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Corporations Looking to Real Estate Purely for Cost Cutting Face Major Financial and Operational Risks



    Corporations Looking to Real Estate Purely for Cost Cutting Face Major
                       Financial and Operational Risks

JLL global survey reveals five risks and rewards companies face when balancing
cost cutting with revenue-enhancing strategies

PR Newswire

SINGAPORE, LONDON and CHICAGO, April 28, 2013

SINGAPORE, LONDON and CHICAGO, April 28, 2013 /PRNewswire/ -- Long a go-to for
corporate cost cutting, corporate real estate has turned a corner and is
becoming a solid productivity driver, with CEOs starting to reap the rewards
of enhanced revenue, shareholder value and employee performance. A new Jones
Lang LaSalle (JLL) report reveals that companies that view real estate assets
singularly as a source of short-term cost reduction are actually incurring
hidden long-term financial and operational risks. 

JLL's second biennial report on Global Corporate Real Estate Trends unearths
the five top corporate real estate risks, including possible negative impacts
to competitive advantage and profitability from cost cutting, procurement
processes, lack of collaboration between functions and failure to drive
productivity.

The 2013 survey, which measures insights from more than 630 corporate real
estate executives in 39 countries, points to the prodigious pressure corporate
real estate decision-makers are under as 68 percent of respondents recognize
increasing demand from senior business leaders to enhance productivity of the
real estate portfolio.

"The global financial crisis moved real estate up in importance to CEOs as a
tangible lever for enhancing revenue growth. Our survey shows that more CEOs
today are realizing that investing in long-term, revenue-focused corporate
real estate strategies can best leverage their real estate assets to mitigate
risks and increase long-term profitability," said John Forrest, Global
Director and CEO of Jones Lang LaSalle's Corporate Solutions business in Asia
Pacific. "While short-term cost cutting is tempting, sustainable financial and
operational benefits are more often achieved when cost reduction and
revenue-enhancing investments are considered together."

JLL addresses the outcomes of these increased pressures in its Global
Corporate Real Estate Trends report, which details the top five risks and
rewards corporate real estate users are facing in 2013:

 1. Singular focus on real estate cost cutting undermines potential rewards
    from revenue-enhancing investments
 2. Procurement drives price- rather than value-driven outsourcing
    partnerships
 3. Workplace productivity is frequently miscalculated in cost-per-square-foot
    terms, when contribution to business performance better characterizes
    returns
 4. Collaboration with HR, IT and finance is a must for enhancing workplaces,
    yet silos continue to constrain joint efforts
 5. Compromising real estate quality to enter high-growth global markets is
    dangerous

To see how these five risks are impacting the future of corporate real estate,
view an interactive video and read the summaries below.

Risk One: Singular focus on real estate cost cutting undermines potential
rewards from revenue-enhancing investments

Investments in long-term real estate and workplace strategies are many times
rewarded with significant contributions to productivity and corporate
performance; however, the increasing pressures on real estate teams to
implement short-term cost cutting continues to undercut more strategic moves.
Real estate can continue to add productivity value when cost-cutting measures
have run their course -- but that typically requires investment, and the
resulting corporate resistance to capital expenditure is a difficult barrier
to hurdle.  JLL's survey reveals that 48 percent of corporate executives view
financial constraints as their greatest limitation to adding more strategic
value to their businesses, while 34 percent also cite lack of effective data
and analytics.  Many lack the tools and training to effectively identify,
shape and execute the broader business strategies that would ultimately
deliver the most business impact. Corporations need to recalibrate their real
estate functions away from tactical cuts and into strategic investments.

Risk Two: Procurement drives price- rather than value-driven outsourcing
partnerships

Corporate real estate outsourcing is developing rapidly, and its reward can be
significant contributions to real estate productivity, innovation and
efficiency. In fact, 92 percent of companies surveyed in JLL's report are
practicing some form of real estate outsourcing. With this rise comes
increased participation from the procurement function in the choice of
outsourced service providers, with 68 percent citing active involvement. Yet,
58 percent report that procurement, when involved, has a limited knowledge of
real estate and its complexity and could overlook these characteristics in a
price-driven procurement process.

Risk Three: Workplace productivity is frequently miscalculated in
cost-per-square-foot terms, when contribution to business performance better
characterizes returns

Many corporate real estate footprints are shrinking. However, achieving
greater density is not the same as achieving productivity, which 96 percent of
respondents are charged with doing. According to JLL's report, this unwieldy
corporate expectation is prevalent as 72 percent of companies now expect real
estate to drive workplace productivity. Additionally, 61 percent look for
people productivity, 57 percent demand business productivity and 47 percent
cite asset performance as a key value driver for the company.

Corporate real estate is more about people than property, and workplace
strategy should be centered on how to use property to make employees more
productive. The good news is that 67 percent maintain that they're making
strides as the quality of their workplace has improved during the last three
years, demonstrating a focus on quality over pure space utilization metrics.
At the same time, this quality has been achieved alongside efficiency, with 68
percent suggesting that the utilization of space has also improved. Metrics
that will help to mitigate this risk include calculating new workplace
environments and the achievement of business goals, sales increases that
follow real estate strategy execution or other performance metrics that
directly or indirectly link environmental improvements, relocations or capital
investments to business outcomes.

Risk Four:  Collaboration with HR, IT and finance is a must for enhancing
workplaces, yet silos continue to constrain joint efforts

Achieving the reward of true workplace transformation requires collaboration,
changing management styles and true cross-functional alignment. Formal
collaborative organizational structures, such as administration or shared
service centers, are likely to increase as workplace productivity increases in
importance as a strategic focus. This change presents an opportunity for
corporate real estate teams to play a leadership role with partners in HR, IT
and finance, and that collaboration trend is forecasted to shift corporate
real estate into an integrated shared service in the next three years. While
only eight percent of respondents indicated that their function is currently
contained within a cross-functional group, 51 percent identify with the model
of shared services integration with finance. The reward for such leadership
can be improved worker, workplace and real estate portfolio productivity.

Risk Five: Compromising real estate quality to enter high-growth global
markets is dangerous

Portfolio growth is predicted to be strongest in the world's emerging real
estate markets that also tend to operate fundamentally differently than mature
markets well-known to the executive suite.  Many of the emerging markets with
the highest growth potential operate with less transparency compared to mature
markets, so the process of securing space requires a culturally sensitive
approach and local empowerment in order to seize opportunities that best
support business growth.

Nearly one in five respondents recognizes that the greatest challenge facing
corporate real estate executives is the risk of not being able to support
business expansion in high-growth, low-transparency markets. The possibility
of missed expectations is high and failure to deliver can damage the company's
reputation and standing of its real estate team.

"Companies that secure the right real estate in low-transparency, high-growth
markets will be well-positioned to take advantage of global economic expansion
where it is the strongest," said Dr. Lee Elliott, JLL's Research Director for
the firm's EMEA region. "Our research indicates that the time and resources
invested in fully understanding the local real estate dynamics in those
markets carries the potential to achieve significant corporate returns.
Corporate real estate teams must educate their business leaders about the
practicalities of building platforms in emerging markets if their reputations
are ultimately to be maintained or enhanced."

Wondering where your corporation stands? Find out how your organization
measures up to its peers in key areas such as outsourcing plans, workplace
strategy and resource capacity. Answer five quick questions via JLL's
interactive online tool and receive an instant comparison of your responses
with the survey result norms.

To request a full copy of the report, visit www.jll.com/globalCREtrends or
download a presentation on JLL's new SlideShare profile. Social media users
can also engage in the conversation about the future of corporate real estate
on Twitter using #CRETrends. 

A leader in the real estate outsourcing field, Jones Lang LaSalle'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.

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE: JLL) is a professional services and investment
management firm offering specialized real estate services to clients seeking
value by owning, occupying and investing in real estate. With annual revenue
of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than
1,000 locations worldwide. On behalf of its clients, the firm provides
management and real estate outsourcing services to a property portfolio of 2.6
billion square feet. Its investment management business, LaSalle Investment
Management, has $47.0 billion of real estate assets under management. For
further information, visit www.jll.com.

 

SOURCE Jones Lang LaSalle

Website: http://www.joneslanglasalle.com
Contact: Margy Sweeney, +1 312.612.0343, Margy.Sweeney@am.jll.com or Jennifer
Harris, +1 224.619.2190, Jennifer.Harris@am.jll.com
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