Strategic Real Estate Outsourcing Is Far More Than Cost-Cutting

Real estate and facilities may be the most misunderstood corporate function in the world of sourcing. Despite the fact that real estate is one of the largest corporate expenses, senior managers often are only vaguely aware of all the myriad strategies that exist to reduce cost, manage risk and drive productivity. Real estate is a strategic corporate function that affects every aspect of the business, from the C-suite to Finance to HR, and the ability of business units to operate effectively. But often, corporate real estate (CRE) leaders are perceived as the guys who work in the basement and clean the restrooms. This misperception is somewhat dangerous. In a recent survey, more than 70 percent of CRE directors said they face high internal expectations for increasing productivity in the workplace and improving efficiency within their department, but only 28 percent feel "well-equipped" to meet these rising demands from senior leadership. The challenge is intensified by the growing trend of procurement professionals affecting real estate sourcing decisions. More than two-thirds of CRE leaders see procurement taking an active or even leading role in real estate decisions, but only 42 percent believe the procurement function is sufficiently knowledgeable about the facilities function to make informed decisions. The problem lies in the notion that real estate is a commodity service, so the goal of a procurement team is to find the lowest-cost provider. That approach might make some executives look good as cost-cutters, but the damage to the business greatly overshadows any incremental cost savings. Companies that fail to recognize how real estate strategy affects corporate performance will inevitably fall behind their competitors, in terms of their ability to attract and retain talent, maximize profit and mitigate a range of risks. It's often the facility management function that's outsourced first, in part because companies are able to reduce headcount along with cost. But the facility managers aren't losing their jobs; they're simply joining a different firm, one that should provide them with more skills training and career opportunities. After joining the real estate firm, they will continue to interact with other employees as they have in the past. So in choosing a real estate outsourcing partner, it's important that companies consider cultural and employee development issues of different competitors. A facilities vendor that competes on price rather than quality is not likely to be a good cultural fit. There are seven things you need to know about CRE in a nutshell:

  1. Real estate is a strategic corporate function.
  2. Real estate and facilities affect performance across all aspects of your business. Every day.
  3. Outsourcing creates quick hit savings, but when done right it also boosts productivity.
  4. Experience with the right provider matters a lot.
  5. "Alignment of interests" is not a mythical idea. Win-win arrangements yield better results.
  6. A great sourcing relationship involves clear, measurable goals that motivate everyone to work together.
  7. A smooth employee transition is the most critical part of the process to get right.

A better understanding of the issues can mean the difference between a great sourcing decision that supports long-term success and growth, and a poor decision that executives will come to regret. 

Bryan Jacobs, Executive Managing Director, JLL

As an Executive Managing Director for Jones Lang LaSalle (JLL), Bryan creates, implements and oversees real estate and integrated facility management solutions for JLL's major global clients. He has more than 26 years in the corporate real estate industry and specializes in leading large assignments that call for multiple services in several geographies with a particular emphasis on large operational outsourcing. Follow Bryan on Twitter at @bryanjacobs3. For more on CRE, read JLL's short eBook entitled Corporate Real Estate Outsourcing: Seven Things You Need To Know.