AUSTRALIAN CRE SURVEY
Getting the Strategy Right
Executive summary
JLL’s Corporate Real Estate (CRE) survey has come to
represent the voice of the industry, with our latest issue
capturing the opinions of more than 500 global CRE
executives. This Australian report shares the views of CRE
executives operating locally and compares the results to their
global and Asia Pacific counterparts.
Based upon the results of the last five years, the CRE
operating environment has greater transparency around real
estate costs at the highest levels of the organisation as the
C-suite (CEO, CFO, COO) demanded cost
reduction strategies.
Real estate rarely owned a permanent agenda item at the
board level but this changed particularly since the GFC as
companies honed in on what has typically been their
second or third largest cost base. Yet the legacy of this
paradigm shift is an unrelenting focus on cost at the
expense of allowing CRE to create value beyond just
financial savings.
The demands of the C-suite are growing not slowing. Not
only do the C-suite continue to demand cost savings from
real estate but their expectation is for the CRE Executive
to deliver on both the value and cost side of the real
estate equation.
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For CRE Executives to elevate their role away from just a
cost focus, they need to expose what they have regarded
traditionally as ‘strategically’ sensitive functions to service
providers. Entrusting asset and portfolio strategy to a
service provider, will allow CRE to focus on stakeholder
management and integration with the business and other
supporting functions. This will help move CRE Executives
from a technical specialist to a trusted advisor.
To effectively engage with business stakeholders, CRE
Executives need to be able to understand the strategic
objectives at all levels of the organisation and apply them
to corporate real estate strategy. More importantly, they
need to demonstrate through appropriate performance
metrics how real estate supports and is aligned to the
business, as well as supporting growth and
enhanced productivity.
Encouragingly, gains are being made on the productivity
front, with CRE executives challenging themselves to
deliver productivity improvements, quantify them and
communicate them to the C-suite. Yet the lever that most
CRE teams pull to achieve productivity gains continues to
be cost and only focussing on cost does not provide for
long-term sustainable productivity outcomes. Driving
productivity through other means will help move CRE
from being ancillary to the business to being a catalyst
for the business.
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What has changed
The major shifts in CRE sentiment since the last JLL CRE survey have been captured in the following infographic.
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The drive for productivity is gaining momentum
Productivity is well entrenched in the business vernacular of corporate Australia and CRE has been part
of the conversation.
Productivity seems to be of increasing not lessening importance to
the real estate function, with 77% of CRE executives in Australia
stating that productivity has become a more important goal in the
last two years. The real challenge is how to measure productivity
improvements not just at the asset level, but right across the
organisation and demonstrate how real estate initiatives have
contributed to those productivity gains. Some companies are
managing and measuring productivity improvements better than
others. Our results show that documented productivity gains over
the past two years are focused in the 6-10% range, but some CRE
teams have achieved productivity gains of up to 15% over the same
period. Other respondents indicated that productivity gains had
been achieved but were unable to quantify those gains.
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Figure 1: Increasing productivity
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Understanding how productivity gains were achieved may provide
valuable insights to other companies struggling to quantify the
improvements. Not surprisingly, the most popular mechanism for
delivering productivity gains was cost savings, nominated by 88% of
respondents. If the cost of inputs are reduced, overall output or
productivity increases. Workplace improvement was also seen as a
key area for achieving productivity outcomes and allowed CREs to
demonstrate productivity gains outside of just their traditional real
estate remit. However, getting back to basics was also critical to
underpinning productivity improvements with 72% of CREs
nominating improved management of real estate. Here tactics such
as the mapping of real estate delivery processes can enhance
productivity. Delivery processes that are not defined limit the ability
to understand property performance levels, eliminates improvement
opportunities and clouds accountability. Clear delivery processes
are critical to productivity improvements.
Figure 2: How productivity gains have been achieved
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Some anecdotal feedback was provided around how organisations had achieved productivity gains in the following key areas – finance, labour and real estate.
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Those CRE executives that are able to deliver
productivity improvements beyond real estate and show
how real estate has the potential to impact right across
the organisation will rise to the top. At JLL we recognise
there is no singular approach to productivity, however
we believe there is a framework for approaching how an
organisation can achieve productivity gains. Whilst there
are a myriad of ways to define and measure productivity,
the framework in Figure 3 helps in contextualising the
multiple factors in four key areas: leadership, systems &
processes, the work environment and people.
Figure 3: A productivity framework
We see leadership, systems & processes and the work
environment as being the foundational enablers of
productivity. Without these in place, an organisation will
fail to achieve desired productivity outcomes. If an
organisation only focuses on its people for productivity
enhancement, the outcome will be short lived. To
achieve sustainable productivity enhancement, the
organisation must also address the foundational
enablers concurrently.
Leadership – People need purpose
Having a clear leadership vision, purpose, direction and
communication program will foster productivity in a
business. Clearly stated objectives and productivity
programs owned at the highest levels of the organisation
will help to mobilise people to achieve productivity gains. It
will also ensure that people know their purpose and
understand how they contribute to the organisation’s
performance, thus ensuring they feel valued and engaged.
Systems & Processes – Giving back people their creative time
Having the systems and processes in place to support people
to achieve efficiency and productivity gains is another critical
success factor. Investing in the right tools and technologies
will reduce the administrative burden and give people back
time to become more client-facing and allow time for
collaboration and creativity to drive innovation and growth.
Workplace – Signifies an investment in people
The workplace is where CRE has made the greatest inroads
to impacting organisational productivity, delivering workplaces
that act as a catalyst for human performance. This is reflected
in the results with 82% of CREs stating there is a high
expectation from the organisation around improving
workplace productivity (up from 74% two years ago). To
ensure that the workplace does actually deliver these sought
after productivity gains, companies need to understand what
tasks teams perform that contribute the most value to the
organisation, and how the effectiveness of these teams can
be stimulated.
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Only then can they start to design and deliver the most
appropriate physical environment to support these tasks. This
is borne out in the data, with an increasing proportion of
businesses asking CRE to focus on change management
initiatives (81%) and implementing workplace
technology (81%).
Figure 4: Workplace productivity expectations
People
Fundamental to the achievement of productivity gains
is clearly people, yet many organisations fall into the
trap of putting all their focus on people first, without addressing the
other key foundational enablers covered earlier. In this knowledge age,
people are largely the drivers of productivity, however it is hardest to
draw the direct causal link between people and productivity gains.
People motivation and performance is a subjective, intangible measure
which differs not only from organisation to organisation, but between
departments and indeed between business leaders. We believe that if
you have the three foundational enablers in place, this will give an
organisation the right culture and build engagement with employees
which will foster productivity success.
The results of the survey support the thinking behind this framework.
Figure 2 showed how organisations had achieved productivity gains
over the past two years. Organisations are focussing on the
foundational elements of the framework to deliver productivity gains,
with 72% nominating workplace as a driver of productivity gains, 72%
highlighting improvement management of real estate which falls into the
systems & process category, as does technology systems nominated
by 38%. 59% of respondents nominated management changes (ie
leadership) as a means of delivering productivity improvements.
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Cost Isn’t going anywhere
The survey results demonstrate an unwavering focus on cost and that the CRE mandate is inextricably linked to cost savings.
As our previous surveys have highlighted, the GFC shone
the spotlight on CRE and presented an opportunity for real
estate to deliver up much needed savings to organisations.
CRE executives globally did not falter and were up to the
task, reducing occupancy costs when the business needed
it most. As a result, this is the foundation upon which their
reputation has been built and is the contribution that is
most valued by the business. But the question needs to be
asked, what else can be delivered to the business that will
add value to the performance of the organisation?
56% of CREs stated that their real estate strategy has
been more cost driven over the past two years, with 42%
more value driven. These results are not surprising really
as cost savings are easier to measure and communicate to
the executive level of the organisation. As we have said in
previous reports, it is far more difficult to prove a causal
link between the real estate strategy to business
performance and thus demonstrate the value creation side
of corporate real estate.
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Figure 5: Current focus of CRE strategy
Figure 6: Change in CRE strategy focus over the past 2 years
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Figure 7: Attributes that could potentially elevate the CRE function
Figure 8: Attributes that could elevate the CRE function Australia vs Global
Further evidence of the cost agenda is that 35% of CRE executives
believe delivering cost savings is the key to elevating the function of
corporate real estate inside their organisations. What is perhaps
more interesting is that in Australia, cost is perceived to be more
critical to success than in other parts of the world. The variation
could be attributed to the relative difference in maturity levels of the
global real estate markets. Australia is further up the maturity curve
than many other markets (in particular Asia), with CRE teams
having already delivered much of the workplace strategies such as
mobile and activity based working (ABW) and now the focus is
delivering these solutions at a more optimal cost base. This is
further underscored by the relative expense of the Australian
commercial real estate market, where CBD rents are amongst the
highest in the world, placing real estate as one of the most
significant costs on a P&L. Any ability to reduce or impact this cost
base is welcomed by the C-suite as it is an easier lever to pull than
people costs.
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Getting the strategy right
Strategy can mean different things to different people and have different roles to play in different organisations.
The trends coming out of the CRE survey highlight that real estate
strategy is challenging to get right to enable delivery on both the
value and cost side of the equation. But it is our view that they
cannot be mutually exclusive and that CRE executives need to
develop a strategy that both saves costs and generates value for
the organisation.
key business objectives of the organisation and how it contributes to
the performance of the business, from a profitability, growth and
customer experience perspective. Where many CRE teams fall
down is only focussing at the asset or portfolio strategies, given the
pressure from the business to save cost.
A deep dive into real estate strategy reveals a number of layers
which require different skill sets yet together can be a powerful
combination. The three major layers of strategy are stakeholder
management, portfolio strategy and tactical asset strategy.
The portfolio strategy layer is where organisational objectives are
translated into a corporate real estate strategy so that CRE aligns
with the business requirements. It involves rolling up or combining
the individual asset performance into meaningful, measureable and
manageable performance metrics at a portfolio level.
Strategic stakeholder management
What many consider the pinnacle of strategy is strategic
stakeholder management that needs to involve engagement with
the highest levels of leadership inside the organisation, not only with
the C-suite but also with the business unit leadership. This is a facet
of strategy that is typically owned by CRE Executives and is not
outsourced. Here the CRE Executive needs to be able to
demonstrate how CRE contributes or underpins the
Portfolio strategy
Asset strategy
This is the tactical layer of strategy, where real estate decisions are
based on cost optimisation. Here the CRE team needs to measure
and monitor asset performance and make decisions at the property
level. This is an aspect of strategy that is easily outsourced to free
up internal CRE resources to focus on strategic stakeholder
management and integration with the business.
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Figure 9: Layers of real estate strategy
To have a real estate strategy that integrates with the business and
achieve strategic stakeholder management, there needs to be a
change in conversation. As we have seen, the majority of CRE
executives have spent the past two years with a strategy focussed
on cost savings and whilst that will garner support from the
business, it is leaving a lot of value on the table. CRE executives
need to stop talking in real estate and cost metrics and shift the
conversation to business outcomes. Part of this shift will come
through increasingly sophisticated data and scientific analysis and
predictive analysis techniques to guide real estate decision making.
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To effectively engage with business stakeholders and have a seat
at the table, CRE needs to be able to translate the real estate
metrics into strategic measures that capture the contribution to the
company’s performance. Typically corporate objectives are focused
in four key areas – profitability (revenue growth and cost reduction),
customer (service, satisfaction, retention), people (productivity,
talent attraction & retention) and growth (new markets, innovation,
R&D). Whereas CRE objectives typically focus on at the asset, the
portfolio, delivery or workplace. There is a disconnect.
As an example, if CRE was seeking executive level support for a
new workplace to drive productivity, efficiencies and improve
collaboration, the value proposition must come back to the core
business objectives or the corporate success factors. A business
case that demonstrates the collaboration, productivity and long-term
cost savings benefits with a corresponding investment requirement,
will prompt the C-suite to weigh up the investment against other
investment opportunities such as increasing remuneration or
training budgets.
However if the business case demonstrates the workplace can generate a quantifiable additional revenue or profit, the cost of the
real estate investment becomes insignificant. The decision is not about the opportunity costs of the funds to build the workplace,
rather it is about the lost opportunity of not achieving greater revenue and profits. Shifting the conversation from one centred around
real estate metrics and outcomes to one of business performance and outcomes is the future of CRE.
Figure 10: CRE performance metrics hierarchy
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Another example relates back to one of the strategic priorities placed on CRE by the
C-suite - bringing more flexibility to the leasehold portfolio to create on- demand space.
Bringing flexibility to the portfolio is often a desirable real estate lever for corporates, but
this comes at a cost. If the CRE team is presenting a business case that demonstrates
the value of the flexibility balanced with the cost, there is a conflict. If the business case is
able to demonstrate how the improved flexibility aligns with the objectives of the
organisation and how CRE contributed to achieving these objectives, then the value
creation will outweigh the additional cost for the increased flexibility. Leaving the
conversation as a trade-off between cost and flexibility will never move CRE away from
cost to value creation.
Figure 11: Changing demands of senior leadership alignment with firm’s strategic priorities
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Despite the challenges of demonstrating the value creation capability of corporate real
estate, it is something that cannot be ignored. In fact the business is demanding that CRE
do both – deliver cost savings but also drive business performance. Our results show that
the C-suite is expecting CRE to demonstrate alignment with the firm’s strategic priorities
but at the same time improvement in the tactical delivery of real estate services. It is those
CRE leaders that can walk the tightrope between the two that will elevate their role and
perceived value inside the organisation.
Figure 12: Changing demands of senior leadership tactical delivery of CRE
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CRE team structure and delivery models
A key trend to emerge since our last Global CRE survey around CRE team structure and delivery models is the ever increasing involvement of
procurement in real estate decisions.
81% of respondents in Australia have an internal procurement function that
participates in CRE decisions. This is higher than the global average of 70% and the
rest of Asia Pacific at 69%. This higher incidence is in part due to the relative maturity
of the Australian market and the prevalence of procurement as a strategic function in
many organisations. Procurement in Australia has worked its way through most of the
supporting business functions and shared services in corporates, with corporate real
estate one of the remaining frontiers that is now attracting attention.
Figure 13: Internal procurement function
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The increasing involvement of procurement has potentially shifted the
focus of outsourcing away from long-term, strategic partnerships to shortterm and cost-driven solutions. The organisational make-up has also
been affected, with CRE departments trending towards reporting into a
shared services structure in Australia rather than directly into the C-suite.
57% of respondents said that CRE reported into the C-suite, compared to
69% two years ago. Only 26% of respondents said their global head of
CRE sat in a dedicated real estate department compared with the global
average of 31% and the rest of Asia Pacific at 40%.
There was a higher incidence of the global head of real estate
reporting into finance or a shared services function, which runs the
risk of short-termism and decisions predicated on cost at the expense
of value. However, the unwavering focus on cost control by
procurement represents both a challenge and an opportunity for CRE.
If CRE is able to get a strategy framework in place and demonstrate
the value-add beyond cost savings to procurement (no mean feat in
itself), they will have a powerful advocate when it comes to the
presenting a business case to the C-suite.
Figure 14: Position of global head of CRE
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Considering real estate delivery models, 26% of all CREs in Australia view real estate
outsourcing decisions as strategic and focused on long-term value. This is slightly higher than
the global average of 22% and highlights the maturity and sophisticated of the real estate
market in this country. CRE executives across the country are turning increasingly to
outsourced providers to help meet the demands of the business. Only 14% of respondents
view outsourcing as a tactical decision which is focused on achieving cost-savings compared
to the global average of 25%. This points to the evolution of the Australian corporate real estate
sector along the outsourcing continuum.
Figure 15: Attitudes toward outsourcing
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The survey results also show a trend towards a greater level of
outsourcing in the future. Those functions that currently have the
highest level of outsourcing are facilities management (36% fully
outsourced and only 8% managed fully in-house), project &
construction management (33% fully outsourced), transaction
execution (32% fully outsourced) and lease administration (28%
fully outsourced).
Figure 16: Current delivery structure of CRE services
Where CRE sees value in further levels of outsourcing over the
next three years are most prevalent in transaction management
& execution, lease administration and occupancy planning.
Those disciplines that respondents are planning to keep largely
in-house in three years time are portfolio strategy (8%),
workplace strategy (8%) and change management (11%).
Portfolio strategy is a bit of a misnomer, given the many layers of
strategy. The strategic stakeholder management and integration
with the business are components that are best managed
internally by the CRE team. However, outsourced expertise
around portfolio and asset strategy may combine with the
strategic business knowledge to deliver a powerful real
estate strategy.
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CRE Performance gaps
The majority of CRE executives surveyed felt that whilst the demands of the C-suite have been increasing, there has
not been a corresponding investment in the CRE team to facilitate delivery against those expectations.
Excellence in CRE is as much about people as it is about property.
When ranking their performance on a number of critical success
factors, CRE executives in Australia scored themselves lower than
the global and Asia Pacific averages. We believe this is again due to
the relative maturity of the Australian market. Whilst the rest of Asia
Pacific is still scoring wins with CRE cost savings initiatives, many of
these have already been captured in Australia. CRE in Australia is
trying to move to the value creation side of the equation, which is a
much more challenging proposition to achieve and hence the lower
performance rankings.
Respondents ranked themselves as weakest on having a
comprehensive approach to gathering and promoting great ideas, as
well as having a robust strategic planning function which is
integrated with the enterprise. Interestingly the strategic planning
function is the discipline most CRE teams score themselves as
underperforming on, yet it has
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one of the lowest levels of outsourcing with 42% of respondents delivering
this completely in-house and this figure remaining at 39% in three years.
A formal CRM (relationship management) program was also identified as
lacking in many organisations, which is critical to being able to develop a
real estate strategy that has direct impact on the business performance
and outcomes.
Figure 17: CRE team performance
Where Australian respondents ranked themselves highly was on having a
robust outsourcing strategy in place with 69% scoring themselves strongly
or very strong on having an appropriate mix of internal and external
resources. Yet it would seem there is a gap in terms of resources that are
able to deliver the value-added skill sets that would help deliver a robust
strategic planning function that is integrated with the enterprise, or a
comprehensive approach to gathering ideas or integrating across the IT,
HR, sourcing and finance groups. Reflecting back on the strategy
discussion earlier, the resources available to the CRE executive are being
focussed on the foundational elements of strategy which are concentrated
on cost savings, rather on the more sophisticated elements of strategy
such as strategic stakeholder management and integration with
the business.
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Figure 18: CRE team performance – Regional differences
Figure 19: Constraints of CRE
The results indicate there is a gap between the expectations of the
business and the ability of CRE teams to deliver against those
expectations. Lack of investment stood out clearly as the main inhibitor to
CRE delivering to business expectations, particularly in Australia where
58% of respondents named it as a key challenge. This was followed by a
lack of integration to the wider business (47%) and a lack of sustained
C-suite commitment (42%). These three constraints were most prevalent
in Australia compared to the global average and the rest of Asia Pacific, as
was a lack of technology.
When asked what would help to close the delivery gap and elevate the
role of the CRE, the most popular answer (35%) was delivering additional
cost savings to the business. This was followed by generating insights to
support the business (21%) and forward thinking (16%). This again
underscores how deeply the mindset of CRE is entrenched in cost
savings, a legacy issue from the GFC. Whilst cost savings will continue to
be demanded by the business, CRE needs to educate on how real estate
strategy can have material business impacts outside of cost savings
and avoidance.
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Figure 20: How to elevate the CRE function
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Future predictions
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Conclusion
The good news is that the CRE see their mandate as stronger than three
years ago – 26% say much stronger and 40% say stronger. But the
question becomes how to elevate this mandate to be more far-reaching
inside the organisation as well as just stronger from a real estate
perspective? Particularly when there is such a big focus on cost savings
and a belief that this will deliver much sought after productivity gains. CRE
executives have told us that delivering cost savings is critical to enhancing
their profile, connecting with the C-suite and is fundamentally easier to
demonstrate. Yet delivering on this C-suite requirement for cost savings is
labour intensive, leaving less time to focus on creating value for the
organisation beyond financial savings. Delivering on the value side of the
equation is harder, more intangible and more challenging to quantify. Yet it
is those CRE teams who create a strategy that allows them to offer up
productivity gains from both a cost savings and value creation
perspective, who will elevate to excellence as we move through to 2020.
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About the authors
TONY WYLLIE
National Head of Integrated
Portfolio Services, Corporate Solutions
tony.wyllie@ap.jll.com
61 2 9220 8729
ANNA TOWN
Director, Strategic Sales
Services, Corporate Solutions
anna.town@ap.jll.com
02 9220 8445
Tony Wyllie is Head of Integrated Portfolio Services, Corporate Solutions
at Jones Lang LaSalle. Tony works with real estate and facilities teams to
drive real estate performance and align the property strategy to that of the
business. Tony has more than 20 years experience in the corporate
property services industry, delivering and implementing solutions around
work place strategy, portfolio strategy, strategic sourcing, transactions and
valuations and due diligence.
Anna has more than 16 years experience in marketing, communications
and research in the commercial and hotel property sectors. She is
responsible for setting the marketing strategy and executing strategic
programmes, including thought leadership, for the Corporate Solutions
business in Australia.
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