As the recovery takes hold, corporations will begin to expand with the help of third party commercial real estate providers, but in this new environment a different set of expectations will be placed on industry practitioners, according to a Jones Lang LaSalle’s 2011 Corporate Real Estate Survey.
During the downturn, in-house corporate real estate services were often downsized to cut internal costs. Expansion was on hold and real estate transactions seriously declined. As the recovery ramps up, rather than rebuilding an entire division, many companies will see a benefit in hiring a
third party provider to oversee its real estate moves. With this growing market, competition will begin to heat up among real estate providers and new ways to add value for clients will be created.
Now, commercial real estate firms will not just be judged on the efficiency of their real estate deals and the cost savings they can deliver, but how their actions can boost productivity throughout an entire organization.
“Productivity is the key,” said Kenneth Rudy, international director, Corporate Solutions at Jones Lang LaSalle, at a CoreNet Global event in Chicago. “Always make sure that your actions are measurable.”
The theme of the last several years has been contraction. The JLL Corporate Real Estate Survey included 504 companies across the globe and 73 percent of the participants responded that they consolidated occupancy into fewer buildings throughout the downturn.
Near-term growth will be tepid, but company profits have increased 18 percent from a year ago and industrial production continues recover at a rather robust pace, with this kind of activity real estate practitioners can expect the market to pick up.
“American companies adapt well,” said Rudy. “Companies have been hesitant, but they will soon start to reinvest in real estate, technology, and, people.”
Recent growth has been tied to a flight to quality, as firms take advantage of low prices and move into Class A locations at favorable terms. According to the survey, the U.S. experienced 5.7 million square feet of positive net absorption in the Class A market, and occupancy losses of roughly 1.0 million square feet in the Class B sector in the first quarter 2011.
Yet if the market continues to improve, Class A space will become much tighter and firms will begin to gravitate toward Class B spaces that have potential value. The study concludes that the U.S. vacancy rate will likely decline to 17.5 percent by the end of 2011 and be closer to 16.0 percent in 2012.
The real estate provider that is able to establish value beyond simply conducting real estate transactions will possibly benefit most from this growth.
“The third party provider is central now,” said Richard Kadzis, editor of CoreNet Leader magazine. “So much has changed in the last five years.”
Kadis said that real estate practitioners who want to go after corporate business will not only have to be adept at real estate, but also in the strategies and practices of their clients.
“You have to be able to speak the language of the C-suite now,” he said.
Successful corporate real estate solutions will now focus on the productivity that transactions and strategies can provide to an organization. It may not always be easy to quantify the productivity benefit from a real estate move, but those providers intent on achieving this goal will likely have the edge in competition.
According to Jones Lang LaSalle’s survey, the global financial crisis generated four overarching global trends impacting the future state for commercial real estate (CRE) leaders. These include:
- Higher demands on productivity – The commercial real estate department is now exposed to senior leadership and needs to perform to the new expectations of the post-global financial crisis era. According to the survey, today and for the next few years, the two primary areas of focus for corporate real estate executives will be business growth (35 percent) and cost pressures (11 percent).
- Balancing dual forces of growth and right-sizing – Portfolio growth will be happening in different gears depending on what market is being considered, putting varying demands on CRE teams.
- Progressing towards partnerships – As growth returns, leveraging external resources and service providers will increase and accelerate.
- Reshaping CRE structures and skills – Increasing demands from the C-suite will require more strategic, less tactical real estate skills.
