Expanding Beyond the ‘Edifice Complex’ | Article

Trends in Real Estate Outsourcing

Building“Real estate today is not about doing deals. People are getting over their ‘edifice complex,'” quips Deborah Kops, global lead, real estate process outsourcing for PricewaterhouseCoopers’ (PWC) Global Outsourcing Group. She says a “sea change” is occurring in the industry as companies “realize real estate is a business process that can create profits.”

Bill Concannon, president of Trammell Crow Company’s Global Services, agrees. “Companies understand real estate outsourcing is a solutions business. It’s no longer just about transactions. It’s about customer service, offering innovative solutions and building long term relationships,” he says. One example of this mentality is the extended length of the initial outsourcing contract. In the last five years the contact term has grown from 3.8 years to more than five years, he reports.

Real estate is a perfect process for BPO because only 20 percent of the real estate process is real estate specific, according to Kops. In the past, companies focused on the transaction – the purchase of a building or the signing of a lease. Those who outsource focus both on the transaction and the transactions – the checks the companies send out each month to the landlord, the utility companies, etc. “Paying bills is a generic business process,” Kops points out. The leading enterprise resource planning (ERP) software packages now include real estate components, making it easier to integrate real estate with other business processes.

Technology Is a Big Deal

Technology has helped reshape the real estate industry and accelerated the growth of real estate outsourcing. “Today there’s a much greater understanding of technology as an integrator and enabler,” says Kops, who is based in Washington, D.C. “Web-enabled systems touch all aspects of real estate outsourcing,” adds Lee Coleman, senior vice president of The Staubach Company, a real estate brokerage and outsourcing provider in Dallas, Texas.

Coleman says technology has made it possible for business process outsourcing (BPO) providers to efficiently manage the real estate process on a national basis. For example, in the old days before the Internet, Coleman says everyone involved in the real estate process had to touch documents. “We used to prepare a market survey in a bound binder complete with photographs and graphs that we’d send to the prospect overnight,” he recalls. Now Staubach executives prepare a PDF file complete with digital photos. “Our clients can access the file from everywhere,” he says. Ditto for the Excel spread sheets the provider prepares for property management.

The souring economy is also driving growth. “Companies can reduce their expenses without cutting their service levels when they outsource,” says Eric Nolan, president of Place, LLC, a real estate outsourcing supplier in Clarendon Hills, Illinois.

Over the past 12 months, cost saving has returned to the top of the list of reasons to outsource the real estate and facilities process, reports Concannon. Fortune 500 companies are turning to a real estate outsourcing provider like his Dallas, Texas-based firm because outsourcing suppliers are able to drive down both the operating and capital costs of facilities. He estimates today real estate outsourcing is a $1 billion business.

Volatile energy costs are becoming a major factor in the high cost of operating real estate. Concannon says energy comprises at least 15 percent of the dollars companies must allot to operating costs. And those numbers may go higher as states deregulate energy. Companies worried about their energy outlays are getting plugged into outsourcing suppliers adept at managing both the buy and the demand side of energy purchasing. “We really understand how our clients’ energy needs are unique to their businesses,” says the Trammel Crow executive.

Focusing on What They Do Best

In addition, companies want to focus on their core competencies during this time of economic contraction. Except for retail stores, real estate is not core to these firms. Concannon says during the recent economic boom improving effectiveness by focusing on their core business was the primary driver for real estate outsourcing.

Another critical reason to outsource corporate real estate is the ability to change the process. Outsourcing providers can foster innovation, generate economies of scale and hasten speed to market.

Because of the energy problem, Concannon believes manufacturing companies represent “the next wave of opportunity” for real estate outsourcing suppliers. Electricity and natural gas prices “will make them look at outsourcing more aggressively,” he notes.

Ed Boudreau, president of Capital Consultants Management Corporation, a real estate outsourcing provider in Dallas, Texas, adds banks and insurance companies to the list. “They outsource during periods of trouble because they begin to have non-performing real estate loans. That overwhelms them,” he notes.

Lessons from the Outsourcing Primer:

  • The slowing economy is encouraging companies to consider real estate outsourcing.
  • Real estate is a perfect process for BPO because only 20 percent is real estate related. Paying bills, for instance, is a common business process.
  • Real estate outsourcing providers can help their buyers manage volatile energy prices.
  • The next wave of real estate outsourcing buyers will be manufacturers who are looking for ways to manage their energy costs.

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