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EUROPEAN OCCUPIERSURVEYEMEA RESEARCH AND CONSULTING | MANAGING FOR THE UPTURN

2013/14 EDITION | SPECIAL REPORT


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EXECUTIVE SUMMARY

COST MANAGEMENT NO LONGER

DRIVING BUSINESS DECISIONS

Corporate decision-makers are responding to the signs

of economic improvement in Europe, and gradually

shifting their focus away from pure cost management

towards a growth and expansion agenda. Concern

about weak economies has diminished significantly since

last year, and business decisions are increasingly being

driven by assessment of future growth possibilities. Costmanagement is still a significant issue, and efforts to

manage costs through lease renegotiation and space

reduction remain widespread, but these are increasingly

linked with a desire to further organisational growth, and

cultural objectives. It does remain the case, however,

that business and real estate decisions remain subject to

stringent financial criteria and investment hurdles.

WORKPLACE STRATEGY MOVES UP

THE CORPORATE AGENDA

This shift is evident where relocation or expansion is being

considered. The motives and criteria for market and site

selection reflect a strong focus on taking advantage of

opportunities in new markets, and securing the skilled

labour resource to do so. Factors such as amenity

availability and infrastructure provision are highlighted as

levers for attracting and retaining key skilled labour. There

is also a strengthening focus on enhancement of business

process, efficiency and productivity through building

selection and design. Most aspects of the internal workingenvironment attracted significantly higher importance

ratings than last year. The ongoing challenge for decision-

makers is in translating these considerations, which tend

to be less measurable, into financially-coherent business

justifications for workplace strategies.

FAVOURED EXPANSION LOCATIONS:

INDIA AND AFRICA

With growth and expansion now higher up the corporate

agenda, there is a broad appetite for international

expansion, with a strong focus on emerging markets. It

is particularly notable that India and Africa feature more

strongly as expansion destinations than was the case

last year, in both cases reflecting a combination of rapid

economic growth and improvements to physical andbusiness infrastructure and governance-factors which

have previously inhibited investment.

CORPORATE REAL ESTATE

DEPARTMENT ACTIVITIES AND

BUSINESS OBJECTIVES ALIGNING

Financial objectives still dominate the remit of corporate

real estate (CRE) teams but, with an increasing eye on

the future, there is a greater desire for alignment between

real estate activities and broader business objectives.

Managed well, this should allow CRE functions to

establish a clearer and higher-profile role as facilitators

of future growth, and thus provides scope for increased

outsourcing of tactical real estate delivery as internal CRE

teams become more strategic and customer-focussed. On

current evidence, buying patterns for different types of real

estate services remain highly variable but the scope exists

for further growth in the trend towards outsourcing.

Corporate decision makers are shifting their focusaway from pure cost management towards a growthand expansion agenda.


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INTRODUCTION

ECONOMIC UPTURN INFLUENCES

CORPORATE STRATEGY

For much of the past five years, with economic conditions

weak or recessionary across much of Europe, corporate

occupiers have been most concerned with stringent

cost management to protect profitability. More recent

indicators suggest that the economic conditions are

beginning to turn, with positive GDP growth across the 28EU member states in each of the past two quarters. While

the picture remains uneven across different countries,

and the aggregate rate of growth to date is slow, some of

the larger economies such as Germany, Poland and the

UK did move into positive territory earlier and have been

posting above-average rates of growth since doing so.

So how is the corporate community responding to these

changes? What issues are guiding their thinking and

behaviour? How is this affecting operational real estate?

How are CRE organisations responding? To explore

these and other issues CBRE surveyed over 70 corporate

occupiers to assess their concerns, plans and challenges

across a broad range of issues. The respondents - over

half of whom represent corporations headquartered in

Western Europe and most of the rest in North America

- cover a range of sectors, with the Banking & Finance

(B&F) (22%) and Technology & Telecoms (T&T) (20%)

sectors the largest groups. Manufacturing accounted for a

further 14%.

KEY CHALLENGES AS RECOVERY

BUILDS

What do corporates assess to be their key challengesat present? Figure 1 below summarises the responses.

It is perhaps surprising - at a time of low inflation and

low interest rates in many developed economies and

with economic recovery in its early stages - that cost

escalation is so clearly the key concern, cited by over

60% of respondents. Given the severity and length

of the recession, it may be that the dominant cost

management mindset will take longer to soften, or may

even be so ingrained in the CRE psyche that it will always

feature highly as a key consideration. However, it is

apparent that there is widespread confidence in economic

improvement. While many organisations still remain

cautious about the state of the markets, fewer than 50%

of respondents identified weak economies as a concern,

compared with 70% last year.

FIGURE 1: MAIN CHALLENGES FOR CORPORATES

0% 10% 20% 30% 40% 50% 60% 70%

61%

46%

38%

24%

21%

20%

14%

13%

4%

COST ESCALATION

WEAK ECONOMIES

TIGHTER REGULATION OR LEGISLATION

COMPETITION FROM EMERGING MARKETS

LABOUR / SKILLS SHORTAGE

ENERGY PRICES

OTHER

CURRENCY FLUCTUATIONS

GEOPOLITICAL UNREST

Source: CBRE


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FIGURE 2: EU CONFIDENCE OUTLOOK

FIGURE 3: OFFICE TAKE-UP, T&T VS B&F SECTOR

10.0%

0.0%

-10.0%

-20.0%

-30.0%

-40.0%

-50.0%

CONSUMER

INDUSTRIAL

MAY

-03

NOV

-03

MAY

-04

NOV

-04

MAY

-05

NOV

-05

MAY

-06

NOV

-06

MAY

-07

NOV

-07

MAY

-08

NOV

-08

MAY

-09

NOV

-09

MAY

-10

NOV

-10

MAY

-11

NOV

-11

MAY

-12

NOV

-12

MAY

-13

NOV

-13

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

TECHNOLOGY &

TELECOMMUNICATIONS

BANKING & FINANCE

% T&T

% B&F

SQ M

2007 2008 2009 2010 2011 2012 2013 TO DATE

SECTOR DIFFERENCES IN KEY

CHALLENGES

There are notable differences among the main sectors,

many of them reflecting industry-specific issues and

challenges. Concern over cost escalation is most

pronounced among manufacturing companies, as is

concern about energy prices - and it is highly likely that

the two are linked. By contrast, B&F companies remain

marginally more concerned about weak economies than

they are about cost escalation, reflecting low revenue

growth and demand for credit. The B&F sector also

reports much higher-than-average levels of concern

about both regulation/legislation and labour/skills

shortages. This understandably reflects the aftermath

of the credit crisis and the range of issues faced by the

B&F sector, necessitating reputation-protecting measures

as well as precipitating tighter industry regulation. Both

factors may have knock-on effects on the cost base. B&F

companies have seen a marked focus on compliance and

risk management, with significant hiring of compliance

and audit resources. Indeed, it is likely that some of the

focus on labour and skills shortages relates to unfulfilled

needs for additional staff in the audit, regulation and risk

areas.

* Data For London, Vienna, Paris, Brussels, Prague, Zagreb, Frankfurt, Hamburg, Munich, Berlin, Budapest, Warsaw, Moscow, Bratislava, Barcelona, Dublin.


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LEASE RENEGOTIATION USED

TO CUT COSTS

Lease renegotiation (72%) is by far the most widespread

initiative, up from 45% last year. In part this reflects the

fact that rents have fallen significantly in recent years:despite recent stabilisation, the CBRE index of prime

EMEA office rents is still almost 10% lower than its 2008

peak and in some markets the difference is much larger.

The ability to reflect these shifts in rental outgoings, and

to lock in deals at or near the bottom of the market

even at the expense of longer lease commitments, is an

attractive option for many occupiers. As the recovery

continues the ability to manage cost through lease

negotiations will diminish, but the lessons from managing

costs in this way at this point in the cycle may open the

door for more predictive and proactive reshaping ofportfolios and rental outgoings. This more proactive

stance towards lease renegotiation has been evident

amongst CBRE occupier clients over the past year, as

tenants seek to benefit now and avoid exposure to rising

rental markets.

Space reduction - either to improve efficiency of space

usage (61%) or as part of wider business changes

(45%) - represent the next most popular choices, which

underlines the reality that one of the most effective ways

of eliminating cost is to remove real estate footprint. This

offers the potential double benefit of portfolio alignment

- rightsizing as well as a higher productivity working

environment.

Technology companies current challenges are much

more evenly spread, with no single dominant area. Such

companies are no more concerned about cost escalation

than average, and significantly less concerned about

regulation, labour/skills shortages and weak economies

the last point a reflection of continued demand growthin much of the sector. The only area of above-average

concern for tech companies is competition from emerging

markets, an indication of the growth in the skills base

and technological capabilities of such markets and hence

enhanced ability to compete with established ones.

Evidence on the variables such as the penetration of

mobile telephony, and enrolment in tertiary education in

emerging markets support this point.

A RANGE OF COST-SAVING

INITIATIVES

Corporates responses to cost concerns in the current

survey have been heavily focussed on trying to secure

savings or efficiency gains from existing operational

space, rather than discrete projects or changes to external

supplier arrangements or location strategy. Initiatives such

as energy management, supplier consolidation, local

relocations and discrete capex reduction schemes mostly

generate responses of under 25%. It is also notable that

around three-quarters of the sample continue to assess

capex opportunities on their respective merits rather

than, for instance, imposing blanket bans or restricting

spending to certain pre-identified types of project.

FIGURE 4: MOST SUCCESSFUL COST-SAVING INITIATIVES OVER THE PAST YEAR

0% 10% 20% 30% 40% 50% 60% 70% 80%

72%

61%

45%

27%

23%

21%

13%

11%

3%

LEASE RENEGOTIATION

SPACE REDUCTION / IMPROVED SPACE EFFICIENCY

SPACE REDUCTION - BUSINESS / STAFF CHANGE

CAPEX REDUCTION INTITIATIVES

FM SOURCING NEGOTIATIONS

RELOCATION TO CHEAPER SUB-MARKETS

ENERGY MANAGEMENT INITIATIVES

SUPPLIER CONSOLIDATION INITIATIVES

HAVENT IMPLEMENTED A COST SAVING STRATEGY


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FIGURE 5: MACRO-LOCATION DRIVERS

0% 10% 20% 30% 40% 50% 60%

56%

48%

44%

38%

21%

20%

20%

15%

6%

6%

ACCESS TO NEW MARKETS AND CUSTOMERS

QUALITY OF LOCATION INFRASTRUCTURE / AMENITIES

REAL ESTATE COSTS

TALENT AVAILABILITY

REAL ESTATE AVAILABILITY

COLOCATION WITH SIMILAR BUSINESSES

LABOUR COSTS

GOVERNMENT INCENTIVES / GRANTS

OTHER

CORPORATE TAX

This continuing focus on the operational real estate

base both as a source of cost reduction and as a means

of driving broader corporate objectives produces an

intriguing dynamic for organisations: how best to select,

secure, design and manage operational buildings at a

cost that produces an acceptable return on investment,but which also furthers organisational and cultural

objectives. Evidently this second group of considerations

features very strongly in corporate thinking in a number of

areas, including location strategy.

KEY LOCATION DRIVERS

The pattern of responses on this issue indicates an

increasingly expansionary mindset at macro-level.

In selecting a country or region or city as a potential

destination (i.e. before identifying and evaluating specificsites), access to new markets and customers is the most

important factor, highlighted by 56% of respondents, up

from 40% last year. Quality of location/amenities (48%)

also features strongly as does talent availability (38%),

although real estate costs (44%) are also prominent.

Corporate tax rates, incentives and other grants are

comparatively minor factors. Overall, this is a positive

indication that business decisions are being based on the

right criteria and on a proper assessment of future growth

prospects, rather than on reaction to temporary factors or

attempts to drive down the cost base.

Again, there are notable differences at sector level

reflecting industry-specific factors. Firstly, real estate costs

are significantly more important for B&F companies than

for the sample as a whole (50% vs 44%). This reflects the

presence of the main B&F functions in the CBD core of

most major global financial centres. As a result, many are

heavily engaged in the nearshoring versus offshoring

debate in terms of attempting to reduce footprint in

high-cost CBD locations such as London, Paris and New

York a balance sometimes referred to as rightshoringas corporates seek an optimal blend of right function and

right location.

NEARSHORING BENEFITS

ESTABLISHED MARKETS

There is some evidence that the nearshoring solution is

gaining favour, to the benefit of locations such as regional

UK markets, western Paris and city fringe locations in

some other European capitals. The saving on real estate

costs is typically less than that for an offshoring solution,but staff retention rates tend to be much higher and

the risk of adverse business impact lower. The evidence

among CBRE clients in the B&F sector suggests that this

debate has some way to run, and that current thinking is

far from uniform across the sector.

TALENT AVAILABILITY DRIVES

LOCATION DECISIONS

Secondly, talent availability is cited as vastly more

important for T&T companies (63% vs 38% for the

sample as a whole), reflecting the critical importance of

certain categories of specialist labour to the growth of

these companies. The presence in labour catchments of

higher education facilities, and of graduates in relevant

disciplines, are key location factors for technology


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companies. Labour is known to be a key factor in

the development of technology clusters, and the high

importance attached to the issue here suggests that some

T&T companies are becoming even more drawn towards

identifiable talent pools, even where some other location

factors may be lacking.

The main factors for building selection at micro-level

highlight even more markedly the importance of amenity,

and the ability to attract talent and boost productivity.

Real estate costs remain the major factor (85%) but there

is then a group of factors relating to the internal and

immediate external building environment, talent attraction

and - closely related - the ability of a building to support

workplace strategy. This is indicates that working culture,

staff productivity and satisfaction etc are all increasingly

strong drivers. It is notable that the ability of a building

to support new workspace strategy features particularly

strongly for both B&F and T&T companies.

We view this as, again indicative of an expansionary

mindset and growing recognition of the need to provide

the right building with the right infrastructure, in the right

location for the business and its increasingly mobile

labour force. Some of this reflects the demands of a

company to secure the factors necessary for growth

and profitability; some of it reflects the inherent needs

of the emerging young and tech-savvy workforce that

demands a fluid, connected and state-of-the-art working

environment - but it all points in the same direction.

The availability of skilled labour, and the need to provide

a sufficiently attractive internal and external environment

to attract and retain them, is clearly seen as critical by

corporates. This gives rise to two interesting questions.

What specific features are most attractive to the labour

force? And to what extent do emerging or potential

destination markets display the required characteristics?

WORKPLACE STRATEGIES: MOTIVES

AND COMPONENTS

The relationships between corporate culture, operational

space efficiency, and staff satisfaction and productivity are

both complex and highly topical. For instance, CoreNet

estimate that 85% of organisations1believe that their

facilities do not reflect their brand well. Soft evidence on

the links between working environment and productivity is

extensive and widely-accepted, even if issues of causation

and a shortage of hard empirical evidence on the benefits

still colour the debate.

This survey revealed that 94% of corporates have a

Corporate Social Responsibility (CSR) programme, and

the single biggest reason for doing so (46%) is perceived

positive community impact. The extent to which this affects

building selection is somewhat mixed: only 13% select

accredited green buildings as a matter of policy and it

does not feature in building selection in 23% of cases. On

the other hand, it is a preference for 58% of corporates.

What is certain is that greater attention is being paid to

a range of workplace features, although the motives for

doing so vary. Over half (56%) identify cost savings as

the main motive for implementing Alternative Workplace

Strategies (AWS), but other responses show that there is

FIGURE 6: BUILDING SELECTION FACTORS AT MICRO-LOCATION LEVEL

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

85%

56%

45%

42%21%

25%

15%

7%

1%

REAL ESTATE COSTS

QUALITY OF BUILDING INFRASTRUCTURE / AMENITIES

ATTRACT BEST TALENT / KEY STAFF RETENTION

ABILITY TO SUPPORT WORKPLACE STRATEGY

TRANSPORT LINKS

FUNCTIONAL CO-LOCATION WITHIN BUILDING

SUSTAINABILITY

CERTIFIED BUILDINGS

1 Brand and Culture, CoreNet Global Research, 2010


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FIGURE 7: MAIN DRIVERS OF ALTERNATIVE WORKPLACE STRATEGY

FIGURE 8: WORKPLACE FEATURES SEEN AS MOST IMPORTANT TO ORGANISATIONS WORKFORCE

0% 10% 20% 30% 40% 50% 60%

56%

48%

44%

39%

37%

24%

13%

4%

1%

COST SAVINGS (INCLUDING SOME SPACEOPTIMISATION OR INCREASING CAPACITY)

EMPLOYEE ATTRACTION AND / OR RETENTION

BUSINESS AGILITY

IMPROVED COLLABORATION

INCREASING EMPLOYEE PRODUCTIVITY

ACCESS TO CUSTOMERS, COLLEAGUES ANDCO-WORKERS

BUSINESS CONTINUITY

SUSTAINABILITY OR REDUCED CARBON FOOTPRINT

OTHER

0% 10% 20% 30% 40% 50% 60% 70% 80%

73%

54%

49%

48%23%

41%

8%

3%

PUBLIC TRANSPORT ACCESSIBILITY

INDOOR ENVIRONMENT QUALITY(AIR, LIGHTING ETC)

PROVISION OF AMENITIES (RESTAURANT, GYM ETC)

FLEXIBLE WORKSPACE OPTIONS(WORKING AWAY FROM DESK)

COMMUNICATION TECHNOLOGY

SUSTAINABILITY

OTHER

very strong recognition of the balance required between

cost savings and staff satisfaction/productivity and that, if

anything, the balance is shifting towards the latter.

EMPLOYEE SATISFACTION SETS

ALTERNATIVE WORKPLACE

STRATEGIES

A range of factors linked to business efficiency and

employee satisfaction were highlighted as key drivers

behind decisions to pursue AWS, including employee

attraction and retention (48%); business agility (44%);

improved collaboration (39%); and increased employee

productivity (37%). In other words there is a broad range

of factors relating to internal efficiency, business process

and labour productivity that are seen as important, and

which are likely to impact on building selection, design

and configuration. Importantly, in aggregate the non-

financially motivated drivers greatly outweigh the cost-

saving agenda.


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WORKPLACE ACCESSIBILITY STILL

KEY

This is reinforced by examination of the specific workplace

features seen as most important to an organisations

workforce, nearly all of which attract higher ratings than

last year, in some cases markedly so. Public transport

accessibility remains the most important factor, cited by

73% of respondents (up from 41% in 2012) and probably

linked to the perceived advantages of a central, amenity-

rich location that can provide more lifestyle options for the

workforce outside of the work environment.

After public transport, however, there is a range of aspects

of the internal working environment aimed at improving

the quality of the working experience for staff, all of which

are seen as significantly more important than was the

case last year. The indoor environment (air quality, lighting

etc.) is seen as important for 54% (compared with 30%last year); provision of internal amenities 49% (14% last

year) and flexible workspace options 48% (33% last year).

REMOTE WORKING STILL

UNCOMMON

It is clear that there is a much increased focus on aspects

of the internal working environment that improve labour

and space efficiency and boost productivity. This is entirely

consistent with the surveys findings on work patterns:

although remote working is a much-discussed topic, 75%

report that less than a quarter of their workforce works

remotely on a regular basis, and half report that less than

10% do (although the expectation is that it will increase).

In the B&F sector this last figure rises to over 65%. These

findings support the strong rationale for the assertion that

AWS is more than just working from home or remotely.

Since the vast majority of staff still spend most of their

time in the office, the focus must be on providing the right

range of work environments and associated choices that

support internal mobility within a high-quality and healthy

office environment.

Decision-makers are not short of survey findings on staff

aspirations and the claimed benefits of AWS, and this

survey adds to the weight of existing evidence highlighting

recognition of the need to accommodate workforce

demands either explicitly to save property costs or for

corporate culture reasons, or both. It helps that among

organisations who have implemented AWS successfully,

there is now a body of senior supporters who will attest

- albeit often subjectively - to the benefits for business

productivity. But, however compelling the survey evidence,there are still some CFOs who will want evidence of

quantified financial benefit, or at the least a way of

translating soft evidence into something more tangible.

The challenge for CRE, therefore, remains in being

able to demonstrate, quantitatively and causally, the

business case for the investment required in implementing

a workplace strategy - while remaining aware of the

softer benefits for corporate culture, branding and staff

attraction - and being able to articulate clearly the links

between the two.

FIGURE 9: PROPORTION OF STAFF WORKING REMOTELY ON A REGULAR BASIS

1-10%, 50%

26-50%, 13%

11-25%, 27%

51-75%,, 6%

76% OR MORE, 4%


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EXPANSION DESTINATIONS

With growth and expansion now climbing the corporate

agenda, in addition to asking about the main drivers of

location selection and workplace strategy, we also asked

companies to identify potential destinations for expansion

and relocation. The results reveal a broad appetite for

international expansion, with a strong focus on emerging

markets and a rather more even spread of target

destinations than was the case last year. Western Europe

and, to a lesser extent, North America, were expected to

see a contraction in operations.

GROWING FOCUS ON INDIA AND

AFRICA

India emerges as the most popular destination (48%,

up from 24% last year). The other notable increase is

Africa, up from 21% last year to 34% in this survey. Inboth cases, the manufacturing/distribution sector showed

above-average expansion appetite.

Latin America and rest of Asia-Pacific are roughly on

a par with last year, while China (42% compared with

60% in 2012) and CEE (32% compared with 48% in

2012) both recorded lower responses than last year. One

explanation is that, as first-wave business penetration/

offshoring/outsourcing destinations, these markets

have sufficient coverage to service a growing customer

base and are viewed as effectively saturated. The

rightshoring trend highlighted is also a contributory

factor here, as some customer-facing functions are felt to

work less well in terms of service levels in these locations.

Conversely, the opportunities presented by rapid growth

in India and Africa may now be sufficient to overcome

some of the longstanding barriers such as governance,

infrastructure, bureaucracy and lack of transparency

that have inhibited inward investment. India has already

attracted a large number of occupiers from a range of

sectors, including financial and business services, media,

technology and telecoms, and pharmaceuticals. This has

been supported by a general process of deregulation

and a range of specific government initiatives designed

to attract inward investment, such as relaxation of rules

on foreign ownership, streamlining of the development

process and promotion of a range of high-tech growth

industries. The expansion of modern office stock in the

main cities has also helped. Fuelled by GDP growth

of over 6% per year over the past five years and

associated increases in consumption, the growth of

Indias manufacturing base and off-shoring credentials is

producing particular benefits for FMCG and associatedbusinesses for which India is a key target market.

Improved international and domestic infrastructure

connections have supported growth in a number of cities

including Mumbais financial cluster and the multi-

centric economic hub for the north of India, known as the

National Capital Region (NCR), comprising a range of

decentralised locations, as well as Delhi itself and smaller

outlying cities. Growth in the technology sector has

particularly contributed to this phenomenon.

FIGURE 10: EXPANSION DESTINATIONS, NEXT TWO YEARS

0% 10% 20% 30% 40% 50%

48%

42%

42%

35%

34%

32%

30%

14%

13%

INDIA

REST OF ASIA PACIFIC

CHINA

LATIN AMERICA

AFRICA

CEE

MIDDLE EAST

NORTH AMERICA

WESTERN EUROPE


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Africa too is seeing rapid economic and population

growth, high rates of urbanisation and the expansion of

growing consumer goods markets. As a result, growth

built largely on a commodities-driven export boom is

giving way to more broadly-based growth deriving from

energy exports, domestic consumption and a growing

finance industry. GDP growth for Africa as a whole has

been running at around 4.5% per annum for the past

decade and is expected to outstrip that of any other world

region between now and 2030. This will be accompanied

by rapid growth in the city-dwelling proportion of the

population and growth in the size of the middle class:

200m Africans will enter the market for consumer goods

in the next five years. Generalisations are difficult in a

continent of 54 countries, but some examples illustrate

the impact of these sorts of growth rate. A number

of African economies - notably Nigeria, Kenya and

Angola but also Ghana, Mozambique, Tanzania, and

Zambia - are seeing very rapid growth supported byinward investment, infrastructure improvements and

a generally easier business environment. In many

cases, this is resulting in sharp rises in real estate costs.

While energy markets are the prime driver in many of

these cases, finance and telecoms are also playing an

increasing role. It is estimated that 70% of Africans own

a mobile phone, yet only 7% has access to the internet:

this fledgling technology platform is still a hindrance to

business activity but is also a huge opportunity. There are

many markets where the development of democratic and

legal institutions is a necessary precursor to corporate

interest, but with barriers to entry continuing to erode and

a positive economic outlook, corporate expansion into

Africa is very likely to continue.

FIGURE 11: KEY PERFORMANCE INDICATORS FOR CRE TEAMS

0% 10% 20% 30% 40% 50% 60% 70%

63%

63%

44%

42%

21%

10%

8%

COST SAVINGS

PERFORMANCE AGAINST BUDGET

PORTFOLIO / FOOTPRINT REDUCTION

INTERNAL CLIENT SATISFACTION

COMPLIANCE & RISK

CAPITAL RAISING

NOT MEASURED AGAINST ANY INTERNAL KPIS

CRE STRUCTURES AND

REPORTING LINES

At a time of potential shift in focus away from seemingly

obsessive cost management to business expansion, it

is worth considering the role and organisation of CRE

functions as strategic business partners. The reporting

lines of CRE functions remain somewhat fragmented: a

reporting line to finance is the most common structure

(38%, up marginally from last year), but there are

significant proportions reporting to each of the following

operations; HR, shared service centres and procurement.

Regardless of reporting line however, financial objectives

dominate the KPIs of CRE teams either through

performance against budget or the achievement of cost

savings. It is understandable therefore that cost reduction

remains the single largest corporate concern, as assessed

by CRE executives. It will be interesting to see whetherthis changes in future years and in essence is a lagging

indicator that will change as economic recovery gains

momentum.

This creates an interesting dynamic and possibly a

contradiction when set against respondents views of

their own CRE teams role over the next two years. While

real estate strategy was by far the dominant response

(82%) and other supervisory and oversight functions were

also mentioned, it was notable that activity execution

(projects, transactions, lease management etc.) was the

second most popular response (61%), and particularly

prevalent in the B&F sector.


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THE

RECOVERYPHASE

FIGURE 12: MOST IMPORTANT FUNCTIONS FOR CRE TEAM OVER NEXT TWO YEARS

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

82%

61%

41%

31%

23%

20%

13%

7%

REAL ESTATE STRATEGY

ACTIVITY EXECUTION (E.G. PROJECTS, TRANSACTIONS,

LEASE MANAGEMENT)

CUSTOMER RELATIONSHIP MANAGEMENT

DEVELOP REAL ESTATE POLICIES AND PROCEDURES

VENDOR RELATIONSHIP MANAGEMENT

ACTIVITY OVERSIGHT (ACROSS FUNCTIONS)

PROGRAMME MANAGEMENT

INDIVIDUAL PROJECT MANAGEMENT

FIGURE 13: AREAS FOR IMPROVING CRE TEAMS EFFECTIVENESS IN SUPPORTING BUSINESS STRATEGY

0% 10% 20% 30% 40% 50% 60% 70% 80%

72%

44%

42%

34%

23%

20%

6%

BETTER ALIGNMENT OF REAL ESTATE OUTCOMES

TO BUSINESS NEEDS / OBJECTIVES

BETTER UNDERSTANDING OF BUSINESS NEEDS

REDUCING CULTURAL BARRIERS /

RESISTANCE OR FEAR OF CHANGE

IMPROVED EXECUTIVE / SENIOR MANAGEMENT

SPONSORSHIP

BETTER CRM SKILLS IN THE REAL ESTATE FUNCTION

BETTER BUDGETING CONTROL

ALREADY HAVE IDEAL EFFECTIVENESS

WITHIN THE BUSINESS

On the face of it, this suggests that there is still a lot of

in-house delivery of day-to-day activities being carried

out, and that there is considerable scope for the further

development of outsourcing. We are some way from

steady-state saturation.

It may be the case that respondents recognise that CRE

departments are increasingly made up of both internally-

employed staff and third-party suppliers. Not only may

this blur the distinction between in-house and outsourced

delivery, it may also mean that the overriding CRE focus

will be on activity execution, with less importance attached

to whether that execution is actually delivered in-house or

through a third-party supplier.

In any case, it is true that there can be genuine obstacles

to the wider deployment of outsourcing. One is that

internal structures have not always kept pace with the

demands of early-generation global outsourcing: where

organisations still have decentralised business delivery

processes and locally-controlled budgets, it can be

difficult to overlay a global outsourcing mandate, and as

a result they are often challenged.

Further insight can be gained from looking at the

perceived role of the CRE team, and its relationship with

the rest of the business. Better alignment of real estate

outcomes with business needs is, by some distance,

seen as the most likely means of improving the CRE

departments effectiveness in supporting business strategy.


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4

Better understanding of business needs, and a reduction

in cultural barriers or resistance to change, is also seen as

important.

These priorities would normally imply a strong focus

for the CRE team on listening to and understandingthe business, and developing appropriate real estate

strategies, whereas there seems to be continuing strong

focus on execution of activity at a tactical level. The

most plausible interpretation here, as indicated earlier, is

that CRE needs to understand the business and develop

appropriate real estate strategies, following which

execution is critical, regardless of whether it is carried

out in-house or externally. The fact that these objectives

co-exist does not diminish the importance of either the

strategic or the tactical, but does indicate that there is

a spectrum on which organisations can sit in terms ofdelineating responsibility for undertaking this activity, with

various factors needing to be considered across different

industries, geographies and asset classes.

PROCUREMENT OF REAL ESTATE

SERVICES

The pattern of responses on procurement of real estate

services reinforces this rather mixed picture, and continues

to suggest a high degree of fragmentation. While

corporate approaches to buying real estate services have

become increasingly sophisticated over recent years, there

is still great variation in the use of different models, and

in the preferred supplier relationships for different types of

service.

FIGURE 14: SUPPLIER RELATIONSHIPS FOR DIFFERENT REAL ESTATE SERVICES

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0

35%

35%

41%7%

8%

27%21%

8%

28% 34%

42%

10%

49%

11%

20%

28%

14%20%

18%

3% 6% 1% 1% 1%

15%DONT KNOW

AD HOC

IN-HOUSE

PANEL SUPPLIER

SINGLE SUPPLIER

TRANSACTION MANAGEMENT FACILITIES MANAGEMENT PROJECT MANAGEMENT PORTFOLIO MANAGEMENT DATA MANAGEMENT

OUTSOURCING WELL ESTABLISHED

Outsourcing, in one form or another, has penetrated

furthest in transaction management (TM), facilities

management (FM) and project management (PjM) in

each of which 50-65% of respondents typically outsourceactivities to one or more external suppliers and only

15-20% self-perform. These proportions are roughly the

same as reported last year, indicating that broad patterns

of buying behaviour for different services are fairly well-

established.

TRANSACTION MANAGEMENT AND

FACILITIES MANAGEMENT FAVOUR

PANEL OF SUPPLIERS

For both TM and FM, it is still the case that a panel ofsuppliers (35% in both cases) is preferred over a single

supplier (27% and 21% respectively), reflecting a desire

to diversify procurement sources. Of the two, TM is

much more likely to be purchased under a global or

multi-country arrangement with over 80% of respondents

highlighting these as their preferred methods, compared

with FM where local purchasing is much more the norm.

PjM purchasing patterns remain more diverse, reflecting

the case-specific nature of requirements, although it is

notable that the proportion favouring a panel supplier

approach has risen by over 10 percentage points to 41%

compared with 2012, while the popularity of the single

supplier approach has dropped. While the increasing

maturity of project management supply chains does allow


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THE

RECOVERYPHASE

FIGURE 15: PREFERRED LOCATIONAL DELIVERY MODELS

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0

1%

38%

17%

42%

41% 34%

44%

21%

32%

15%

21%

44%

13%21%

46%

62%

DONTKNOW

LOCAL

REGIONAL

GLOBAL

TRANSACTION MANAGEMENT FACILITIES MANAGEMENT PROJECT MANAGEMENT PORTFOLIO MANAGEMENT DATA MANAGEMENT

for more efficient purchasing behaviour, this is a fairly

recent phenomenon and, by its nature, delivery remains

more local and fragmented.

Buying patterns are very different for portfolio

management and data management. Both are much

more likely to be performed in-house (40-50% in both

cases) although, where they are outsourced, it is more

likely to be on a single-supplier basis than for any of

the other services. Moreover the incidence of single-

supplier arrangements for PjM is six - eight percentage

points higher than was the case last year, suggesting that

some progress has been made towards determining best

practice in this area. Similarly, portfolio management

and data management services are most prone to being

provided on a global basis.

This is not to suggest that a stable consensus has been

reached as to the most effective approach to delivery of

portfolio management and data management services.

While there is growing recognition of the importance

of effective outsourced services in both areas, there are

equally significant obstacles, notably an absence of good

systematic portfolio data in the first place or, conversely,

extreme sensitivity over the use of such data where it

does exist. As a result these are often the last functions

to be outsourced but, where this route is taken, it is more

likely to be on a global, single-supplier basis since this

is viewed as the best way of achieving consistent results,

particularly for data management.

While corporate approaches to buying real estateservices have become increasingly sophisticated,there is still great variation in the use of differentmodels.


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CONCLUSIONS

COST MANAGEMENT MAKES WAY

FOR GROWTH OPPORTUNITIES

The results of 2013s corporate occupier survey point

towards a clear shift in the balance between cost

management on the one hand, and identification of

growth opportunities on the other. Concern about

the impact of weak economies has diminished

significantly since last year, and business decisions

are increasingly being driven by assessment of future

growth possibilities.

Accompanying this shift is a greatly heightened

focus on quality of location and internal building

environment, both in its own right and as a significant

lever for attracting and retaining labour.

WORKPLACE STRATEGIES

FOCUSSED ON THE WORKFORCE

Cost management remains a significant driver of

corporate behaviour, reflected mostly in widespread

lease renegotiation activity aimed at capturing

market rent reductions in actual rental outgoings.

Space reduction initiatives are also popular but these

are increasingly closely linked with wider corporate

aims relating to working culture and environment.

This offers the potential double benefit of portfolio

alignment - rightsizing - as well as a higherproductivity working environment.

The drivers of market and building selection, and the

components of workplace strategy, both reflect a very

strong focus on securing and retaining skilled labour,

and on providing an environment that enhances

productivity and business efficiency. As a result,

most aspects of the working environment such as

accessibility, amenity availability, space flexibility -

attracted far higher importance ratings than was the

case last year. This provides further encouragement

for corporates to take up the challenge of producing

financially-robust business cases for workplace

strategies.

FEWER THAN 50%OF

RESPONDENTS IDENTIFIED

WEAK ECONOMIES AS A

CONCERN COMPARED TO

70% LAST YEAR

LEASE RENEGOTIATIONS

IS BY FAR THE MOSTWIDESPREAD COST-SAVING

INITIATIVE USED BY 72%

OF RESPONDENTS, UP FROM

45% LAST YEAR

56% OF RESPONDENTS SAIDACCESS TO NEW MARKETS

AND CUSTOMERS IS A KEY

FACTOR FOR THEM, UP FROM

40%LAST YEAR

ACCESS TO TALENT

AVAILABILITY WAS KEY TO38% OF RESPONDENTS,

BUT FOR TECHNOLOGY

COMPANIES IT IS AS HIGH AS

QUALITY OF LOCATION AND

AMENITIES WAS IMPORTANT

TO 48%OF RESPONDENTS

REAL ESTATE COSTS STILL

A PROMINENT LOCATIONDRIVER FOR

44%63% OF RESPONDENTS


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THE

RECOVERYPHASE

REAL ESTATE AND BUSINESS

OBJECTIVES ALIGN

The shift in focus towards growth is also refocussing

attention on the role of the CRE function and its

interaction with the rest of the business. There is

clearly a desire for greater alignment between real

estate activities and broader business objectives.

This should provide a platform for CRE functions to

establish a clearer role as facilitators of future growth,

and thus provides scope for increased outsourcing of

tactical real estate delivery.

NEW EMERGING MARKETS

With growth and expansion now higher up the

corporate agenda, there is a broad appetite for

international expansion. The findings indicate that the

opportunities presented by rapid economic growth

in India and Africa, coupled with improvements in

physical and business infrastructure, are proving

increasingly attractive.

MAIN FACTOR FOR

BUILDING SELECTIONBY CORPORATES IS STILL

REAL ESTATE

COSTS AT

OF RESPONDENTS

HAVE A CORPORATE

SOCIAL RESPONSIBILITY

PROGRAMMETRANSACTION MANAGEMENT

IS PURCHASED UNDER A

GLOBAL OR MULTI-COUNTRY

ARRANGEMENT BY

56%OF RESPONDENTS

IDENTIFIED COST SAVINGAS THE MAIN MOTIVE FOR

IMPLEMENTING ALTERNATIVE

WORKPLACE STRATEGIES

OF RESPONDENTS, UP FROM

41%IN 2012, SAID PUBLIC

TRANSPORT ACCESSIBILITY IS A

KEY PART OF WORKPLACE APPEAL

USE OF PANEL SUPPLIER

APPROACH FOR PROJECT

MANAGEMENT UP

BY 10 %

POINTS TO

OF RESPONDENTS REPORTED

THAT LESS THAN A QUARTER

OF THEIR WORKFORCE

WORKS REMOTELY ON A

REGULAR BASIS

INDIA EMERGED AS THE

MOST POPULAR EXPANSIONMARKET AT 48%,UP FROM

24%IN 2012. AFRICA WAS

ALSO UP FROM 21%LAST

YEAR TO 34%

75%

OF RESPONDENTS

80%

73%

85%

94%

41%


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8

KEY CONTACTS

Richard Holberton

Director,

EMEA Research and Consulting

t:+44 20 7182 3348

e:[email protected]

Alex Andel

Head of Client Solutions EMEA,

Global Corporate Services

t:+44 20 7182 3876

e:[email protected]

Mike Gedye

Head of Account Management EMEA,


t:+44 20 7182 3325

e:[email protected]

Sue Asprey Price

Head of Consulting EMEA,


t:+44 20 7182 3129

e:[email protected]

For more information regarding this report please contact:

Simon Johnson

Senior Director Transaction Management,


t:+44 20 7182 3751

e:[email protected]

CBRE GLOBAL RESEARCH AND CONSULTING

This report was prepared by the CBRE EMEA Research Team Consulting a network of preeminent researchers and

consultants market research, econometric forecasting and consulting around the globe.

DISCLAIMER

CBRE Limited confirms that information contained herein, including projections, has been obtained from sources

believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee,

warranty or representation about them. It is your responsibility to confirm independently their accuracy and

completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to

the material are reserved and cannot be reproduced without prior written permission of CBRE.


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