2. 2 German Corporate Real Estate Trends 2013
These increasing demands
are leading to a faster-paced
evolution of CRE outsourcing.
Extended and complex demands on
in-house CRE teams are driving rapid
growth in CRE outsourcing across more
geographies, functions and corporations.
Risk: Procurement processes
can undervalue the strategic
contributions of external partners.
Expectations and pressures on
CRE are building; heightening the
risk of underperformance.
Leadership pressure demands action at
both tactical and strategic levels. CRE
teams are being challenged to impact
and add value to a wider range of agenda
items.
Risk: Perception of CRE team
underperformance if a step change
is not realised.
Trend 2Trend 1
54
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Corporate Real Estate (CRE) in context: Global trends
Last year JLL issued findings from its 2nd Biennial Global Corporate Real Estate Trends Report, entitled Risks Ahead. This report was
shaped by the viewpoints and perspectives of more than 600 Corporate Real Estate (CRE) professionals from across the world and from a
wide group of industry sectors. As such it provided the most comprehensive and clearest interpretation of the issues and factors shaping
the evolution of CRE ever assembled.
The report pointed
to five key trends
and five associated
risks determining
the direction and
development of CRE
across the world:
3. JLL 3
Workplace transformation is
the key to unlocking worker
productivity and portfolio
optimisation.
Embracing new work styles and
implementing supportive new
workplaces has been a strategic vision,
if not immediate intention, for years.
This is changing rapidly.
Risk: Failure to invest enough
in workplace to fulfil strategic
potential of transformation.
Trend 3
RE must become a collaborative
agent.
A greater focus on workplace
transformation calls for a cultural shift
within the CRE team. CRE teams need
to become adept at working across the
organisation and positioning themselves
as agents and managers of change
across shared services.
Risk: CRE could lose influence
and standing if not able to
position for and influence wider
strategy.
Trend 4
Failure to deliver in emerging
markets will become one of
CRE’s greatest reputational risks.
The CRE function remains tasked to
deliver operational platforms in select
growth markets. These markets
will be central to driving corporate
competitiveness.
Risk: Great potential to damage
CRE reputation through delivery
failure in opaque markets
Trend 5
Each of these trends and risks will equally impact on CRE in Germany. Yet, the depth
of our research also allows a more granular interpretation of the specific factors shaping
the CRE profession within Germany. The remainder of this report draws upon responses
obtained from almost 60 CRE professionals based in Germany and either overseeing
CRE for German corporations or the German operations of multi-national corporations. In
so doing, it highlights 5 additional observations specific to German CRE.
4. 4 German Corporate Real Estate Trends 2013
German Corporate Real Estate Trends:
5 additional observations
5. JLL 5
Trend 1
»» There is a simple fact emerging from the
responses received from German CRE
professionals. They operate at a global
level. Across our total respondent pool
just less than a third (32%) operated with
a global remit or sphere of influence. In
comparison, more than half (53%) of our
German respondent pool were focused at
the global scale. Even when compared to
respondents from the EMEA region (42%)
this trend continues.
»» But there is a limiting factor. While a
world view tends to shape the day to
day operations of German CRE teams,
structurally there is a deficiency. Just 63% of
German respondents function within a team
that has a dedicated global CRE leader.
This compares unfavourably to both the
regional (82%) or global (86%) respondent
pool. It is even more marked when
compared to respondents drawn from other
countries. More than 90% of respondents
drawn from the UK or the USA have a
dedicated global CRE leader.
Form does not follow function:
German CRE professionals are
influential and active on a global
scale but typically suffer from a
weak global mandate or operating
framework.
Form does not follow function:
German CRE professionals are influential and
active on a global scale but typically suffer from
a weak global mandate or operating framework.
32%
42%
53%
86%
82%
63%
% of respondents with a global sphere of
influence/remit
% of respondents with a global dedicated
CRE leader
»» This is a fundamental challenge to the
impact of CRE teams in Germany. Whilst
they operate with a global gaze they do so
without an overarching control structure and,
one assumes, a lack of the global strategic
context that originates from a dedicated CRE
lead. This can promote fragmentation in
thinking and action and act as a blocker to
internal best practice exchange or internal
communication of impact. Indeed 27%
of respondents viewed a fragmented or
decentralised CRE team as a constraint on
the evolution of the CRE function.
Global EMEA Germany
6. 6 German Corporate Real Estate Trends 2013
Trend 2
»» A further structural challenge for German CRE teams relates to the engagement with senior
corporate leaders or the C-suite. On first viewing the signs are positive. 71% of German
respondents reporting hard-line into the CEO, CFO, COO or CIO. This is significantly higher than in
the case of EMEA (60%) or global (58%) respondents. It suggests that the general global trend of
CRE becoming acknowledged as an issue of strategic significance is more advanced in Germany
than in other parts of the world.
»» This trend is vital to drive the CRE function to a more progressive, internally challenging and value
added position. Senior connection is required to shift the focus from being an internal and tactical
order taker and moving it towards being a strategic order maker. It is also important in exposing
the CRE function directly to senior demands. As our global survey illustrated, these demands are
multiple, intensifying and combine traditional tactical and strategic requirements.
»» So on first glance it would appear that German CRE teams have the right level of senior
engagement and as a result a strong mandate to act. But do they? 39% of German respondents
placed the lack of sustained or consistent c-suite commitment as they key constraint in CRE rising
to the challenge of being a strategic function that adds value to their enterprise. In fact this was
ranked as the #2 constraint after a lack of finance. When compared to the global respondent pool
CRE buy-in was ranked as the 3rd constraint and was flagged by 32% of our total respondents. It
is clear that for German CRE teams to raise the bar much work needs to be done in transforming
a hard reporting line structure into a strong and sustained inter-relationship that connects CRE to
strategy and decision making; ensures that the CRE strategy is aligned and achievable with the
resources available; and creates a dialogue about transformation and evolution that is grounded in
reality.
Proximity to the c-suite is not fully leveraged:
Despite a hard reporting line into
the C-suite few CRE teams feel
sufficiently empowered to act
strategically as an ‘order maker
rather than order taker’.
Proximity to the c-suite is not fully leveraged:
Despite a hard reporting line into the C-suite
few CRE teams feel sufficiently empowered to
act strategically as an ‘order maker rather than
order taker’.
% of global heads of CRE
reporting to the C-suite
Global EMEA Germany % of respondents placing lack of C-suite commitment as
a top constraint hindering CRE from enhancing itself as a
strategic value to the organization
58%
32%
39%34%
71%
60%
7. JLL 7
Trend 3
»» This dialogue needs to be firmly focused
around preparedness for a future
transformation and, accordingly, about skills.
While fewer German CRE professionals
position themselves as ill-equipped for the
rising challenges being placed upon them
currently (4% compared to 7% globally), they
are acutely aware of a need for new skills to
build a stronger position. 21% of German
respondents saw the internal skills set /
knowledge base as an impediment to the
growth and evolution of the CRE mandate.
Most obvious here is actually a behavioural
trait of being more forward thinking and
challenging of the orthodoxy. 30% of German
respondents ranked this as the #1 skills
requirement for CRE, compared with 22%
globally. This ability to challenge has to come
from strong and secure internal relationships
which as noted above are not there. There
is also a clear requirement to build and apply
stronger inter-personal skills to manage more
senior and strategic engagement and build
the required c-suite relationships. Finally,
there is a more elementary need – and one
that has clearly developed across the globe
in the 2 years since our inaugural global real
estate survey in 2011. Building stronger data
sets and analytical tools that enable effective
decision making and capture value add is an
additional skills requirement for CRE.
The gap in CRE soft skills is widening and
damaging capability:
German CRE will be less about
technical property skills and more
about stakeholder management
and communication skills. Currently
these skills are sparse.
German CRE do not recognize the need of
soft skills at all
Key requirements of CRE-teams Global EMEA Germany
Providing data and insights 12% 18% 19%
Forward thinking / challenging status quo 22% 24% 30%
Focused on innovation 8% 7% 7%
Business acumen / understanding of broader business 17% 9% 9%
Improving internal reputation of CRE 5% 4% 2%
Improving CRE team communication / relationship skills 3% 3% 0%
Adding new skills (eg change management, financial acumen, leadership skills etc) 4% 7% 0%
Presenting real estate options & scenarios 20% 18% 23%
Efficient stakeholder management outside CRE 8% 10% 11%
8. 8 German Corporate Real Estate Trends 2013
Trend 4
»» A central theme of our global survey is the rising pressure being placed upon CRE teams. This
has driven a clear and unmistakable growth of CRE outsourcing. Globally only 8% of our survey
respondents perform all CRE functions in-house compared with over 20% back in 2011. This trend
is clear across continental Europe despite a historical resistance or reluctance. What is significant
however is that how the rationale for and relationship with an outsourced CRE partner is perceived.
German respondents are ahead of the global trend here. None of our respondents, when asked
to place attitudes to outsourcing on a continuum, positioned outsourcing as a purely tactical
transaction with the lowest cost supplier. 6% of our global respondents did. Furthermore 65% of
German respondents placed outsourcing at the top end of our continuum which sees outsourcing as
a strategic partnership based relationship focused on value add.
»» Yet there is a paradox. Despite this strategic perception of outsourcing, despite evidence pointing
towards a greater adoption of outsourced relationships, there remains a comparatively strong
tendency towards self-performance in German CRE. For example, 26% of German respondents
undertake transactional activity fully in-house presently. 17% of the same respondents believe they
will still be doing so in the next 3 years. It is the same for Lease Administration – important given
the importance being placed on data and analytics. 60% of German respondents are performing
Lease Administration tasks in-house and almost 50% believe they will still be doing so in 2016.
»» On the flip-side there is a move towards outsourcing evident over the next 3 years but it is by no
means dramatic. 15% of German respondents believe they will be fully outsourcing transaction
services in three years, up from 8% presently, while project management outsourcing is estimated
to remain flat with just 2% fully outsourcing in this area now or in the future. This is a concern.
Whilst understanding some of the anxieties around outsourcing, the stark reality is the emerging
CRE agenda when coupled with little investment in internal CRE resources or budgets points to
a real necessity to explore and execute the outsourcing opportunity. If this is not done, then the
impact of the CRE team will be constrained by capacity.
There is strong recognition of outsourcing
as a strategic pursuit, yet a culture of self-
performance persists within German CRE:
Despite rising pressure, a resultant growth of CRE outsourcing, and skills
challenges many active within German CRE continue to self-perform –
vicious circle.
9. JLL 9
CRE outsourcing is increasingly seen as a strategic imperative
Current attitudes toward outsourcing
Currently Three years from now
42%
60%
36%
30%
49%
23%
% of respondents performing lease
admin fully in-house
Currently Three years from now
22%
26%26%
18% 17%17%
% of respondents performing transaction
services fully in-house
There is strong recognition of outsourcing as a strategic pursuit, yet a culture of
self-performance persists within German CRE
Global EMEA Germany
Outsourcing
represents a tactical
transaction, mainly with
the lowest cost
supplier
Outsourcing
represents a strategic
relationship, where I
assess longer term
value add with a
partner
7% of respondents in Germany said they do not outsource
6% 9% 21% 33% 30%
0% 9% 19% 35% 30%
Germany
Global
10. 10 German Corporate Real Estate Trends 2013
»» Impact will be further constrained if CRE
teams continue to operate in silos. This
was a major finding of our global survey
published in April. As real estate shifts in
perception from being a simple factor of
production to a facilitator of productivity, it
becomes an industry wide concern. As such
real estate decisions need to be taken with
full support, agreement and understanding
from HR, IT and finance teams. If they are
not, then operational and financial risks
are likely. Both our global and German
respondent pool shows that this collaboration
with other support functions is a present
day reality but only a sporadic, project by
project basis. Around a third of German
respondents have ad hoc project based
collaboration with HR and finance teams,
and more than a half engage on a similar
basis with IT. Yet three years from now
this adhoc collaboration persists amongst
German respondents when compared to our
global respondent pool, particularly in terms
Disconnected CRE teams will struggle
to impact:
As real estate becomes a facilitator
of productivity, stronger and
sustained collaboration with other
internal functions, such as HR, is not
a nice to have it is an imperative.
Trend 5
of HR and IT collaboration. That is not to say
that German CRE teams do not envisage
a shift towards more structured and formal
collaboration with other functions through
shared-services model. They do and often to
a greater extent than the global respondents.
What this points to is greater polarisation on
collaboration models. It is our firm view that
those that shift quickly and positively towards
more formal collaboration are more prepared
for the future. It is time to break-down the
silos and become what we refer to as a
collaborative change agent.
German CRE should intensify their
collaboration with HR HR
IT
CRE
Finance
21%
of German CRE
do not have any
interaction with HR
11. JLL 11
Where next for German CRE?
So what are the implications of our survey
findings on the CRE market in Germany?
Having been operating in the market from
more than a decade, I am inclined to make
four key observations.
»» The development of the occupier real
estate market in Germany in regards to
processes, competencies, governance
etc. has been traditionally shaped more by
evolution than revolution. This needs to
change; fast. In reality the market requires
bold and strong leaders motivated and
capable of accelerating development and
transformation. Change must come from
the top.
»» Do not under-estimate the impact of culture.
National and corporate culture is a far more
powerful influence than we tend to accept.
In particular, if you compare the given
lifetime of a firm or the sector in which that
firm operates, or if you look at the individual
‘make or buy’ equation. But culture is not
necessarily a static phenomenon. If the
corporate culture would better embrace
‘learning’ as an ingredient part of its DNA,
then the CRE team will certainly benefit
by looking at and being open to ‘best in
class’ solutions in their sector and their
marketplace.
»» Soft skills need to enter the environment.
While the professionalism of CRE teams
and leaders has increased significantly
over the last decade, there remains a
consistent absence of change management
competencies; first class communication
skills; strong stakeholder engagement
attributes and / or leadership mind-sets.
Outside of the collaboration areas identified
within the survey this is one area that
the corporate HR function can assist the
development of CREM. Stronger profiling of
future leaders with a greater emphasis placed
on soft skills rather than merely professional
competencies is required if the opportunity of
transformation is seized and optimised.
»» All of these points link back to one basic
and fundamental point that requires urgent
attention. The weak and most often
fragmented mandate for the CREM function
needs to be overturned. As our survey has
ably illustrated, a direct reporting line in to
the C-suite does not in itself guarantee the
required level of influence or leverage at the
right points on the critical path of decision
making to ensure that corporate real estate
decisions are effective, efficient or enhance
productivity. German CRE leaders are
operating at a global scale – a reflection of
the export orientation of German industry.
It would seem to me mandatory that the
C-Suite empowers its real estate managers
at the global scale. But typically they do not.
This has to change.
»» How can this change? I acknowledge it is
not easy as evidence by the evolution of
the last decade. To drive a faster pace of
change in German CREM there will need to
be an increased capability to make strong,
strategically critical arguments, supported by
first class data, compelling business cases
which are communicated with flair, passion
and brilliance to bring the c-suite on board.
It’s a tall order. It’s a challenge that isn’t
going to disappear.
Ralf Heuser
Head of Corporate Solutions Germany
12. Contacts:
www.jll.co.uk
Ralf Heuser
Head of Corporate Solutions Germany
+49 69 2003 1204
ralf.heuser@eu.jll.com
Lee Elliott
Head of EMEA Research
+44 20 3147 1206
lee.elliott@eu.jll.com
