Risks Ahead: Global Corporate Real Estate Trends 2013

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JLL’s second biennial report on Global Corporate Real Estate Trends unearths the five top corporate real estate risks, including possible negative impacts to competitive advantage and profitability from cost cutting, procurement processes, lack of collaboration between functions and failure to drive productivity.

To learn more about this study and see where your corporation stands amongst survey repondents, please visit http://www.gcre.joneslanglasallesites.com/

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Risks Ahead: Global Corporate Real Estate Trends 2013

  1. 1. Risks AheadGlobal Corporate Real Estate Trends 2013
  2. 2. Jones Lang LaSalle 3Tod LickermanGlobal Director and CEOCorporate Solutions, AmericasJohn ForrestGlobal Director and CEOCorporate Solutions, Asia PacificVincent LottefierGlobal Director and CEOCorporate Solutions, Europe, Middle Eastand AfricaHowever, we believe that with increasedrisk comes even greater reward. If theright decisions are taken, those whoeffectively manage the risks will berewarded with the opportunity to driveproductivity enhancements and corporatecompetitiveness.We sincerely thank those of you whoshared your thoughts and perspectives.Your input has provided a clear picture ofthe pressures facing CRE teams across theworld. While the picture is clear, it is alsocomplex as some geographies and industrysectors show high degrees of variation.Accordingly, we will issue additional reportsfocusing on country and industry levelresults over the remainder of the year, aswell as pieces that dive deeper into thespecific themes and issues raised in thisglobal report.To view these reports when they arereleased, and to explore the trends in moredetail, visit www.jll.com/globalCREtrends.IntroductionWe are delighted to introduce Jones LangLaSalle’s second biennial report on globalcorporate real estate (CRE) trends, whichprovides powerful insights into the currentcondition and future direction of CRE.More than 600 CRE executives from 39countries contributed to this report throughsurveys and interviews. Their responsesshow that amid continuing challenges inthe economic and operating environment,there are more risks ahead. CRE teamshave been tasked with a broader and morestrategic agenda since our first report wasreleased in 2011. Five global trends haveemerged, each with its associated risks.Post the global financial crisis (GFC),the elevation of CRE has created a newtipping point. CRE must keep pace withthe increasing speed and demands of thebroader business or risk a return to theundervalued positioning of the past. This willrequire change in the mandate, structure,positioning and method of CRE.
  3. 3. 4 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 5Leadership pressure demandsaction at both tactical and strategiclevels. CRE teams are beingchallenged to impact and add valueto a wider range of agenda items.A trend that has intensified since our2011 report, the rising expectationsof senior leaders require CREteams to make a step change. Thisis challenging given the minimalinvestment in in-house CRE talent overthe past few years. There is a scarcityof the right strategic skills to deliverclear workplace productivity outcomesand address the rising focus on workerproductivity. When combined withresource constraints, the ability to fullydeliver to this agenda is unrealistic.Risk: Perceivedunderperformance if stepchange is not realizedWhat you can do: Be clear about yourpriorities. Leverage and partner withyour supply chain and create capacityso that you can focus on managinginternal stakeholders.Extended and complex demandson in-house CRE teams are drivingrapid growth in CRE outsourcingacross more geographies, functionsand corporations.Those with CRE outsourcingexperience continue to seek innovativedelivery models that harness greaterstrategic contributions and deliverbest practice—a trend that has gainedsignificant momentum since 2011.Today, they are joined by a growingnumber of new corporations takingvaried and sometimes innovative pathstoward strategic outsourcing. Some arestarting out with tactical out-tasking,while others are progressing quickly byfollowing the paths taken by pioneers.The majority view outsourcing as apartnership, and more and more, areinvolving procurement in CRE decisionmaking.Risk: Undervaluing externalcontributionsWhat you can do: Take control of yoursupply chain. Proactively partner withyour organization’s procurement teamso that it has a better understandingof CRE and its potential contribution tocorporate strategy. This will reduce therisk of undervaluing relationships withservice partners or constraining theirability to deliver over the long term.Embracing new work styles andimplementing supportive newworkplaces has been a strategicvision, if not immediate intention, foryears. This is changing rapidly.Workplace transformation is taking on anew resonance in developed countriesas senior business leaders respond toan improving economic environment.The emphasis is on cost control,efficiency gains and productivityimprovements. In emerging countrieswhere strong growth is moderating,workplace transformation is gainingrelevance and momentum. Globally, ifbacked with the required investmentcapital, it has the potential to influencethe strategic contribution, financialimpact and positioning of the CREfunction.Risk: Not investing enough tofulfill strategic potentialWhat you can do: Don’t shy awayfrom the strategic contribution CREalready makes. Embrace big data,analytics and performance tracking todemonstrate value. Be clear on whathas and can be achieved. But, beclearer still on the investment neededto maximize the strategic contributionCRE can make, particularly inrelation to the workplace and workerproductivity.A greater focus on workplacetransformation calls for a culturalshift within the CRE team. CREteams need to become adept atworking across the organization andpositioning themselves as agentsand managers of change acrossshared services.Collaboration between CRE,information technology (IT), humanresources (HR) and finance is alreadyoccurring with surprising intensity onan ad hoc, project basis. In the future,collaboration—possibly driven bychanges in organizational structures—will be necessary if true workplacevalue is to be realized. Partnering withthese shared services must become aCRE core competency. This leadershipopportunity has the potential to garnermore influence and standing for CREwithin the organization.Risk: Losing influence andstanding as a specialistWhat you can do: Take the lead.Use real estate and the workplaceas the common ground for greatercollaboration with functional areas suchas IT, HR and finance. Engage withyour support service counterparts toidentify the intersections with CRE andclearly articulate their value.The CRE function remains taskedto deliver operational platformsin select growth markets. Thesemarkets will be central to drivingcorporate competitiveness.Senior business leaders will have highdemands for speed and quality ofdelivery in emerging markets that lacktransparency and are operationallychallenging. Time and costs canescalate rapidly, while compromisesaround the quality of the real estatesolution are inevitable. Delivery is asignificant and often underestimateddrain on the finite resources andskills of the CRE function. This canput the reputation of CRE across thewider business at risk unless carefullymanaged.Risk: Damaging reputationthrough delivery failureWhat you can do: Don’t let emergingmarkets become CRE’s greatestreputational risk. Manage expectationsand educate the business about thechallenges of delivering real estatesolutions in less transparent markets.Ensure this is clearly communicatedearly in the process.Executive SummaryFive global trends areshaping the future ofCRECRE teams face increasing pressure. When combined with a lack of investment or injections of new talent into these teams over recent years,this points to significant risks ahead. However, the many risks produced by the current business climate also present incredible opportunitiesfor CRE teams. Those that proactively lead their organizations to a more productive workplace will be the winners. CRE teams are nowuniquely positioned to dramatically impact the culture, collaboration and performance of their companies. This position requires a fundamentalrethink of the CRE contribution—one that will shape not only the future form and function of the CRE team, but also its opportunity to addstrategic value and deliver competitive advantage.Expectations andpressures build,heightening the risk ofunderperformance1Increased demandis leading to faster-paced evolution of CREoutsourcing2Workplace transformationis the key to unlockingworker productivity andoptimizing portfolios3CRE must become acollaborative changeagent4Failure to deliver inemerging markets willbecome one of CRE’sgreatest reputational risks554123
  4. 4. Jones Lang LaSalle 7Expectations and pressures build, heightening therisk of underperformanceGlobal Trend 1:• Reporting primarily to the C-suite—senior company executives such asthe CEO, COO and CFO—has enabledCRE teams to strengthen the alignmentbetween business and CRE strategy.However, economic realities and capitalexpenditure constraints have maintainedpressure on CRE teams to implementshort-term tactics, often to the detrimentof longer-term strategic moves. Thisfocus has been aimed at bolsteringcorporate financial performance throughcost savings and/or capital release.• Most CRE teams are finding itchallenging to continue achieving year-on-year cost savings targets throughtactical means, as most of the easieropportunities within portfolios havealready been realized.• A more strategic set of demands istherefore gaining significance, such asdriving improved workplace and workerproductivity. These fresh demands applyfurther pressure to CRE teams andexpose structural flaws that jeopardizetheir future contribution and position.• Corporate resistance to capitalexpenditure, the sometimes smalland fragmented structure of the CREfunction, inadequate access to deepdata and analytics to measure value anda fundamental skill and knowledge gapwithin CRE teams all present barriers tomeeting this rising demand.• The future qualities perceived as mostrequired by CRE teams suggest thatthese capacity caps and skill gaps willbecome even greater obstacles to theircontribution and ultimate success.6 Global Corporate Real Estate Survey 2013Only 28%regardthemselves as “wellequipped” to meet thevarious tactical and strategicdemands now being placedupon them68%view demandfrom the C-suite andsenior leadership as beingstrongest for improvingthe productivity of the realestate portfolio72%experience highexpectations to deliver clearproductivity enhancementsfor the workplace and 61%for the workforce75%ofrespondents experienceincreasing demand fromsenior business leadersto reduce direct realestate costsMore than 70%cite increasing tacticaldemands in areas suchas enhancing workplaceutilization rates andreducing operatingcosts48%view financialconstraints as the greatestlimitation on bringing morestrategic value to theirbusiness through CRE, with34% citing lack of effectivedata and analytics as thebiggest constraint
  5. 5. 8 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 9TodayThree yearsfrom now0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Moderately alignedEntirely alignedNot aligned Not aware of any corporate goalsMinimally aligned1%1%C-Suite58%Managerial26%Executive Operational Other14%Close to 60% of global CRE heads report directly into the C-suite (Fig 1), a relationship thathas continued to develop since the onset of the GFC. This has ensured that the alignmentbetween corporate strategy and CRE strategy has become, and will continue to be, strong(Fig 2).Fifty-two percent of CRE executives describe corporate and CRE strategies as being“entirely aligned” today. This will increase to 72% in the next three years. This alignmentenables real estate issues or opportunities to be flagged early in strategy development. Italso speaks to the continued rise in importance of the CRE function.Senior leadership continues to demand swift and decisive action to identify and securecost savings. Expectations around the size of cost savings from real estate have beenhigh and sustained. CRE teams are responding with a range of tactical real estate plays togenerate cost savings (Fig 3). However, the challenge of continuing to deliver sizeable costsavings year-on-year through tactical initiatives is enormous. Much of the easier cost-savingopportunities within portfolios have already been taken.For CRE teams, this is problematic because the inherent inflexibility of real estate portfolios,together with wider market forces, creates inertia and forces longer-term thinking.Figure 3: Increasing tactical demands being placed on CREFigure 2: Alignment of CRE strategy to corporate strategy, today and threeyears from nowFigure 1: Reporting lines for the global head of CREQUESTION: How are the demands of senior leadership/C-suite on the CRE team changing in thefollowing areas?Base: 545 respondents (those who responded that demands are increasing)Hard-line reporting intothe C-suite strengthensstrategic alignmentUncertain economicconditions mean thatdemand for short-termcost savings throughtactical real estateinitiatives is still apriority75%74%73%64%63%57%49%28%Reducing direct real estate costsIncreasing utilization of existing buildings in portfolioReducing the operational costs of the real estate portfolioChallenging the business about its presumed space needsLimiting exposure to future real estate costsGetting clear on portfolio size/opportunities via data collectionReducing the size of the portfolioRunning own vs. lease assessmentsQUESTION: To what level of the organization does the global head of CRE currently report?Base: 470 respondentsNote: C-suite refers to senior company executives such as the CEO, COO and CFO; managerial level includespresidents, vice presidents, managers; executive level includes officers, supervisory roles; operational level includesadministrators, personal assistants and clerks.QUESTION: To what extent is your CRE strategy aligned to your company’s broader businessstrategies/corporate goals?Base: 545 respondents
  6. 6. 10 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 11GlobalAmericasAsia PacificWell equipped tomeet all demands28%37%21%25%Can meetmost demands65%58%67%69%Europe, Middle Eastand AfricaIll equipped to meetthe demands7%5%12%6%Figure 4: Increasing strategic demands being placed on CREFigure 5: Company expectations of productivity outcomes from CREFigure 6: CRE leaders’ ability to meet new demandsQUESTION: How well equipped do you feel to meet the demands listed in Figs 3 and 4?Base: 545 respondentsGreater engagement with the C-suite and more alignment between business and CREstrategy has led to an uncomfortably broad range of demands now being placed on CREprofessionals. The result is that only just over a quarter of CRE executives believe that theyare “well equipped” to address such demands (Fig 6). The maturity of CRE outsourcing inthe Americas is reflected in the nearly 40% of CRE executives located here that feel “wellequipped”, while in other parts of the world the perceived ability to rise to the challengeis limited.Productivityimprovement is thestandout strategicpriority and leads thedemands being placedon CRE teamsA small proportion ofCRE leaders feel “wellequipped” to meet thevarying demands beingplaced upon themReporting to the C-suite brings with it enormous scrutiny over the cost, structure andutilization of the real estate portfolio as senior leaders demand a more strategic approachfrom CRE teams (Fig 4). Their demands seek to provoke a transformation within portfolios,most notably to support enhanced levels of workplace and worker productivity. Expectationsaround delivering improvements in productivity are on the rise across the board (Fig 5). Whileworkplace productivity improvement was featured in our 2011 report as an emerging trend forbest-in-class workplace strategy, it is now a “high expectation”. It is also taking CRE beyondthe workplace to encompass people, business and asset productivity.QUESTION: What productivity outcomes is your company expecting the CRE function to deliver?Base: 545 respondents (those who responded that expectations to deliver in these areas are “high”)QUESTION: How are the demands of senior leadership/C-suite on the CRE team changing in thefollowing areas?Base: 545 respondents (those who responded that demands are increasing)68%65%65%56%55%54%53%46%46%Enhancing productivity of the real estate portfolioTransforming the quality of the workplacePresenting scenarios and solutions to the businessBringing more flexibility to the portfolioEnabling remote or mobile workingDriving the sustainability agendaAligning CRE with business drivers and functional areasDelivering a platform for growth in select marketsAttracting and retaining talentWorkplaceproductivity72%Peopleproductivity61%Businessproductivity57%Assetproductivity47%
  7. 7. 12 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 13Figure 7: Major constraints hindering CRE from enhancing its strategicpositionFigure 8: The key requirements of CRE teamsQUESTION: In your opinion, what are the top two constraints that are hindering CRE fromenhancing itself as a strategic value add to your organization?Base: 545 respondentsStructural and financialconstraints presenta significant risk toaddressing leadershipdemandsWhile few position themselves as being “ill equipped” for the challenges ahead, it is clearthat new skills and greater capacity will be required if CRE is to tackle such a broad andchallenging agenda. The existing structure and skills of CRE teams will constrain CRE fromenhancing its strategic position, as recognized by around a quarter of CRE executives(Fig 7).However, the primary constraint identified is financial. This may be considered a refreshingchange from the top constraint in our 2011 report, which was “uncertainty around the futureshape and size of the business”. The focus has now shifted to more internal obstacles. Thelack of budget ownership, which often sits with another function, market or business line, canbe considered an aggravating factor.Almost half of CRE executives recognize that broader strategic agendas cannot be fullymet without some investment and one third feel restricted by the lack of effective data andanalytics to measure value. By comparison, financial constraints are of little concern in Japan(4%), but having a fragmented team comes in as the top constraint (50%) reflecting the CREorganizational immaturity in that country.The future requiredattributes of theCRE team are notwell served bycurrent structuresand the risk of CREunderperformance ishighThe qualities required by CRE teams (Fig 8) suggest that the capacity caps and skill gapsafflicting CRE teams will be even greater impediments to the contribution and ultimatesuccess of CRE teams in the future. Of the nine attributes that are important to a CREorganization, only one represents a real estate specific skill set (“Presenting real estateoptions and scenarios”). The remaining key requirements are much more focused on broaderbusiness skills. This will need to be addressed through a combination of investment andfundamental rethinking of the form and function of the CRE team. Without both, the risk ofCRE teams failing to meet senior leadership expectations remains high.QUESTION: Rank the importance of the following CRE attributes to your organization.Base: 545 respondentsNote: In this table, responses include the top-ranked attribute only. Totals may not equal 100% due to rounding.26%48%Financialconstraints34%Data andanalytics32%C-suitecommitment27%FragmentedteamSkill andknowledge22%20%17%12%8%8%5%4%3%Forward thinking/Challenging status quoPresenting real estate options and scenariosBusiness acumen/Understanding of broader businessProviding data and insightsFocused on innovationEfficient stakeholder management outside CREImproving the internal reputation of CREImproving CRE team communication/Relationship skillsAdding new skills (e.g. change management, financial acumen, etc.)
  8. 8. 14 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 15• Amplified by the emergence of a broaderstrategic CRE agenda, capacity capsand skill gaps within many in-houseCRE teams have in turn fuelled growthin the CRE outsourcing market. Gainingmomentum since 2011, this tendency willcontinue over the next three years, andis now moving at a much faster pace.• CRE outsourcing is gaining tractionacross more geographies, industrysectors and corporations. Only 8% ofcompanies have not outsourced anyaspect of their CRE function, a big dropfrom 24% in 2011. This indicates thatCRE outsourcing is quickly catching upto other outsourced functions—such asIT, HR and finance—that are seen to befurther along the outsourcing curve.• Most companies firmly view outsourcingas a long-term, strategic relationshipseeking to add value rather than aprice-driven, tactical transaction. Thisholds true regardless of whether or notthey are currently heavily outsourcingCRE service delivery. These companiesuse outsourcing to draw upon expertiseand skill sets not available within theirown organizations and release internalcapacity to focus on addressing strategicpressures.• This strategic viewpoint is important,given the increasing role thatprocurement plays in the CRE buyingdecision. There is a perception thatprocurement teams lack understandingof the characteristics of CRE services,and a growing risk that these qualitieswill be overlooked in a price-drivenprocurement process.• Procurement involvement may hinderthe strategic influence of CRE teams.As such, there is an urgent need for theCRE community to educate and clearlyarticulate its value proposition.Increased demand is leading tofaster-paced evolution of CREoutsourcingGlobal Trend 2:Lease administration as wellas energy and sustainabilityservices are forecast to seethe greatest reduction infull in-house delivery, bothdecreasing by11%of those identifying activeprocurement participationbelieve that procurementhas limited knowledge ofwhat it takes to secure CREservices58%of respondents view CREoutsourcing as an entirelystrategic relationship,while 6% see it as apurely tactical transaction30%have retained projectmanagement, build-out anddesign in-house—the lowestlevel of any servicetype—although just 18%have fully outsourcedthese services12%increase in full outsourcingis expected for both portfolioand facilities managementand lease administrationservices—the highestpredicted increase in fulloutsourcing over the nextthree yearsA 9%have retained portfoliostrategy work in-house andonly 3% have placed thisservice in a fully outsourceddelivery model52%have procurement teamsactively involved in CREdecision making; 36% citepermanent involvement69%over the next three years8%do not currently outsourceany CRE services. InAsia Pacific, this rises to12%. In both cases, this isvery low compared to 2011at 24%
  9. 9. 16 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 179% 21% 33%Outsourcingrepresents a tacticaltransaction, mainlywith the lowest-costsupplier6%Outsourcingrepresents a strategicrelationship, whereI assess longer-termvalue add witha partner30%15%22% 27% 15%21%14%18% 22% 23%23%15%34% 18% 18%16%12%26% 20% 23%19%19%28% 24% 11%17%13%17% 29% 18%23%18%12% 30% 18%14%11% 26% 22%28%22%17%25% 25% 13%19%14%21% 22% 22%21%22%52% 15% 3%8%19%44% 20% 5%11%Energy and sustainability servicesLease administration12%42% 14% 19%13%11%31% 12% 28%19%Transaction servicesProject management/Build-out/DesignPortfolio and facilities managementPortfolio strategyProperty managementTodayThree years from nowFully outsourced43Fully-in-house 2Ninety-two percent of companies are practicing some form of real estate outsourcing. Theextent differs between regions, with a greater number of firms headquartered in the UnitedStates and Australia showing the most maturity. Globally, only 8% are delivering all realestate services fully in-house, a significant decrease from 24% in 2011.The balance of services performed in-house or through outsourced models is changing(Fig 9). Specialist and resource-intensive services remain most likely to be outsourced, withproject management overtaking transaction services as the most frequently outsourcedfunction since 2011. The majority still prefer to retain sensitive elements such as portfoliostrategy in-house. Over the next three years, there will be further advancement along theoutsourcing continuum as CRE teams seek more support from the market in deliveringtactical and strategic real estate activities.Figure 9: Outsourcing activity by service line, today and three years from nowFigure 10: Current attitudes toward CRE outsourcingA large majority of CRE executives maintain that outsourcing represents a strategicrelationship where partnership value is assessed over the long term, as opposed to aminority who see it as a tactical transaction mainly with the lowest-cost supplier (Fig 10). Agrowing number of corporations are looking beyond tactical out-tasking and are seeking tocapitalize on the greater value and synergy that comes from deeper, strategic partnerships.Only a minority of corporations do not use or want to use key performance indicators (KPIs).Many are starting to push some of the financial and operational risks to external partners andwe are seeing an evolution toward risk-sharing contracts in some cases.CRE outsourcing isdeveloping rapidlyacross geographies,industries and abroader range ofservices. Solutionsare being sought,creating new models,new interrelationshipsand new points ofengagementCRE executives seeoutsourcing as astrategic imperativewith value derived fromlong-term partnershipand the development ofshared goalsQUESTION: How would you best describe the delivery of the following CRE services, today andthree years from now?Base: 519 respondents (companies that practice outsourcing)Note: Totals may not equal 100% due to rounding.Figure 11: The role of procurement in CREThe active involvementof procurement inthe CRE outsourcingdecision creates risksof undervaluingpartnerships and failureto deliver needed stepchangeProcurement is a business function with increasingly strong links to CRE. Thirty-sixpercent of CRE executives describe procurement as being actively involved in CRE “on apermanent basis” (Fig 11). This proportion becomes higher (47%) for the largest companiesin our sample with global headcounts of more than 100,000. Even for the 33% who reportinvolvement “on an ad hoc basis”, the trend toward greater integration of procurement andCRE is clear.There is a lot that CRE executives can learn from procurement, not least in terms ofprocesses and vendor management. However, there are signs that this can be an unhappymarriage in some cases. Fifty-eight percent report that procurement has a limited knowledgeof real estate and the nature and complexity of the services being procured. There is aresponsibility for CRE teams, and indeed service partners, to more effectively educateprocurement and articulate the added value that effective CRE management can deliver. Therisk of not doing so is that outsourced models will become price-oriented rather than value-driven, and desired capacity expansion and innovation delivery will not be realized.QUESTION: Please rate your current attitudes toward outsourcing on a scale of 1–5.Base: 519 respondents (companies that practice outsourcing)Note: Totals may not equal 100% due to rounding.QUESTION: Is your internal procurement team actively involved in CRE?Base: 545 respondents; 373 respondents with procurement involved36% Involvement on a permanent basis42% Knowledgeable about CRE33% Involvement on an adhoc basis58% Limited knowledge of CREWe hire externalprocurement consultants3%No involvementof procurement23%3% No internalprocurement teamOther2%
  10. 10. 18 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 19However, up topoint to no change in thequantity, quality, utilizationor density of the workplaceover the last three years27%have already overseen areduction in the size of theirreal estate portfolio over thelast three years31%maintain that the qualityof their workplace hasimproved during the lastthree years, with 68%suggesting that spaceutilization has also increased67%• CRE teams have, where market forcesand tenure allow, already reduced thesize of the occupied portfolio whilesimultaneously increasing the quality,occupation density and utilization rateof the space. While this is encouragingin the context of productivity, thereis growing pressure from seniormanagement for more to be done tounlock the productivity of workers.• The standout limitation in drivingworkplace transformation and thecreation of more productive spacesis a financial one. The lack ofinvestment capital available to underpintransformation programs is a far moresignificant constraint than the culturaland managerial resistance seen as thetop restraints in our 2011 report.• This represents a tremendous risk toCRE teams. While team structures andoutsourced relationships can be shapedto accommodate a strategic agenda, realprogress will always be stifled withoutinvestment capital.• Occupancy planning data, a cornerstoneof workplace strategy and planning,is the most desired planning tool toenhance future CRE performance.identify occupancy planningdata as the most desiredtechnological tool needed toenhance CRE performance46%Workplace transformation is the key to unlockingworker productivity and optimizing portfoliosGlobal Trend 3:• We have seen how the new andextended CRE agenda shines thespotlight on organizational productivity.Workplace is a key driver of that agendaand represents a unique opportunityfor the CRE function—if appropriatelystructured, resourced and focused—to make a strategic, business-widecontribution.regard the lack of investmentcapital as the key constraintto workplace transformation,followed by 15% whocite difficulty in changingmanagement styles tosupport workplace changeas the biggest barrier22%believe that space utilizationwill increase further over thenext three years, with only42% believing that the realestate portfolio will increasein size over this period79%
  11. 11. 20 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 21There is no doubt that CRE portfolios have undergone a process of transformation over thepast three years (Fig 12). Ongoing pressure on operating costs has led more than two thirdsof CRE executives to increase the utilization rate of space on a global basis.The quality of space has also been a focus, with two thirds of CRE executives pointing toimprovements in the space occupied from either a design or environmental point of view.Occupational densities have increased as well, with 62% noting an increase in the ratio ofheadcount to unit of space.The transformative pressures that have been felt by CRE will only intensify over the nextthree years (Fig 12). CRE teams will be faced with the challenge of further increasingdensities and utilization rates without negatively impacting quality or worker experience. Thissuggests that demand will increasingly be for modern, flexible, densely occupied space of ahigh quality, which supports creative and collaborative work and enables talent attraction andretention.Figure 12: The extent of workplace transformation over the last three yearsand envisaged over the next three yearsFigure 14: Technological tools most desired to achieve future visionFigure 13: Constraints in delivering workplace transformationThe standout limitation in driving workplace transformation and the creation of moreproductive spaces is recognized as a financial one (Fig 13). The lack of investment capitalavailable to underpin workplace transformation is a far more significant constraint than thecultural and managerial resistance that has often been highlighted in accounts of workplaceprograms and also seen in our 2011 report.This is not to underplay the impact of these softer, people issues. Rather, it is to note thatpresently, the constraint being placed on capital investment is most powerfully impactingthe workplace transformation agenda. This leads to a tremendous risk because withoutinvestment capital, any real progress will always be stifled. CRE teams must make a strongercase for further investment if the productivity agenda is to be fulfilled.Workplace productivityis being addressedthrough CRE, but thereis recognition that morecould and should bedoneNumerous constraintshave limited thescope of workplacetransformation to date,but key among thesehas been the lack ofinvestment capital andoccupancy planningdataIt is clear that some key technological tools need to be in place to support workplaceplanning. Forty-six percent of CRE executives need occupancy planning tools to help themdeliver to a higher level in the future (Fig 14). Occupancy planning is core to the deliveryof any workplace solution and also in measuring productivity gains. A lack of adequatetechnological tools has been identified and key industry players are working towarddeveloping more comprehensive solutions.46%33%33%31%26%Occupancy planning dataPortfolio dashboardsFinancial modelingRental benchmarkingLease managementQUESTION: In your organization, what is the single most limiting factor in driving workplacetransformation?Base: 545 respondentsNote: Table excludes “Others” (6%) and “None” (4%). Totals may not equal 100% due to rounding.QUESTION: What technological tools would most enhance your performance as a CREprofessional?Base: 536 respondentsNotes: In this table, responses include the top-ranked attribute only. Less desired tools are “retail network planning”,“electronic documents” and “other” choices.QUESTION: To what extent has your global corporate workplace transformed over the last threeyears/will transform over the next three years in terms of quantity, quality, utilization and density?Base: 545 respondents22%15%14%10%7%7%7%5%2%Lack of investment capitalDifficulty in changing management stylesEmployee resistanceLack of management engagementLack of sustained C-suite sponsorshipLack of opportunity through real estate tacticsComplexity arising from cultural diversityDifficulty in building a compelling business caseTechnology deficienciesIncreasedDecreasedThe last three years Next three yearsQuantity Quality Utilization Density48%31%42%36%67%73%68%79%62%72%6% 4%12%7%15%9%
  12. 12. 22 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 23• Advancing a more challenging strategicagenda—one that focuses specificallyon workplace and worker productivity—requires closer association with othercorporate support functions.• IT, HR, finance and CRE are alreadycollaborating in the pursuit of currentworkplace strategies. For the majority,this remains an ad hoc, project-basedactivity. However, this collaboration ishappening much faster than previousindustry predictions.• The formation of collaborativeorganizational structures, such asshared services, is likely to increaseover the next three years. This presentsa leadership opportunity for CRE teamsto really drive the adoption of strategiesthat enhance workplace and workerproductivity.• CRE teams can take a strong leadershiprole in these structures and becomecompany-wide change agents. This willextend the relevance and impact of CRE.CRE must become a collaborative change agentGlobal Trend 4:identify with the model of sharedservices integration between CRE andfinance; collaboration with HR, IT andfinance functions is forecast to shift toan integrated shared services modelover the next three years51%45%are collaborating with the ITfunction within their organizationon an ad hoc or project basis, withalmost one third pointing to moreformalized collaboration or sharedservices integration14%39%of respondents reside within adedicated CRE departmentreport that their organizationhas no global head of CRE,pointing to decentralizedand fragmented CREstructures for some8%have the CRE function containedwithin an administrative orshared services group
  13. 13. 24 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 25The next wave ofcollaboration will becrucial to CRE successand is leading tostructural changeIncreased andpotentially formallystructured collaborationbetween supportservices could representa new elevationopportunity for CREAs the workplace productivity agenda takes hold over the next three years and programsof transformation are financed and pursued, more formal collaboration structures will berequired. This could see CRE being absorbed into an administration or shared servicesstructure (Fig 17). It will force alignment between functional teams and, in turn, lead tofurther alignment with broader business strategies and goals. This means a core skill forCRE executives going forward will be to actively collaborate with HR, IT and finance. Thisintegration is expected to increase significantly across all three disciplines, with HR thefrontrunner at a staggering 67% increase over the next three years.It is natural for CRE professionals to be anxious about the development of shared servicesmodels over the medium term, but they do present opportunities. Rather than beingperceived as a threat to influence or specialization, CRE teams should embrace these formalcollaboration structures as vehicles for delivering positive change across their organization.We believe CRE teams should be taking a strong leadership role in these new configurationsto establish creative and productive workplaces. Adopting the position of company-wideworkplace change agent (rather than a tactical specialist) will extend the relevance of CREand mitigate any risk of becoming marginalized.Figure 17: Level of shared services integration, today and three years fromnowQUESTION: How would you describe the collaboration of CRE with the following businessfunctions today and in three years’ time?Base: 545 respondentsQUESTION: Within what department does the global head of CRE reside?Base: 545 respondentsNote: Table excludes “Others (7%). Totals may not equal 100% due to rounding.Almost 40% of respondents globally have a dedicated CRE department in which a globalhead of CRE resides (Fig 15). This is more common as the size of the company increases.Forty-nine percent of the largest companies within our sample—those with a globalheadcount exceeding 100,000—have a dedicated CRE department.As senior business leaders demand a more strategic CRE agenda, notably around the issuesof workplace productivity, CRE teams are being required to exert influence over a broaderrange of corporate functions. The work that CRE teams will undertake going forward impactseveryone within the organization, all of the time. Collaboration with other support functionswill become just as necessary as a strong relationship with leadership if transformation isto be achieved. This will be most required with those support functions that have a vestedinterest or contribution to make to the productivity agenda—notably HR, IT and finance.For most, CRErepresents a dedicatedfunction within theorganization Figure 15: Department within which the global head of CRE residesWorkplacetransformationdemands greatercollaboration with othercorporate functionsCRE has a track recordof collaboration, butthis is primarily ad hocand project-focusedCollaboration between support functions is already in evidence in the pursuit of currentCRE strategies (Fig 16), although for the majority, this remains an ad hoc, project-basedand temporary relationship. CRE executives recognize that collaboration occurs regularlybetween the heads of these departments at a slightly more strategic level. On average,across the three support functions, 15% identify collaboration at the functional head level.Figure 16: Level of ad hoc collaboration, today and three years from nowQUESTION: How would you describe the collaboration of CRE with the following businessfunctions today and in three years’ time?Base: 545 respondentsNote: In this table, percentages combine top-ranked “ad hoc” and “project-based” collaboration responses.39%15%10%8%2%2%1%1%14%Dedicated CRE departmentCorporate office/General managementFinanceAdministration/Shared servicesProcurementHuman resourcesSupply chain and logisticsNo global head of CREInformation technologyToday Three years from nowHRITFinance41%30%45%34%31%26%Today Three years from nowChangeHR 67%44%26%IT 48%46%31%Finance 18%60%51%
  14. 14. 26 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 27• The dual emphasis on buildingoperational platforms in emerging growthmarkets and right-sizing portfolios inmature or developed markets, identifiedin our 2011 report, continues.• Portfolio sizes in developed westerneconomies will flat-line or reducein volume, with more companiesanticipating a decrease in portfolio sizethan those anticipating an increase.• Portfolio growth will be strongest in theworld’s emerging economies, whichalso tend to be the least transparentreal estate markets. Operating in theseopaque environments represents apotential reputational risk to CRE overthe next three years.Failure to deliver in emerging marketswill become CRE’s greatest reputationalriskGlobal Trend 5:• There is a real danger that the pursuitof growth and need for competitiveadvantage in emerging markets will leadto unrealistic demands being placed onCRE teams.• The task of delivering new operationalplatforms in emerging markets hasbeen underestimated by CRE leaders.Platform building in emerging marketscan rapidly erode CRE team capacityand divert resources from meeting theirbroad and extended agenda. Managingexpectations and educating seniorleadership will be crucial.Respondents are verybullish about expectedportfolio growth inLatin America;of respondents seedelivering a platform forgrowth in select marketsas an increasing strategicdemand imposed on CREteams by senior leaders46%Emerging countries continueto receive a lot of attentionwith 44%China19%identify lack of transparencywithin real estate markets asthe single greatest challengewhen expanding intoemerging marketsstate that they will dedicateno more than 50% of theirtime (or none at all) toemerging markets; 34%anticipate spending no morethan one day per week onthese markets62%see the lack of suitable realestate offer as their greatestchallenge. This was greateramong respondents in Asia(14%)10%of respondents anticipatingnet portfolio growth in31%Brazilover the next three years,38% in India, 20% in Russia,12% in Turkey and 8% inSouth Africaexpect growth inand 16% in Mexico, whilenet portfolio growth is backfrom decreasing to stable(1%) in the United StatesThe majority are anticipatingportfolio reduction in mostEuropean markets,in France-15%and -12% in the United Kingdom,while the drop is more moderatein Germany (-5%) and in theNordic countries (-14%)
  15. 15. 28 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 292013-20162009-20129.27.62.52.72.00.8-0.33.30.70.10.18.37.22.94.23.52.71.74.81.41.40.8ChinaIndiaAfricaBrazilGlobalAustraliaUnited StatesUnited KingdomGermanyJapanFranceFigure 18: Global GDP Growth Rates 2013-2016 vs. 2009-2012 (% growth per annum)Companies’ intentions with respect to portfolio growth are polarized, with relatively stronggrowth anticipated in emerging markets and anemic growth in the developed world. Theseintentions are very much in line with GDP growth projections (Fig 18).Source: IHS Global Insight, 2013Subdued globaleconomic growth ratesare forcing corporationsto address portfoliosizes in developedeconomiesWhile portfolio sizes are set to increase marginally in the United States, overall portfolio sizesin Western Europe will reduce over the next three years (Map 1). This will prolong the trendtoward higher vacancy rates in developed real estate markets, which have edged upward asa result of space rationalization and consolidation. In line with the emphasis on productivityoutlined in this report, corporations have reduced portfolio size in developed markets byimproving utilization rates, increasing occupational densities and optimizing portfolios acrossmarkets.There is significant opportunity in the current global economic climate to generatecompetitive advantage by creating new or enhanced operating platforms in emergingmarkets. Emerging economies continue to be in focus with the percentage of CREexecutives anticipating portfolio growth in such markets being consistently high (Map 1),continuing the trend identified in our 2011 report. A key difference is the emergence of Africaas a focus for growth, with 8.5% predicting growth in South African portfolios, for example.This trend aligns with our finding that 46% of CRE executives cite the delivery of operatingplatforms for growth in select markets as an increasing strategic demand from seniorbusiness leaders (refer back to Fig 4). It is also consistent with the fact that just under a thirdof CRE executives believe that their organization has become less risk averse over the lastthree years. This reduced risk aversion is particularly marked in the Americas and shapesattitudes toward emerging markets, specifically Mexico and Brazil.But selective growthopportunities willcontinue to be activelypursued in emergingmarketsMap 1: Net portfolio growth anticipated over the next three yearsMap 2: Global real estate transparency 2012Source: Global Real Estate Transparency Index, Jones Lang LaSalle, 201230% + Net Portfolio GrowthNegative Net Portfolio Growth (20%-10%)Rest ofregionNegative Net Portfolio Growth (10%-1%)Stability (0% Net Growth)1%-10% Net Portfolio Growth11%-30% Net Portfolio GrowthCountryNot coveredHighly TransparentTransparentSemi-TransparentLow TransparencyOpaqueQUESTION: Over the next three years, how will your portfolio evolve in each of the following regions?Note: Net portfolio growth percentages in this map are obtained by deducting responses anticipating portfolios to decrease from responses anticipating portfolios to increase.Other possible responses (“remain the same”, “do not know” and “not applicable”) were left out.
  16. 16. Jones Lang LaSalle 31Figure 20: Time likely to be spent by CRE on emerging markets over the nextthree yearsDelivering real estatesolutions in emergingmarkets presents asignificant reputationalrisk for CREThe time and cost implications of delivering real estate solutions in many of these selectgrowth markets are considerable. This is not typically the concern of senior leaders, butwithout effective management of stakeholder expectations, the status of the CRE team couldbe threatened. The possibility of not meeting the expectations of senior management is highand delivery failure can damage the reputation and standing of the team.This risk is intensified by the fact that few CRE teams seem to be planning to dedicatemuch time to this strategic priority. Only 19% are likely to spend more than half of their timeon delivering in emerging markets (Fig 20). There is a sense that the size of the task andits complexity may be underestimated and this may place even more pressure on currentteam capacity and skills, further undermining the ability of the CRE team to deliver on itsbroadening agenda.QUESTION: How much of your time as a CRE professional is likely to be focused on developing/emerging markets over the next three years?Base: 545 respondents19%34%28%14%5%NoneMinimal (up to 20%)Moderate (20%-50%)Majority (50%-80%)Major (>80%)Many of the targetmarkets for growthwill present substantialtransparency andpotential deliverychallengesWhile establishing operating platforms in new markets is a strategic imperative, delivery isalso a tactical demand, which in this context is particularly challenging due to market opacity.The transparency issue is well recognized, with 19% specifically identifying real estatemarket transparency as the issue (Fig 19).Figure 19: Perceived challenges of platform delivery in emerging marketsQUESTION: In your opinion, which of the following is the single greatest challenge whenexpanding into developing/emerging markets?Base: 545 respondents19%18%17%10%7%7%8%14%Real estate market transparencyPolitical transparencyEconomic transparencyLack of suitable real estate offerLack of unified real estate standardsStart-up costsOthersNoneIt is revealing to compare Map 1 with Map 2 drawn from Jones Lang LaSalle’s 2012 GlobalReal Estate Transparency Index, which shows the levels of market transparency aroundthe world. There is a clear correlation between markets that have high portfolio growth andmarkets that have low levels of transparency.In practical terms, opaque markets equate to a slower speed to market, higher barriers tomarket entry and costs and complexity around the routes to market entry. It is echoed by thefact that some CRE executives point to the limited real estate offering or absence of standardmarket practices within emerging markets as challenges. CRE teams need to enable thepursuit of growth, but the wider business may be ill-informed about the practicalities ofexpanding within an opaque, emerging market.
  17. 17. 32 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 33This report summarizes the global aggregated findings of Jones Lang LaSalle’s second Global Corporate Real EstateSurvey. The research collection phase was concluded in December 2012.The response to the Survey was unprecedented. Through a combination of online and telephone fieldwork, we received636 survey responses from CRE executives spread across 39 countries. This represents a 24% increase in respondentsfrom our 2011 survey and illustrates both the growing maturity of CRE, as well as the importance placed upon the future ofthe industry.The respondent pool also reflects a broad cross section of the corporate community. Our base sample, as used within thisreport, covers 545 companies, each employing more than 1,000 people worldwide.As evident from the figures herein, our survey responses were well balanced and reflective of the views of CRE leadersdrawn from a diverse range of sectors, domicile and operational locations, as well as companies of varied size.Jones Lang LaSalle was supported by market survey experts Kadence International in collecting, compiling andsegmenting the research data.Responses by region where respondents are based(companies above 1,000 employees only)Responses by industry sectorAbout the SurveyAsia Pacific155 Europe, Middle Eastand Africa216Americas174Responses by department respondents sit inResponses by organization size (number of employees)10%5,001-10,00031%10,001-50,00018%1,000-5,00025%More than 100,00016%50,001-100,000governmentother33%8% consumerproducts8%energy8%professionalservices12%banking andfinancial services24%technology, media andtelecommunications28%manufacturingand industrial17%55%dedicated CREdepartment15%corporate or generalmanagement10% finance9%administration orshared services1% IT1% HR1% supply chainand logistics6% others
  18. 18. 34 Global Corporate Real Estate Trends 2013 Jones Lang LaSalle 35Jones Lang LaSalle Global Corporate Research TeamDr Lee Elliott (Lead Author)Head of Corporate Research, Europe, Middle East and Africalee.elliott@eu.jll.com+44 0 20 3147 1206Based in London, and with more than a decade of property research experience, Lee is responsible for delivery ofJones Lang LaSalle’s Corporate Research program in EMEA. He is also responsible for delivering insight into occupiermarkets and CRE trends at a global level.Christian BeaudoinHead of Corporate Research, Americaschristian.beaudoin@am.jll.com+1 312 228 2020Based in Chicago, Christian is responsible for the delivery of Jones Lang LaSalle’s corporate research program in theAmericas. He is focused on corporate strategy and the trends facing large companies and their global growthopportunities. He has over twelve years of diverse commercial real estate experience, including research, design,development and construction.Tom CarrollDirector of Corporate Research, Europe, Middle East and Africatom.carroll@eu.jll.com+44 0 20 3147 1207Tom has international experience providing research advisory and strategy support to corporate clients, includingDeutsche Bank, Microsoft, AstraZeneca, UBS and Credit Suisse. He has also developed a number of white papers onissues ranging from CRE organizational design to surplus asset disposal and emerging market strategy.Anne ThoravalDirector of Corporate Research, Asia Pacificanne.thoraval@ap.jll.com+65 9616 1656Based in Singapore and with more than a decade of strategic research experience in Europe and Asia, Anne isresponsible for the delivery of Jones Lang LaSalle’s Corporate Research program in APAC. She also contributes to theCorporate Research platform across the globe.Holly YangRegional Director of Corporate Research, Asia Pacificholly.yang@ap.jll.com+65 6494 3844Based in Singapore, Holly has been with Jones Lang LaSalle for more than ten years in Asia Pacific leading a teamof marketing, research and strategy specialists. She has spent more than 11 years working in CRE, and has over 25yearss of experience researching and reporting on corporate trends across the globe.About Jones Lang LaSalleJones Lang LaSalle (NYSE:JLL) is a professional services and investment managementfirm offering specialized real estate services to clients seeking increased value by owning,occupying and investing in real estate. With annual revenue of USD 3.9 billion, Jones LangLaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf ofits clients, the firm provides management and real estate outsourcing services to a propertyportfolio of 2.6 billion square feet. Its investment management business, LaSalle InvestmentManagement, has USD 47.0 billion of real estate assets under management.About Jones Lang LaSalle Corporate SolutionsA leader in the real estate outsourcing field, Jones Lang LaSalle’s Corporate Solutionsbusiness helps corporations improve productivity in the cost, efficiency and performance oftheir national, regional or global real estate portfolios by creating outsourcing partnershipsto manage and execute a range of corporate real estate services. This service deliverycapability helps corporations improve business performance, particularly as companies turnto the outsourcing of their real estate activity as a way to manage expenses and enhanceprofitability.AcknowledgementsJones Lang LaSalle gratefully acknowledges the assistance of those CRE professionalswho participated in this survey. We are also grateful to Kadence International, our researchpartner for this project.We welcome any feedback on the published results to continue to improve future editionsand make them as meaningful as possible for our readers. If you have any comments orwould like to participate in future surveys, please email insightteam@jll.com.Visit www.jll.com/globalCREtrends to explore the global trends in more detail.See how CRE executives based in your region responded and compare youranswers with the global survey results. Additional reports for specific countriesand industry sectors will be posted to this site as they are released throughoutthe year.COPYRIGHT © JONES LANG LASALLE 2013. All rights reserved.

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