March 28, 2016
70% Occupiers Highlight Real Estate Costs as Top Priority; Space Efficiency, Lease Negotiation Preferred Cost-management Strategies
CBRE has launched its inaugural Asia Pacific Occupier Survey, which reveals that cost management and employee engagement are key issues for multinational corporations.
Asia Pacific remains a key growth market for multinational companies but the economic slowdown in China is ushering in a period of more cautious business expansion. This is necessitating the formulation of more complex and sophisticated corporate real estate strategies.
“Asia Pacific’s economic growth still outpaces EMEA and the Americas. Despite the short-term volatility and softening business sentiment, the medium to long-term outlook looks positive for the region, and still provides opportunities for multinational companies. Southeast Asia and India will be the main focus of portfolio growth driven by solid economic growth and rapid demographic changes in these markets. Companies remain positive towards expansion in China but it will be relatively moderate in the coming years,” said Dr Henry Chin, Head of Research, CBRE Asia Pacific.
In spite of current challenges, multinational companies still retain strong hiring intentions—42% of CRE (commercial real estate) executives reveal they plan to increase their regional headcount over the next three years.
Effective Space and Cost Management
When asked to identify the main factors driving location and building selection decisions, around 70% of respondents said real estate costs were the top priority, and this, along with the more cautious approach to expansion, is informing portfolio strategies and location choice.
“In light of the ongoing economic slowdown and financial market instability, occupiers will need to manage short-term economic volatility when formulating their CRE strategies. And with a more cautious approach to business expansion, we expect multinationals to focus more on optimizing their existing portfolios, for example through cost control and talent management, rather than expanding their footprint,” Dr Chin added.
Space efficiency was identified as the most popular initiative to reduce occupancy costs (55% of respondents), closely followed by lease negotiation (40%). Increased scrutiny of CAPEX and fit out costs means that the previously popular strategy of relocation to decentralized or emerging areas may have lost some of its appeal as a cost-saving measure, and was highlighted by only 23% of respondents.
Drivers of workplace strategy are changing. The survey found that better collaboration with customers, colleagues and coworkers is now the key reason behind implementing workplace strategy (58%), closely followed by cost savings (53%). The emphasis on increasing employee productivity (47%) is also driving the development of workplace strategy.
“Many multinationals initially implemented workplace strategy as a means to improve space utilization with the aim of reducing costs. However, this way of thinking is now changing, as more companies look to strike a balance between reducing costs, improving productivity and enhancing the overall work experience for employees,” said Phil Rowland, Chief Executive Officer, Global Workplace Solutions, CBRE Asia Pacific.
With employee satisfaction as one of the key factors for evaluating business performance, workplaces are increasingly offering a wide range of amenities to enhance performance and improve employee retention. Accessibility, provision of facilities and services, indoor environmental quality and flexible working are rated as some of the most important factors to employees.
CRE Executives’ Role in Transition
The current economic climate is prompting companies to implement more complex and effective commercial real estate strategies to enhance business performance. Consequently, the role of CRE executives has become more strategic. Their contribution and value proposition to corporations is now focused on improving financial and operational results, such as cost reduction, talent management and employee productivity.
“CRE executives should be aware that their strategies today have a far more powerful impact on the culture, collaboration, performance and branding of their company than ever before. Collecting the right data in terms of quality and accuracy will be key to helping them make better decisions and ensure stronger alignment with enterprise strategies—not only market and portfolio rents, but also data from human resources, facility management and finance departments,” said Mr Rowland.
Meeting Company Objectives
In order to accomplish company objectives, CBRE recommends the following strategies:
- Lease flexibility—options such as first refusal, expansion and termination should be built into leases to mitigate future operational risks
- Longer lease lengths and high incentives—securing favorable lease terms has a direct impact on companies’ profit and loss statements
- Improving space utilization—enables occupiers to lower expenditure once other cost saving options have already been achieved
- Centralized management structure—benchmark performance against competitors and deal effectively with different suppliers allowing more control
- Investment in technology—enable the development of flexible workplaces and support business growth
- Outsourcing—strike a balance between growth and cost as occupiers can offshore certain functions to third party suppliers in cheaper or low cost locations such as Philippines, India
- Selecting office locations easily accessible by public transportation
- Leasing space in buildings with good amenities such as gyms, F&B and childcare
- Increasing common areas, collaborative space and implementing hot desking to encourage flexibility and interaction
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com or www.cbrevietnam.com