Real Estate Forum - April 2013

NEWS FRONT
“Stark” Reality: Euro Has More Pain Ahead

CANNES, FRANCE—The start of reforms is in place to turn the European economy and banking crisis around. But that doesn’t mean there won’t be more pain ahead. That was the assessment of Jurgen Stark, a member of the European Central Bank Executive Board from 2006 to 2011, in comments he made at MIPIM here last month. Of course, as the Continent continues to struggle, entrepreneurial US firms are finding opportunity.

The good news for Europe is that the
economy has bottomed out, and Stark sees
a growing GDP, starting with export demand
and eventually spreading to investment. As
he put it, “the markets have calmed down.”
Stark denied European culpability as the
main driver of the world’s economic woes.
Rather, he laid the blame at all advanced
economies due to what he termed foolishly
loose fiscal policies and a “surprising” under-
estimation of the impact of the housing fail-
ure. “No region of the world,” he said, “can
ignore” its own fiscal responsibility.

The Global State of Real Estate Outsourcing

The business of outsourcing real estate services has evolved signifi-
cantly since the concept was pioneered in the early 1990s, and the
role service providers play in the industry today is vastly different
than even a few years ago. From managing lease transactions and
corporate facilities to assisting with portfolio optimization and busi-
ness process improvement strategies, service
providers are rapidly assuming responsibilities
traditionally held by internal corporate real
estate departments.
Driven by the need to
control costs and improve
efficiency, corporate real estate is turning to
service providers for not just best-in-class tactical
services, but also to develop actionable strate-
gies that will help them deliver value back to
their organizations. As this unfolds, property owners are also begin-
ning to realize the benefits of increasing their outsourcing efforts
and, in turn, are seeking a broader suite of services from providers.

The value proposition for corporate real estate departments to develop formal outsourcing strategies is compelling. Outsourcing offers organizations a chance to shift significant non-core business expenses off their P&Ls. At the same time, it frees up individuals inside the real estate organization to focus on more value-added activities, such as how to best support business units in improving employee productivity. Outsourcing gives an organization a consistent set of processes that create efficiencies and provide best-practice solutions for solving complex problems.

There are many types of outsourcing models and organizations have the ability to design outsource partnerships that can range from experimental, where service provider dependence is low, to

By Maria Novak

models that are more transformational, where dependence on the outsource partner is high. In most cases today, corporations choose to partner with multiple providers based either on their functional or geographic expertise.

Much like the corporate side, internal cost pressures are driving owners to outsource more and in different ways. An increased global regulatory environment—as well as the additional resources needed to tackle issues such as energy consumption, business continuity, social media and technology—have increased operating costs for many owners. These firms are beginning to turn to service providers to not just manage properties and collect rent, but to provide expertise in areas that create asset value. This allows owners to be able to focus on their core activities of making real estate investments.

The increase in outsourcing does not mean it’s all smooth sailing for service providers. To the contrary, it is creating fierce competition in the provider industry. While the benefits of outsourcing are clear, corporate users are mindful that many providers are just beginning to scale the more strategic side of their platforms.

Owner concerns hinge on choosing which firm can provide the best advice in strategically managing assets for value creation. One thing is clear however: With the continuing need to control costs in the global economy, the trend toward outsourcing, with broader and more complex services, is unlikely to slow in the near future.

(This column originally appeared in slightly different form on GlobeSt.com.)

Maria Novak is the senior managing director of global strategy for Cushman & Wakefield’s corporate occupier and investor services group. She may be contacted at maria.novak@cushwake.com. The views expressed here are the author’s own.