Where is real estate outsourcing going for the rest of the year? For service providers and businesses considering outsourcing real estate support services, here are some trends that may give insights on driving profit or savings.
Corporate real estate (CRE) departments are using outsourcing across more industry sectors and geographies under growing pressure to deliver high-quality services. According to a recent industry survey, 86 percent of respondents are currently outsourcing parts of their CRE activities. Outsourcing growth remains uneven around the world, however, and companies are only beginning to outsource more strategic real estate activities.
Like previous years, outsourced services range from tactical, cost-sensitive activities to highly strategic tasks focusing on long-term value. About a quarter of the respondents to the study predict that they would fully outsource lease administration, transaction management and execution, project and construction management, and facilities and property management within three years.
Analysts expect the following focus areas to impact real estate outsourcing decisions in 2016:
The global real estate industry has become less profitable in the past few years following the economic crisis, which has led to a growing need for leaner organizations with effective cost management strategies. Looking forward to 2016 and the future, some real estate businesses with overseas locations will experience greater pressure to reduce costs associated with their global presence.
Real estate experts suggest partnering with local third party specialists, developers and investors to mitigate costs and improve scalability. Real estate outsourcing can also help provide certainty around operating budgets by developing contracts that protect the organization against fluctuations in energy and operating costs. Third parties introduce a level of predictability that allows companies to forecast their capital spend for real estate for up to five years or more.
Corporate real estate departments continue to evolve, becoming leaner, stronger and more efficient. From large internal teams that manage a group of external providers, CRE departments are getting smaller and working with one or two providers of comprehensive real estate services, including software, staffing and infrastructure. This new model (also called outsourcing 4.0) makes use of advanced technology liked data analytics to standardize and simplify how property portfolios are managed. Analytics tools can mine portfolio information for insights that allows the firm to boost productivity, improve space utilization and reduce costs.
With this new outsourcing model, service providers perform both routine and strategic daily operations while the in-house real estate team handles more complex activities. In the coming years, real estate vendors will assume more control of costs, business interaction and process execution, which makes the organization’s property more effective. For vendors, the focus is to improve their technical capabilities and process expertise to become world-class partners to success.
This year, CRE departments and businesses will focus on outcomes and value that drive the business forward, such as increased productivity and competitiveness. While service level agreements (SLAs) and key performance indicators (KPIs) are still relevant, outcomes are weightier. More companies will also demand that service providers take a greater share of risks (as well as rewards), and this will be reflected in the outsourcing contract. As service providers take on more responsibility for outcomes, CRE managers are shifting from day-to-day management to overall CRE performance management.
Corporate real estate departments are no longer isolated entities in the organization. Because real estate strategy can impact employee productivity, experience, and retention, analysts expect CRE teams to increase collaboration with human resources, IT, the C-suite and support teams in the coming years. Service providers that offer real estate solutions integrating disparate systems into a single platform will be in demand.
The competition for skilled talent will only increase as the global real estate sector keeps on growing. Analysts predict that local real estate talent will be in high demand this year and in the near term. However, only a small number of workers have the right kind of knowledge and expertise that organizations need. To attract the right talent and fill skill gaps, real estate departments and business will improve employee incentives and align rewards with changing motivations. For example, different recruitment and retention strategies are needed for Millenials and more senior-level employees.
Real estate managers will need experts in sustainability, social networking, big data, government relations, sovereign wealth funds (SWF) relations and other areas. Because of globalization, the need for soft skills like diplomacy and cultural understanding will also become as important as functional skills. Many companies will turn to local and offshore providers to access the skills they need in a cost-effective way. Some organizations have already started recruiting offshore teams in emerging markets to train and integrate them into the company before redeployment to their original locations.
New regulatory requirements for asset and real estate managers in the U.S. and Europe are also putting pressure on organizations. While it is unlikely that regulations will be completely aligned among countries and regions, employee incentive models will increasingly take into account non-financial performance. Employees committed to innovative thinking, exceptional customer service will be the most rewarded.
New regulations coming into effect are causing disruptions in the industry. The TILA-RESPA Integrated Disclosure regulation (also known as the “Know Before You Owe” rule) is intended to improve transparency and accuracy, but the additional review time could lead to delayed closing processes if the required paperwork is poorly managed. Another rule, the Title XIV of the Dodd-Frank Act, means more stringent enforcement of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) and meeting additional standards for mortgage lenders. In the coming years, companies will work with real estate providers and technology vendors offering compliance solutions and other tools to streamline the originations process.
Similarly, regulations are constantly changing in the corporate real estate segment, and CRE teams and businesses must stay on top of developments. There are some companies for which regulatory compliance in areas like carbon emissions, energy usage and reporting is a core area, but most firms rely on third party specialists or consultants to help them. This trend will continue in 2016 and beyond as service providers become better informed and equipped to advise CRE departments.
Technology and Real Estate Outsourcing
The real estate and mortgage sectors have been somewhat slow to adopt new technology, but this has changed rapidly in the last few years. The evolution of mortgage technology is being driven by the need to restore consumer confidence, reduce the volume of delinquent loans and stabilize debt markets. The industry is witnessing some firms acquiring products to complement their technology solutions and capture market share.
Technology solutions that are currently in demand are those that improve quality control, efficiency and regulatory compliance. In 2016, more companies will use robotic process automation and data analytics tools to gather market intelligence, improve communication with investors, and improve regulatory reporting. Companies will also use new technology to control cost.
Systems that collect data and convert information into value for the business have become must haves for real estate teams and organizations. A recent survey of over 390 corporate real estate executives across the globe found that 28 percent already use data and analytics to shape most decisions, while 56 percent of respondents will use data and analytics to shape most decisions by 2017.
However, while most CRE executives understand the benefits of a data-driven strategy, many struggle with implementation because of difficulty accessing data to make the right decisions and the need for training on proper use and application of data analytics. This is why many firms are working with third party analytics providers to capture data efficiently, improve accuracy of reporting, and prioritize projects. CRE providers that innovate and propose new ways to address strategic needs are most in demand.
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