Global Corporate Real Estate Trends 2015

ELEVATE

to excellence

Global Corporate Real Estate Trends 2015

CONTENTS Leadership introduction

2

Opportunity and risk in corporate real estate

3

Executive summary

4

Theme 1: Centralization

6

Theme 2: Integration

10

Theme 3: Expectation

14

Theme 4: Outsourcing

20

Elevating the corporate real estate function to excellence

24

The “great traits” of corporate real estate teams

28

What’s next? Recognizing and adopting the “great traits” of CRE organizations

29

About the survey

30

LEADERSHIP INTRODUCTION It is our great pleasure to introduce JLL’s third biennial report on global corporate real estate trends.

JOHN FORREST

JORDI MARTIN

VINCENT LOTTEFIER

Chair, Global Corporate Solutions Board, CEO, Corporate Solutions Americas

Global Director CEO, Corporate Solutions Asia Pacific

Global Director CEO, Corporate Solutions Europe, Middle East and Africa

OPPORTUNITY AND RISK IN CORPORATE REAL ESTATE Over the last six years, we have captured the voice of the corporate real estate (CRE) community and provided powerful insights into the current status and future direction of the industry through our biennial report on global CRE trends.

In this latest edition, 544 CRE executives from more than 350 companies and 36 countries once again offer their perspectives.

In our first edition of Global CRE Trends, published in 2011, we noted how increased scrutiny during the global financial crisis presented an opportunity for CRE teams to raise their profile, credibility and relevance.

When we published our second report two years later, this opportunity was balanced against five risks that each had the potential to reverse the progression of CRE. We saw the greatest risk to under-resourced CRE teams as being the heightened tactical and strategic demands coming from senior business leaders.

Our 2015 report stresses an immediate need to elevate the CRE function. We recognize that CRE teams have

strengthened across geographies and industry sectors, yet our latest survey finds that much of this progress has been confined to addressing the structural limitations and inefficiencies of CRE teams.

It is time to reset expectations of what CRE teams should do, and how and why they should do it. This is an opportunity for CRE teams to elevate their position to one of higher value within the organization and increase engagement with the C-suite (senior company executives, such as CEO, COO and CFO). However, if they continue struggling to accommodate wide-ranging agendas, the risk of underperformance remains.

The opportunity for CRE is clear. Achieving this requires some tough decisions, a challenge to the status quo, and a shift in the work-style and skills of CRE teams.

jll.com/GlobalCREtrends

EXECUTIVE SUMMARY CRE teams are undergoing significant structural change. In response to increasing expectations and scrutiny, CRE leaders are also drawing upon the resources of outsourced service providers with greater frequency.

While this is driving improvements and efficiencies in basic service delivery, most CRE teams are still striving for excellence and, in some cases, relevance.

Now in its third edition, Global CRE Trends identifies four fundamental themes that characterize the challenge for CRE leaders and their teams:

4 Elevate to excellence Global Corporate Real Estate Trends 2015

1

CRE teams are becoming increasingly centralized and global, being more formally connected to the C-suite and better empowered to drive change.

2

Interaction and integration with other business functions and stakeholders is a growing need, but is a feature of only a few CRE teams.

3

Demand to deliver across a range of tactical and strategic activity continues to intensify, challenging the composition and skills of CRE teams and creating a “pressure cooker” of expectations.

4

As pressure grows, CRE teams are using outsourced service providers across more geographies and industry sectors; but, many are still missing the opportunity to drive strategic, long-term value through outsourcing partnerships.

Addressing these challenges relates primarily to transforming the style and skills of CRE teams. In our view value, relevance and impact will be achieved by adopting a more scientific, data-enriched, forward-looking and proactive style. This can only be achieved if the CRE function is engaged and attuned to the specific needs of the broader business.

Ultimately, value, relevance and success are relative measures. CRE teams need to benchmark themselves against the traits of other high-performing teams. We provide this ability through the introduction of JLL’s Great Traits of CRE diagnostic tool, influenced in part by the responses to this survey.

Elevate for excellence Global Corporate Real Estate Trends 2015 5

THEME 1

CRE teams are becoming increasingly centralized and global, being more formally connected to the C-suite and better empowered to drive change.

CRE is becoming highly organized at a global level.

Sixty-one percent of the survey respondents predict greater centralized control within the CRE team structure over the next three years (Fig 1), indicating that companies are beginning to view their portfolios more globally.

Ninety-two percent of our respondents have a dedicated global head of CRE, up from 86 percent in 2013, while more than half of those respondents themselves occupy regional or globally focused roles (Fig 2). In theory, this should enable CRE teams to act with greater consistency across borders.

Figure 1: What changes do you anticipate in the CRE team structure over the next three years?

A C A

B

C

Greater centralization and control

More decentralized and consultative

No change

61% B

13%

26%

Base: 491 respondents

Figure 2: What is the geographic scope of your current CRE responsibilities?

A

B

E

D Base: 491 respondents

6 Elevate to excellence Global Corporate Real Estate Trends 2015

A

B

C

35%

24%

31%

Site speciďŹ c

City

Country

Regional

Global

6%

C

4%

D

E

Figure 3: Within what department does the global head of CRE reside?

39%

40%

30%

31%

8% 12%

2% 3%

2% 2%

0%

Administration / shared services

Human resources

Procurement

10%

10%

16%

20% 15% 17%

Despite this progress, in reality, the ability of global and centralized CRE teams to drive value may be open to question. Less than one-third (fewer than in 2013) of global CRE leaders sit within a dedicated CRE team (Fig 3). This may negatively impact consistent implementation of both strategic and tactical tasks, creating a disconnect between structure and strategic intent. This is compounded by the growing proportion of global CRE leaders located within the finance department – 16 percent today compared with 10 percent in 2013 – which may promote a short-term focus on cost rather than value.

Corporate oďŹƒce / general management

Dedicated CRE department 2013

2015

Finance

Base: 491 respondents (545 respondents in 2013)

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The majority of global CRE leaders continue to report to the C-suite at the levels recorded in 2013 (Fig 4). Almost three in every five global CRE leaders are accountable at this senior level. Structurally, this serves to align and expose CRE strategy to that of the wider business.

However, 37 percent of respondents recognize a lack of sustained or consistent C-suite commitment as one of the top three constraints on enhancing the position of CRE as a strategic value-add to larger organization (see Fig 21), which may reflect the strong reporting line to the CFO.

FIGURE USED REPORT Figure 4: To4what levelIN of the organization does the head of CRE currently report?

50%

58% 57%

60%

40%

10% 0%

Managerial level

C-suite 2013

2015

Executive level

1% 1%

14% 16%

20%

1% 3%

26% 23%

30%

Operational level

Others

Base: 453 respondents (2015); 470 respondents (2013) (those with a global head of CRE)

8 Elevate to excellence Global Corporate Real Estate Trends 2015

The emergence of global and centralized CRE teams has been supported by increased empowerment. Seventy-three percent of respondents say the mandate given to their CRE team is stronger than three years ago, while just 6 percent view their mandate as being weaker (Fig 5). This suggests that the C-suite is developing greater understanding of the role of CRE teams, clarity on the future role it wants them to play, and expectation for them to deliver.

The correlation between CRE maturity and a strengthening mandate is most readily illustrated by regional variations in how CRE teams are structured. U.S. corporates are typically further advanced in their development and have strongly centralized, well-established and organized CRE teams. Reflecting this, 38 percent of respondents from the United States (far more than CRE leaders from other regions) report their mandate as being much stronger than three years ago. This disparity suggests that with maturity comes greater appreciation for what CRE can deliver.

Figure 5: How would you assess the strength of the CRE team’s mandate, compared to three years ago?

E

D

A

C

A

TOP 2 BOX (A + B)

73%

B

C

D

E

28%

45%

22%

5%

1%

Much stronger

Stronger

The same

Weaker

Much weaker

B

AMR

38%

APAC

26%

EMEA

24%

Much stronger

47%

12%

40%

28%

50%

Stronger

19%

The same

Weaker

3%

1%

5%

1%

5%

1%

Much weaker

Base: 491 respondents (Americas 101, EMEA 177, APAC 213)

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THEME 2

Interaction and integration with other business functions and stakeholders is a growing need, but is a feature of only a few CRE teams.

While there is strong intent to transform the structure of CRE teams, these teams do not, and cannot, operate in isolation.

Success relies on their ability to interact and integrate with a range of internal groups across the organization – corporate support functions (such as HR, IT and finance); internal procurement and sourcing professionals; and business units (the internal “customers”). Strong, effective relationships with these groups are critical to the success of CRE teams.

Our 2013 report heralded the onset of a new level of integration between CRE and other corporate support functions, largely in response to growing pressure to increase the productivity of the workplace. Half of the

respondents in 2013 expected shared services integration within the next three years. However, the pace of adoption has not occurred as quickly as many predicted.

While the desire to evolve toward more formal interdepartmental collaboration remains intact, the reality of a shared-service model is yet to emerge. In our latest findings, only 12 percent on average report having adopted the shared services model. Similarly, the degree of ad-hoc or project-based interaction with other functions has not fallen as predicted; it remains the norm (Fig 6).

Looking ahead, more than a fifth of respondents predict that shared services integration between the CRE, HR and IT teams will become a reality over the next three years, while formal integration with the finance team will be the norm for more than a quarter. However, it is apparent that the ambition for more formal interaction is often overstated or constrained by the realities of trying to make this broader structural shift.

Figure 6: How would you describe the collaboration of CRE with other business functions, currently and three years from now?

HR HR

IT IT

FINANCE FINANCE

PROCUREMENT PROCUREMENT

Ad-hoc / 36% project basis 25%

35% 26%

19% 14%

25% 19%

Frequent interaction 34% but separate divisions 40%

39% 41%

57% 52%

43% 41%

6% 19%

9% 22%

16% 27%

17% 27%

Shared services integration

Current

In 3 years’ time

10 Elevate to excellence Global Corporate Real Estate Trends 2015

Base: 491 respondents

One interaction that has evolved markedly is between the CRE and procurement teams. Today, 70 percent of all respondents have an internal procurement function that is actively involved in CRE decision-making (Fig 7).

However, just 22 percent have procurement expertise sitting within the CRE function (Fig 8). This places onus on CRE teams, as well as CRE service providers, to interact with and, to some extent, educate procurement teams on the subtleties of real estate markets and services.

While our survey shows that involvement in the vendor selection process is a reality, procurement has not necessarily become more powerful. 44 percent of respondents cast procurement specialists in the role of “advisor” while only 11 percent view procurement specialists as “decision-makers” (Fig 9). The respondents are almost evenly split as to whether procurement teams will have a more active role in CRE over the next three years. Time will tell how this critical relationship will evolve.

Figure 7: Do you have an internal procurement function that is involved in CRE decisions?

Figure 8: Where does your internal procurement team who are involved in CRE sit within the organization?

A

A

70%

B

A

22%

Figure 9: What role does procurement play in CRE decisions?

FIGURE 9 USED IN REPORT A D

A

B

11%

Yes

Sits in CRE

Responsible; makes decisions

B

B

B

30% No A

78% B

Sits outside of CRE

44% Advises

C

C

24% Base: 424 respondents (only companies which outsource)

Base: 338 respondents (only companies where procurement plays a role in CRE decisions)

Base: 424 respondents (only companies which outsource)

Influences D

20% None

Elevate to excellence Global Corporate Real Estate Trends 2015 11

We have a long-held belief that excellence in CRE requires teams to shift from reactive and operationally focused “order-takers” to proactive, engaged and strategic “order-makers”. For this to occur, CRE teams need to interact regularly and intensively with stakeholders from the core business.

In this respect, it is encouraging that 43 percent of respondents have a formal business relationship management program in place, while a further 29 percent engage with business stakeholders on a formal but ad-hoc basis (Fig 10). It is worth noting that those with dedicated CRE teams are even more likely to have a formal program in place.

Figure 10: Has your CRE team set up a formal business relationship management program?

D A C

A

B

C

D

43%

29%

14%

14%

Formal program in place

Formal, but on an ad hoc basis

No, but have plans to set up

No, and no plans to do so

B

AMR

56%

APAC

45%

EMEA

29% Formal program in place

29%

10%

27% 31% Formal, but on an ad hoc basis

Base: 277 respondents

12 Elevate to excellence Global Corporate Real Estate Trends 2015

14%

15% 17% No, but have plans to set up

22% No, and no plans to do so

4%

CRE teams have not yet fully mastered the art of integration with the business. It is telling that 45 percent of global respondents regard lack of integration with the wider business as one of the top three constraints to enhancing the position of CRE as a strategic value-add to the organization (see Fig 21).

While formal relationship management programs are in place for many CRE teams, they are not necessarily leading to a level of engagement that enables progressive CRE strategies or even a raised profile for the CRE team. Only 9 percent of respondents say their formal relationship management function with internal business units is “very strong”.

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THEME 3

Demand to deliver across a range of tactical and strategic activity continues to intensify, challenging the composition and skills of CRE teams and creating a “pressure cooker” of expectations.

A central theme of our 2013 report was the sheer weight of demand on CRE teams to deliver against a broad range of tactical and strategic tasks.

Two years on, this shows no signs of abating. We asked our respondents to assess whether C-suite demands to deliver against 19 separate tactical and strategic tasks were increasing or decreasing. More than half of our respondents say that pressure is increasing in 14 of these 19 tasks, and these are only some of the activities for which the CRE team is responsible, suggesting that the pressure is even greater than reported.

The range of tactical demands being placed upon CRE teams, shown in Figure 11, illustrates that senior business leaders are still demanding change in both the structure and cost profile of their real estate portfolios.

Figure 11: How are the demands of senior leadership on the CRE team changing in terms of the tactical delivery of CRE? FIGURE 11 USED IN REPORT

%% reporting increased demands reporting increased demands Reducing operating expenses

77%

Challenging the business about presumed space needs

72%

Increasing portfolio flexibility

66%

Increasing portfolio density

59%

Delivering environmental efficiency

58%

Reducing portfolio size

51%

Capital works planning

44%

Analysing own vs. lease options

41%

Raising capital through the real estate portfolio

40%

Increasing portfolio size

24%

Base: 491 respondents

14 Elevate to excellence Global Corporate Real Estate Trends 2015

The dominant pressure is around reducing the operating mandate. The ability to challenge will be constrained by involved in a broad range of strategic activities covering expense of the portfolio – continuing the trend seen over the depth and quality of interactions that the CRE team productivity, cultural change, talent attraction and the past two surveys – with 77 percent of respondents has with the wider business. retention, corporate sustainability and emerging market witnessing increasing demand. It is clear that this cost growth. This is a wide scope of work for CRE teams The demand to align CRE to wider corporate strategic pressure is not going away; the expectation that CRE that have typically been short of investment and human priorities is also increasing (Fig 12).

CRE teams are should deliver cost savings is now part of business as resources over the last six years. usual. This is accompanied by significant pressure to deliver increasing portfolio flexibility, environmental Figure 12: How are the demands of senior leadership on the CRE team changing in terms of alignment with the firm’s strategic priorities? efficiency, occupational density, and reduction in portfolioFIGURE 12 USED IN REPORT size. This further qualifies that CRE leaders still perceive % reporting increased demands cost drivers as being a central concern for most business Enhancing productivity of the real estate portfolio 75% leaders. Not surprisingly, 69 percent of our respondents Presenting scenarios and solutions maintain that reducing cost is a key factor in elevating the to the business on demand 65% Bringing more flexibility to the leasehold CRE function (see Fig 20).

64% portfolio; creating on-demand space

This continued cost focus is influenced by a number of factors. The operating environment of the last five years has created more transparency of real estate costs and greater C-suite level understanding of how these costs can be managed. This, in turn, has created expectation for CRE teams to deliver more cost savings.

Encouragingly, the majority of our respondents (72 percent) note that there is increasing demand for the CRE team to actively challenge the business about its presumed space needs. This reflects CRE’s strengthening

Enabling flexible (remote, mobile) working

62%

Supporting cultural change

59%

Aligning CRE to business drivers and functional areas (HR, IT, Finance)

57%

Attracting and retaining talent

56%

Driving the corporate sustainability / CSR agenda

51%

Delivering a platform for growth in select markets

48% Base: 491 respondents

Elevate to excellence Global Corporate Real Estate Trends 2015 15

Improve WORKPLACE productivity

4% 20%

61% 76%

Improve BUSINESS productivity

8%

32%

60%

Improve PEOPLE productivity

8%

32%

60%

No expectation

Moderate expectation

High expectation

Base: 277 respondents

Figure 14: What workplace transformations have been implemented in the past three years, and what initiatives are planned in the next three years?

Improving quality of the workplace

Improving workplace technology

Enhancing workplace experience

60%

65%

71% 76%

80%

75%

100%

40%

20%

0%

Space / cost reduction programs Past 3 years

16 Elevate to excellence Global Corporate Real Estate Trends 2015

31%

8%

73% 82%

The drive toward productivity improvement has led CRE teams to focus more intently on workplace strategy in the period since our last report. Strategically, this has placed CRE teams at the forefront of corporate cultural transformations. Sixty-two percent of respondents see increasing demand from leadership to enable more flexible forms of working, while 59 percent are challenged to support wider cultural change within their organizations.

More than three in every five respondents report a growing appetite to drive greater flexibility through the real estate portfolio and provide larger volumes of on-demand space.

Improve ASSET productivity

82% 81%

As in 2013, demand is strongest for CRE teams to enhance productivity of the workplace, with 76 percent of respondents observing high expectations from leadership. Notably, 61 percent (a significant increase over the 47 percent in 2013) are now under pressure to improve the productivity of physical real estate assets. This places real onus on delivering effective and efficient facilities management.

Figure 13: What are your company’s expectations from CRE around productivity outcomes?

88% 88%

In line with our 2013 findings, CRE teams are at the coalface of corporate productivity initiatives. Seventy-five percent of respondents say that senior leaders are increasing their demands for CRE to enhance the productivity of the real estate portfolio. This is not a straightforward task and involves a range of components (Fig 13).

Next 3 years

Base: 491 respondents

Change management initiatives

Over the next three years, initiatives that address the form, function, effectiveness and experience of the workplace will become commonplace for more CRE professionals (Fig 14).

Encouragingly, there is a notable rise in the pursuit of change management initiatives. This equates to recognition from CRE teams that property-led workplace initiatives will not be effective unless they are accompanied by programs that deliver wider cultural and behavioral change.

Once again, this challenges CRE teams to have stronger interactions with both business units and other corporate support functions.

Elevate to excellence Global Corporate Real Estate Trends 2015 17

A notable area in which CRE teams are (re)aligning with the wider corporate strategy is sustainability. Almost a third of our respondents note that their businesses have a transformational sustainability strategy – that is, one that puts the generation of positive environmental and social outcomes at the core of the business model. Against this backdrop, CRE teams are once more becoming actively engaged in sustainability initiatives, although they remain most likely to focus on tasks that are directly related to individual facilities (e.g., green building certifications), environmental performance tracking (e.g., energy and carbon data) and energy procurement (Fig 15).

By a wide margin and across all regions, CRE teams face an unsustainable workload following years of limited investment in their staff resources. Their agenda has become increasingly broad in scope, without a corresponding increase in resources. Only 48 percent of CRE leaders rate their ability to place the right people in the right roles as “strong” or “very strong”. More acutely, 15 percent (a proportion that has doubled since 2013) say that they are “ill-equipped” to meet the increased demands being placed upon them, while the percentage of those self-rated as “well-equipped” has fallen significantly over the same period (Fig 16).

Figure 15: Which sustainability tasks are handled by CRE?

FIGURE 15 USED IN REPORT

% of respondents handling Green building certifications (e.g. LEED, BREEAM etc.)

70%

Environmental performance tracking (e.g. energy and carbon data)

66%

Energy procurement

62%

Staff awareness

55%

Portfolio-wide risk assessment (e.g. climate change resilience and adaptation)

41%

Social performance tracking (e.g. health and wellbeing data)

21%

Community investment

20%

Other

10%

Resource recycling / reduction (e.g. energy, waste)

1% Base: 478 respondents (those who have a sustainability strategy)

18 Elevate to excellence Global Corporate Real Estate Trends 2015

Figure 16: How well-equipped do you feel to meet changing demands?

FIGURE 16 USED IN REPORT 2013 28%16 USED IN 65%REPORT FIGURE FIGURE REPORT 2013 28%16 USED IN 2015 17% 68% 65% 2013 2015 2015

28% 65% 17% 68% ill-equipped 17% 68%to meet demands

ill-equipped to meet demands can meet most demands ill-equipped to meet demands can meet mostto demands well equipped meet all demands can meet most demands well equipped to meet all demands well equipped to meet all demands

Base: 491 respondents (2015); 545 respondents (2013)

7% 15% 7% 7% 15% 15%

Elevate to excellence Global Corporate Real Estate Trends 2015 19

THEME 4

As pressure grows, CRE teams are using outsourced service providers across more geographies and industry sectors; but, many are still missing the opportunity to drive strategic, long-term value through outsourcing partnerships.

Given the intense pressure to deliver across a range of tactical and strategic tasks, it is little surprise that CRE teams continue to enter into outsourcing arrangements with service providers.

Today, 86 percent of all respondents are actively outsourcing elements of their CRE activities. However, the evolution of outsourcing has been uneven across regions and is only beginning to advance from the outsourcing of tactical activities to the strategic level of partnership that has become common in IT outsourcing.

Attitudes toward outsourcing can be seen when placed on a continuum between highly tactical, cost-sensitive outsourcing and highly strategic outsourcing that is focused on delivering long-term value. Of the respondents who outsource CRE activities today, those in the Americas continue to lead the way toward strategic outsourcing.

Sixty-two percent of Americas CRE leaders view outsourcing decisions as being strategic and focused on long-term value. Globally, only 49 percent of CRE teams see outsourcing as strategic and value-oriented, representing a small reduction from 63 percent in the 2013 survey (Fig 17).

The reduction can be explained in part by the increased role that procurement is playing in CRE decision-making. The involvement of procurement professionals less educated in the strategic potential of the CRE function has likely influenced the emphasis on short-term solutions and cost reduction over the strategic and long-term value that service provider partnerships can deliver. In fact, this trend was

Figure 17: How strategic is CRE outsourcing to your firm?

FIGURE 17 USED IN REPORT

12% Outsourcing decisions are TACTICAL and focused on short-term cost savings Base: 491 respondents

20 Elevate to excellence Global Corporate Real Estate Trends 2015

forecasted in the 2013 survey – and it can impede the development of the CRE function. While cost reduction is regarded as a top C-suite demand and warrants attention, tactical outsourcing relationships are unlikely to deliver innovation or process improvements that would elevate inhouse CRE teams within the organization.

16%

22%

24%

25% Outsourcing decisions are STRATEGIC and focused on long-term value

Elevate to excellence Global Corporate Real Estate Trends 2015 21

In this context of growing levels of tactical out-tasking, it is illustrative to assess which real estate functions are being retained in-house and which are being delivered via the external market, now and in the future (Fig 18). Those functions that require planning or strategy formulation are more likely to be delivered fully in-house than functions requiring process management, administration or seamless execution. Project and construction management, facilities and property management, and transaction management are most readily delivered through a hybrid or fully outsourced delivery model. Meanwhile, capital budget planning and management, portfolio and workplace strategy, and occupancy planning tend to be retained in-house.

These areas are critical for addressing the intensified C-suite demands, yet also relate to the CRE teams’ concerns about being equipped to meet those demands.

While CRE has embraced outsourced models to assist with the sheer volume of expectations and demands, and to relieve the pressure of growing demands, service providers are rarely fully leveraged to drive evolution and excellence in the CRE function.

Figure 18: How would you describe the current delivery of CRE services?

FIGURE 18 USED INbest REPORT Project and construction management

14%

Facilities and property management

16%

Transactions execution

21%

Transaction management

23%

Energy management

31%

Technology

35%

Lease administration

40%

9%

Project management office

40%

19%

Change management

42%

Supply chain management

44%

Workplace strategy

46%

Occupancy planning

49%

Portfolio strategy

55%

Capital budget planning and management

65%

17%

26%

18%

1 – Fully in-house

24%

20% 15%

21%

21%

18%

19% 25%

16% 25%

28% 19%

17%

27% 21%

16%

16%

13%

7%

11%

7%

19%

10%

25%

22%

10% 18%

17%

6% 16%

12%

12%

3% 6%

8%

17% 18%

4

11% 22%

23%

15%

3

10%

25%

26%

2

15%

6% 10% 7%

4%

7%

4%

5 – Fully outsourced

Base: 424 respondents for workplace strategy, cccupancy planning, change management, lease administration, portfolio strategy, transaction management, supply chain management, energy management, project management office, project and construction management, facilities and property management (companies that practice outsourcing); 240 respondents for transactions execution, capital budget planning and management & technology

22 Elevate to excellence Global Corporate Real Estate Trends 2015

A shared challenge for many CRE leaders is the juxtaposition of the need to perform strategic functions in-house and the lack of resources to either hire or outsource to engage the professionals most capable of innovation and excellence.

While the most powerful and value-added outsourcing relationships feature robust integration of in-house and external teams, the survey shows that, in reality, few respondents anticipate realizing this level of integration over the next three years. Rather, CRE executives expect that the future typical delivery model will retain in-house delivery of strategy, complemented by outsourced delivery of managerial, administrative and transactional tasks (Fig 19).

Figure 19: How would you describe the delivery of CRE services in three years’ time?

FIGURE 19 USED INbest REPORT

Facilities and property management

12%

11%

18%

Project and construction management

12%

11%

22%

Transaction execution

13%

Transaction management

20%

Energy management

22%

Technology

24%

Lease administration

27%

Project management office

30%

Supply chain management

30%

Change management

33%

Occupancy planning

36%

15%

Workplace strategy

36%

20%

Portfolio strategy

46%

Capital budget planning and management

47%

11%

1 – Fully in-house

25%

35% 27%

19%

28%

20%

12%

38%

23%

13%

20%

19%

17%

25%

21%

31%

8%

17%

14%

15%

17%

20%

14%

27%

17%

19%

26%

4

9%

15% 19%

15% 15%

20%

19%

11% 13%

20%

16%

3

11%

33%

22%

14%

2

25%

10% 11%

18%

10%

8% 6%

5 – Fully outsourced

Base: 424 respondents for workplace strategy, occupancy planning, change management, lease administration, portfolio strategy, transaction management, supply chain management, energy management, project management office, project and construction management, facilities and property management (companies that practice outsourcing); 240 respondents for transactions execution, capital budget planning and management & technology

Elevate to excellence Global Corporate Real Estate Trends 2015 23

24 Elevate to excellence Global Corporate Real Estate Trends 2015

ELEVATING THE CORPORATE REAL ESTATE FUNCTION TO EXCELLENCE The viewpoints of more than 500 CRE professionals paint a challenging picture for the current and future state of the industry.

Although there is progress in transforming CRE teams structurally and procedurally, CRE professionals report worrying limitations in the ability of the CRE function to create strong relationships with business stakeholders and support functions.

Increasing demands for CRE to deliver against a broadening agenda of tactical and strategic tasks is creating a “pressure cooker� that threatens to damage the evolution of CRE as a function. As part of our survey, we asked respondents to outline those characteristics they believed would elevate the contribution of the CRE team to the organization (Fig 20).

Elevate to excellence Global Corporate Real Estate Trends 2015 25

In some respects, the number one elevator – delivery of cost savings – is illustrative of the current condition of CRE. The strong reporting line to the C-suite (and in many cases, the CFO); the muscle memory of recent years whereby CRE teams have delivered double-digit cost savings; and the continuing fragility of the economic and operating environment have all created an expectation that success is predicated on delivering more of the same. But CRE teams cannot continually deliver cost savings simply through tactical market or building-based activity. There comes a point at which delivering more cost savings is counterproductive, and a more integrated, value-focused approach with new measures of success becomes imperative.

We believe this is a growing reality for many, and that CRE teams must start to look more closely at broader behaviors and strategies in order to support their business. Our respondents recognize this too. Half of them regard building and sustaining strong relationships as a key elevator. Nearly half of the respondents emphasize an enhanced ability to analyze real estate options and scenarios (48 percent) or the generation of insights to improve business performance (37 percent) as positive step changes for the CRE function. The CRE community is not short of suggestions as to how it can elevate its contribution.

Figure 20: What are the top three behaviors/attributes that have the potential to elevate the CRE function within your organization? % ranking in top three attributes Delivering cost savings

69%

Building and sustaining strong relationships with the business (outside CRE)

50%

Analysing real estate options and scenarios

48%

Generating insights to improve business performance

37%

Forward thinking

34%

Focusing on innovation, new products and services

25%

Improving CRE team communication / relationship skills

19%

Business acumen

17%

Base: 491 respondents (rank 1); 488 respondents (rank 2); 481 respondents (rank 3) 26 Elevate to excellence Global Corporate Real Estate Trends 2015

So where’s the blockage? Figure 21 summarizes what CRE leaders regard as the key constraints that hold them back. It is significant that respondents do not see finance as the primary constraint. Similarly, structural constraints derived from a lack of C-suite commitment or a decentralized team are acknowledged, but fall somewhat down the list. Instead, two interesting primary constraints emerge.

The first of these constraints – a lack of data and analytics to either measure value or create value-enhancing insights – aligns with the sentiment expressed in our recent series

of white papers on data and analytics in CRE1. In these papers, we argue that CRE teams need to collect data and apply predictive analytical techniques to guide their real estate decision-making and generate insights that support the broader business. For many, comprehensive CRE data and the advanced technical capabilities to analyze it are still in their infancy. We strongly believe that a new science of real estate – in which strategies are formulated and decisions are made on the basis of accurate data and analysis – must emerge.

Figure 21: What are the top three constraints hindering CRE from enhancing itself as a strategic value-add to your organization? % ranking in top three attributes Lack of effective data and analytics to measure value/generate insights

52%

Lack of integration with the wider business

45%

Financial constraints

43%

Lack of sustained/ consistent C-suite commitment

37%

Fragmented or decentralized team

26%

Internal skill sets/knowledge

25%

Lack of technology

22%

As one respondent noted, the ability to “determine and predict market trends and insights” represents a key requirement for CRE teams going forward, as is the ability to “produce and present robust business cases that provide a compelling case for a recommendation, as well as the ability to do accurate financial analysis to support these case studies”.

The second-ranked inhibitor (lack of integration with the wider business) is consistent with many other findings – excellence in CRE is as much about people as it is about property. Internal CRE teams need to rebalance their skill sets to prioritize interpersonal skills, which, in many cases, are ahead of technical property skills. The lack of integration of CRE teams into the wider business in many cases is restricting effectiveness according to 45 percent of global respondents, rising to three in every five respondents from the United States. Without stronger integration and interaction with business stakeholders, the value-add of CRE teams will always be compromised.

Base: 491 respondents (rank 1); 474 respondents (rank 2); 451 respondents (rank 3)

1

http://www.jll.com/data-analytics

Elevate to excellence Global Corporate Real Estate Trends 2015 27

THE “GREAT TRAITS” OF CORPORATE REAL ESTATE TEAMS Elevating CRE teams to excellence will require further adjustments to the structure of CRE teams in order to deliver the same tasks with a more efficient and business-aligned approach.

It also means challenging and enabling those within the CRE team to adopt a new style of operation that prioritizes data science, insight generation, proactive leadership and predictive analytics. It requires a shift in focus from technical delivery and specialization – which can continue to be outsourced – toward powerful and regular conversations with those in the wider business that also shape and ultimately benefit from real estate decisions.

The keys to moving CRE teams up the value curve for the benefit of all are increasing opportunities for consultation with business unit leaders; establishing agreed and shared visions of CRE and business success; bringing data to the heart of the CRE decision-making process; and creating and responding to continuous stakeholder feedback.

28 Elevate to excellence Global Corporate Real Estate Trends 2015

The challenge for CRE leaders and their teams is clear. To overcome it, CRE teams must learn to: 1

Respond to a growing mandate by bringing tangible, strategic value to the organization

2

Prioritize development of people skills ahead of technical, property-focused skill sets

3

Create a strong data and analytics platform to bring science to day-to-day delivery and long-term strategy

4

Create a strategy for addressing the broad sweep of activities that constitute “business as usual” without undermining the evolution to trusted advisor

5

Leverage vendors not only for tactical execution, but also to extend strategic capabilities such as business intelligence and gain exposure to industry best practices

6

Reach clarity and agreement around what excellence looks like for a modern CRE function and chart progress and position relative to peers using a benchmarking tool such as JLL’s “Great Traits” of CRE diagnostic tool

WHAT’S NEXT? RECOGNIZING AND ADOPTING THE “GREAT TRAITS” OF CRE ORGANIZATIONS

CRE organizations routinely compare their performance against peers and against industry standards to assess strengths and opportunities for improvement.

The peer group and comparison criteria vary from company to company depending on growth rate, age and industry dynamics.

JLL first published thought leadership around the most compelling traits of a highperformance CRE function 10 years ago. Since then, JLL has continuously evolved this framework through extensive industry experience and research, as well as discussions and polls of strategic clients. These include analyzing the strengths and weaknesses of organizational platforms, changing roles and industry dynamics. We made further modifications and enhancements on the basis of the findings emerging from this survey. As a result of this ongoing research and client service experience, the following 11 key traits of high-performing organizations have emerged.

JLL continues to evolve this signature research around the top attributes of highperforming CRE organizations, customizing benchmarking services for organizations and evaluating results against goals for financial performance, employee engagement and environmental sustainability. Further insights and strategies may be found in the upcoming report, What are the “great traits” of a corporate real estate organization?, to be published by JLL in the second half of 2015.

1

They are CENTRALIZED, EMPOWERED AND PROCESS-ORIENTED.

2

They leverage DATA ANALYTICS AND BUSINESS INTELLIGENCE.

3

They focus on SERVICE DELIVERY EXCELLENCE.

4

They invest in a formal INTERNAL RELATIONSHIP MANAGEMENT FUNCTION.

5

They provide STRATEGIC PLANNING.

6

They believe in active TALENT MANAGEMENT.

7

They establish coordinated INFRASTRUCTURE MANAGEMENT.

8

They foster a culture of INNOVATION.

9

They adopt a mix of PARTNER MANAGEMENT/LEVERAGE.

10

They are CHANGE AGENTS.

11

They formalize RISK MANAGEMENT.

Elevate to excellence Global Corporate Real Estate Trends 2015 29

ABOUT THE SURVEY This report summarizes the aggregated global findings of JLL’s third Global Corporate Real Estate Survey.

The research collection phase was concluded in December 2014. Through a combination of online and telephone fieldwork, we received 544 responses from CRE executives spread across 36 countries. The respondent pool also reflects a broad cross section of the corporate community.

Our base sample, as used within this report, represents 491 respondents and covers more than 350 companies, each employing more than 1,000 people worldwide.

Respondents by region AMERICAS

EMEA

101

177 United Kingdom United States

Mexico Brazil

30 Elevate to excellence Global Corporate Real Estate Trends 2015

APAC

France

213 Netherlands Germany

China

Japan

India Australia

Responses by industry sector Banking and financial services

Responses by organization size A

25%

Technology, media and telecommunications

24%

Manufacturing and industrial

19%

Professional services

11%

Consumer products

10%

Energy

9%

Government

6%

Healthcare

6%

C

A

26% Large sized companies >100,000 employees B

50% B

Medium sized companies 10,000 – 100,000 employees C

24% Small sized companies 1,000 – 10,000 employees

CONTACTS

CONTRIBUTING AUTHORS

BRYAN JACOBS

IAIN MACKENZIE

HOLLY YANG

SUSAN SUTHERLAND

Solutions Development, Americas

Solutions Development, Asia Pacific

Head of Strategic Sales Services, Asia Pacific Global Marketing Lead Corporate Solutions

Head of Corporate Research, Asia Pacific

+1213 915 4040 bryan.jacobs@am.jll.com

+65 6494 3834 iain.mackenzie@ap.jll.com

+65 6494 3844 holly.yang@ap.jll.com

+65 6494 3655 susan.sutherland@ap.jll.com

JEFF SCHUTH

BENJAMIN BRESLAU

TOM CARROLL

Solutions Development, Europe, Middle East and Africa

International Director, Americas Research

Director, Corporate Research, EMEA

+49 (0) 1726 143 520 jeff.schuth@eu.jll.com

+1 617 531 4233 benjamin.breslau@am.jll.com

+44 203 147 1207 tom.carroll@eu.jll.com

32 Elevate to excellence Global Corporate Real Estate Trends 2015

ABOUT JLL

ACKNOWLEDGEMENTS

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of US$4.7 billion and gross revenue of US$5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries, and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed US$118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has US$55.3 billion of real estate assets under management.

JLL gratefully acknowledges the assistance of the CRE professionals who participated in this survey. We are also grateful to Kadence International, our research partner for this project.

ABOUT JLL CORPORATE SOLUTIONS A leader in the real estate outsourcing field, JLL’s Corporate Solutions business helps corporations improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability.

We welcome any feedback on the published results to continue to improve future editions and make them as meaningful as possible for our readers.

If you have any comments or would like to participate in future surveys, please email Global CRE Trends.

Visit jll.com/GlobalCREtrends to explore the report findings in more detail. Additional results for specific countries and industry sectors will be posted to this site as they are released throughout the year.

Elevate to excellence Global Corporate Real Estate Trends 2015 33

jll.com/GlobalCREtrends