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Outsource magazine: thought-leadership and outsourcing strategy | September 22, 2017

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Being different: four traits that could shape the evolution of Corporate Real Estate Outsourcing

Being different: four traits that could shape the evolution of Corporate Real Estate Outsourcing
Jones Lang LaSalle

Looking to the future can be fraught with difficulty.  Actively preparing and transforming in anticipation of it even more so.  Breaking down traditional behaviours, structures and mentalities can be time-consuming, expensive and representative of a step from safety towards the uncertainty of the unknown.

The global financial crisis shook the corporate real estate (CRE) industry from its orthodoxies. Corporate leadership demanded more, scrutinised more and applied more pressure on corporate real estate teams than ever before as they fought to cut costs and ensure survival.  Results from our recently published, inaugural Global Corporate Real Estate Survey1 confirm this and point towards a permanent change in operating context.

Facing up to a tougher operating environment necessitates a rethink of the delivery model for corporate real estate services both in terms of how the internal real estate function is structured and skilled and, crucially, how and which services are delivered through an outsourced service provider.

The survey results make interesting reading for those of us seeking to understand and respond to the future trajectory and characteristics of the corporate real estate outsourcing market.  While recognising that the market is at varying levels of maturity and is shaped by a range of factors or constraints across the world, it is possible to identify four behavioural traits that will need to be in evidence if the real estate outsourcing market is to significantly mature or develop.

1. Being clear
Almost a quarter of our 500+ survey respondents were unable to clearly articulate a vision of how their real estate services will be delivered in 2014.  This inability is underpinned by a range of potential factors:

  • Lack of understanding of the wider business strategy
  • Inability to see a clear future given the fog of uncertainty
  • Lack of understanding within CRE teams as to market options
  • Inertia in thinking about how to do things differently and bring about change

Even though CRE and business-planning horizons are typically three years, there is little apparent associated thinking around how the CRE team needs to evolve and draw upon the external market in order to boost capability, capacity and ultimately, productivity. Unless clear long-term strategies about future CRE service delivery are developed there is a risk that CRE will be seen as ineffective, weak and hindering the evolution of the business through a lack of innovation. There is also a great risk that any outsourced relationships will be ineffectual and will fail to extract the full value-add from the relationship. If the outsourced real estate services market is to develop then clarity of thought, action and strategy is needed.

2. Being open
70% of respondents to our survey believe that in the future real estate services will be most typically delivered through a hybrid model that combines in-house capabilities with injections of additional capacity and capability from external service providers on a geographical or functional basis or both.  This will come at the expense of purely in-house service delivery.  As CRE teams are required to implement strategic programmes aimed at driving increased workplace productivity, a turn to the market will be required to tap expertise and best practice.  Some 24% of respondents across the globe deliver real estate services exclusively in-house presently, but this is predicted to reduce to 19% by 2014.  In-house real estate teams will need to be open to, and embracing of, change and recognise that the external market is often capable of delivering services more effectively and efficiently which in turn enables in-house teams to developer stronger relationships with corporate leadership and forge alignment with overall business strategy.

3.  Being bold
Bold action will see some advanced and highly centralised corporate occupiers evolve further up the outsourcing curve (see diagram below) and shed the hybrid model to become fully outsourced.  There is variation in this trend both geographically and by sector, with US-domiciled corporations and the technology sector being particularly strong proponents.  Eleven percent of our respondents anticipate they will have fully outsourced real estate services within the next three years.

JLLApr11

4.  Being exclusive
Those who take to being bold will also need to be more exclusive.  70% of those adopting a fully-outsourced model by 2014 will be seeking to adopt a partnership model in which goals, risks and rewards are shared by both service provider and client going forward.  This will involve corporate real estate teams moving away from broader relationships with a range or panel of service providers and instead develop exclusive relationships with a single provider whose service offering best matches with current need or future requirements.

Changing behaviour and thinking outside of the box are two of the greatest management challenges.  They are challenges that leaders of the corporate real estate teams around the world are rapidly facing up to.  The strength of response to these challenges will ultimately determine the shape and speed of the evolution of the corporate real estate outsourcing market.  One thing is certain however, pressure is building and old behaviours and structures are no longer able to generate the response business leaders require from their CRE teams.

1Opportunity Emerges from Crisis:  Global Corporate Real Estate Survey 2011 (Jones Lang LaSalle)

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