelligence layer”, with the service provider working closely with the client to align its real estate requirements with business needs, taking a strategic view of how real estate can be optimised, and managing contracts with third party suppliers.
As the market has matured, service providers have developed more specialist expertise in fields such as sale and lease back, data centres, workplace strategies, energy and sustainability. CBRE, for example, has won awards for applying new thinking to old problems including their M&A Playbook, which identifies ways to leverage real estate during M&A negotiations.
To succeed, real estate outsourcing requires all the usual outsourcing issues to be addressed: buy-in from the board, sufficient volume to deliver economies of scale, and sufficient talent on the clientside to manage the contract. But some of the biggest obstacles can be less tangible. “Real estate outsourcing can be such an emotive issue,” says Pullen. “It goes right into the heart of the company culture: people can get very emotional about buildings the company has occupied for decades.”
CRE outsourcing also requires economies of scale to deliver the biggest returns. “Well established in the US and UK for more than a decade, real estate outsourcing has made significant inroads across mainland Europe in the last couple of years; thanks to increasing centralisation by the continent’s major multinationals.
Businesses across all sectors including France Telecom, StatoilHydro, Nissan, Lexmark, Nokia and Zurich are all now reaping the benefits”, says Pullen.
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