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Opportunity Emerges from Crisis

Global Corporate Real Estate Survey 2011

Jones Lang LaSalle 

Opportunity Emerges from Crisis

Introduction
We are delighted to introduce Jones Lang LaSalles inaugural Global Corporate Real Estate Survey, providing insight from within the industry about the future path, challenges and opportunities facing corporate real estate (CRE). With over 500 CRE executive respondents globally, this survey has captured data not previously presented in any of our research. The corporate operating environment has hardened over the last 36 months. CRE teams have been required to respond with greater agility, expediency and improved productivity. They have increasingly done so by working closely with service providers, and throughout the crisis, we have been working with clients across geographies and sectors to help them deliver sizeable real estate cost savings. The challenges facing CRE are significant. CRE leaders who address these challenges head on and who think and invest in developing CRE talent, recruiting key talent from the industry, or from outside traditional boundaries, will be those operating at the vanguard of the industry. New thinking is required and the rewards for delivering such will be significant. Survey respondents firmly believe that transformations in the role and structure of the CRE function are underway and will intensify over the next three years. We concur. We believe that this period is a pivotal time for CRE in terms of elevating the awareness of CRE inside the organization and with this awareness, the realization of the potential strategic contribution of the overall function. Stuart Hicks Americas This survey represents the first global attempt to identify the future challenges facing the CRE industry and their likely consequences over the next three years. We sincerely thank those of you who shared your thoughts and perspectives. Your input has helped form a clear picture of where next for CRE. Going forward, we will address many of the specific challenges raised within this report in more detail via our continuing thought leadership program, which we will deliver to you throughout 2011 and beyond.

John Forrest Asia Pacific

Vincent Lottefier Europe, Middle East and Africa

 Global Corporate Real Estate Survey 2011

Executive Summary
The Global Financial Crisis (GFC) generated four overarching global trends impacting the future state for CRE, which are summarized here and expanded further throughout the report:

Higher demands on productivity: CRE teams are required to be more relevant and resourceful,

enabling CRE leaders to further enhance productivity and efficiency Having been placed in the eye of the storm during the GFC, CRE teams now experience more scrutiny from internal stakeholders, increased demand for real-time reporting, and tougher performance targets. This should help CRE teams be better prepared to address returning growth, as well as the continued uncertainty in some sectors and markets. Driving improved productivity via the implementation of more strategic real estate initiatives will define best-in-class CRE organizations. A shift from shortterm, survival tactics towards mediumterm, strategic initiatives aimed at driving productivity enhancements is both possible and required.

Balancing the dual forces of growth and right-sizing: CRE organizations are exposed

to complex targets, such as dealing with the contrary pressures of growth and right-sizing Charged by corporate leadership to deliver sizeable cost savings, CRE teams embarked on a series of short-term tactical real estate plays focused exclusively on driving direct cost savings from real estate portfolios. This forced a step change in the form, function and structure of the CRE organizations engagement with leadership. A key challenge for CRE teams will be to deliver a platform that enables the business to pursue select growth opportunities, often in markets that lack transparency, while simultaneously right-sizing CRE portfolios within mature markets.

Progressing towards partnerships: CRE teams are moving towards

more sophisticated partnership models To meet the challenges of the next three years, CRE teams will need help from outside. Evolution along the outsourcing curve will be necessary to provide capacity for CRE leaders to elevate the function within the organization. For those already engaged with the market, a re-evaluation of existing partnerships with key service providers may be undertaken to ensure value and benefits are being extracted to the satisfaction of higher levels of the organization.

Five keys to CRE success:

CRE teams will need to change in order to be relevant and responsive Reshaping CRE structures and skills: A new talent requirement is easily outsourced) activities. Greater attention on driving sustained relationships with business leaders will facilitate better long-term alignment between business and CRE strategies. Either through investment in up-skilling existing staff or acquiring fresh talent including talent from both within the industry and possibly outside the traditional boundaries CRE leaders should broaden the set of skills residing in their organizations today. Over the next three years, the challenges of managing CRE will intensify. Strong and sustained interest from senior business leaders in real estate costs and strategy represents an unparalleled opportunity to elevate the CRE function and its contribution even further. Along with this, CRE professionals have an unprecedented opportunity to accelerate their careers. to their business needs. There are five fundamental strategies that can drive change and adaptation in the CRE function as outcomes from our global survey: 1. Generate a long-term plan for the evolution of the CRE team that supports and facilitates the wider business growth. 2. Place a strong focus on real estate strategies that drive enhanced productivity and are highly efficient and align with top business goals. 3. Make the most of the service provider market to find partners that help increase capacity and capability to tackle the twin pressures of right-sizing, while pursuing selective growth. 4. Re-focus and restructure the CRE team both in response to growing scrutiny from senior business leaders and in order to drive a more strategic agenda. 5. Focus on talent investing in current CRE teams tapping talent from within the industry, accessing talent from outside the traditional boundaries to ensure the CRE function is suited to engaging and managing the raised expectations of an informed C-suite.

emerging, resulting from a tougher operational environment, forcing CRE leaders to rethink team structures and skills CRE teams were exposed during the economic uncertainty as the C-suite gained a better appreciation of real estate fundamentals and the costs associated with real estate portfolios. While this presents new, tougher challenges for CRE teams, it also creates an opportunity for greater engagement. CRE leaders should consider re-evaluating their existing teams and skills. They must be prepared to redesign team structures in order to reduce focus on tactical (more

Global Trend #1: Higher demands on productivity

Throughout the GFC, CRE teams were focused on delivering short-term tactics to generate direct cost savings and/or generate capital from the sale of surplus assets, in support of wider corporate survival strategies. Corporate leaders are more aware of real estate portfolio costs and will continue to set tough performance targets for CRE teams. This requires greater focus on strategic action as CRE leaders report being exposed and elevated to a higher discussion within the organization. CRE teams should pursue more strategic initiatives in order to meet these tough targets. Reducing uncertainty and using the increasingly available investment capital smartly will assist. Key among these strategic initiatives will be the effort to improve workplace efficiency, mobility and productivity.

Key Statistics
97% of respondents reacted to the GFC via one or more tactical real estate plays 85% believe that the CRE function has developed greater visibility and engagement with senior business leaders in response to economic uncertainty 91% believe that they now have greater ability to influence decisions and strategies within the wider business 81% maintain that they had been placed under greater scrutiny by the wider business, with the same proportion being tasked with more difficult performance targets 75% are now required to report to senior business leaders on portfolio status and costs with increased regularity, with 78% being asked to articulate the true costs of the real estate portfolio to the wider business on demand

1 2 3

CRE Implications
Improve your ability to respond in real time to demands from senior management and anticipate changing business dynamics. Seek necessary investment to be able to quantify and qualify the portfolio at any given time through effective reporting tools. Adopt a scenario planning approach towards CRE strategy formation that gives the business options to act effectively over the short, medium and long term. Be clear about the role, remit and structure of the CRE team within each of these scenarios. Establish a workplace mobility/ productivity strategy. Be prepared to use the changing operational context for CRE to drive this into the business, overcome resistance and sell the benefits of change in both hard quantifiable (financial and productivity metrics) benefits and soft qualitative (talent) terms. A partnership with Human Resources will fortify the discussion.

Jones Lang LaSalle 

CRE stands at the front-line of corporate cost saving, adopting short-term tactical responses
As global corporations responded to tightening financial conditions and shrinking revenues, attention predictably turned quickly towards real estate, which typically accounts for 7-12% of a business total operating cost base. This pressure was firmly felt by CRE teams across the world with 97% of survey respondents supporting their business with one or more tactical real estate plays to reduce cost (Fig 1).

Fig 1 >> Top 5 strategies adopted in response to the Global Financial Crisis
Consolidating into fewer buildings Taking out cost from the portfolio Preparing/revising CRE plans for future implementation Portfolio/lease gathering to aid informed decision making Disposal of surplus space through sub-letting
BaSE: 316 RESPondEnTS

73% 72% 57% 57% 55%

Which of the following corporate real estate strategies did your organization implement to cope with the global financial crisis?

Preparedness is evident, but as a reaction to current shortcomings

During the GFC, more than half of our respondents took the opportunity to review existing real estate strategies and revise or devise new plans for implementation. This suggests a return to the basics of portfolio planning with 57% seeking to gather portfolio and lease information in order to inform strategic decision making. Pre-crisis, some CRE teams were insufficiently equipped to readily provide portfolio metrics or identify opportunities. In the future, speed and information will be crucial as economic uncertainty lingers.

Planning horizons are long and typically lack insight into alternative scenarios and strategies
The wave of uncertainty ushered in by the GFC is entirely at odds with the typical planning horizon for most CRE strategies. Fifty-four percent of our respondents had a CRE planning horizon of more than three

years, while just 5% had a horizon of up to one year. While lease structures and negotiation periods around leasing events typically preclude an extremely short-term strategic focus, a planning horizon of three or more years has often been unable to deliver the immediate added value and strategic guidance that businesses required during the crisis.

 Global Corporate Real Estate Survey 2011

Survey results also illustrate that most CRE strategies developed over this lengthy planning horizon pay little attention to the direction and shape of the CRE function itself. A large proportion of respondents struggled to articulate effectively what the role, remit and structure of their team will be three years from now. There is an opportunity for CRE leaders to start thinking differently and to move away from the tactical, everyday actions encouraged by lease structures. Offering up future scenarios and a menu of potential responses (together with the broad implications of these responses) will be at the heart of making a more valuable, distinguished and truly strategic contribution to the wider business and its growth.

Fig 2 >> Top 5 strategies that respondents would have liked to have adopted but didnt
Upgrading of workplace/space Preparing/revising strategic real estate plans for future implementation Monetizing owned assets Exiting non-core markets and limiting exposure Leveraging covenant/landlord relationships to achieve flexibility 8% 8% 8% 10% 16%

BaSE: 316 RESPondEnTS

Which of the following strategies would you have liked to implement but did not?

Fig 3 >> Top 5 constraints upon action

Uncertainty around the future shape and size of the business Capital expenditure constraints Economic uncertainty Unfavorable market conditions for implementing disposal strategies Internal resistance 26% 26% 36% 44% 42%

BaSE: 316 RESPondEnTS

What factors limited your ability to execute those strategies that you would have liked to have?

Jones Lang LaSalle 

alternative strategies are not well formed and routes to implementation are seen as constrained
Our survey asked respondents about those strategies they would have liked to have implemented in response to the GFC but were unable. A summary of these strategies is shown in Fig 2. Only a very small number of respondents were able to identify alternative routes of action limiting innovative thinking and action within CRE.

There were real constraints to the delivery of more strategic action as recognized in Fig 3. The sense of underlying uncertainty appears to have served as a substantial brake. However, as some semblance of stability returns and confidence levels improve, the majority of these constraints are being removed.

GFC legacies are strong and have increased the pressure being placed upon CRE teams
The capacity to develop more flexible and valuable CRE strategies is dependent upon effective and regular engagement with business leadership. Results from this survey suggest that this dialogue is emerging and provides a platform for a step-change in the role, remit, and structure of the CRE function going forward. Survey respondents were asked for their views on the likelihood of the emergence of future operational scenarios and a large proportion of respondents were aware of these scenarios emerging within their business and day-to-day activities (Fig 4).

Fig 4 >> The likelihood of transformation scenarios in the CRE function post GFC
Scenario Has not Has not happened and will but will in the next not happen 3 years 7% 10% 4% 6% 6% 11% 10% 8% 5% 8% 9% 4% 12% 12% 14% 15% 11% 17% Has partly happened 42% 45% 40% 48% 38% 36% 34% 34% 34% Has happened to a large extent 43% 36% 51% 34% 43% 39% 40% 47% 44%

CRE function gains greater visibility and ability to influence business decisions CRE function is placed under greater scrutiny by the wider business CRE function has far greater visibility and engagement with senior business leaders CRE function has greater and earlier insight into potential changes to the wider business CRE function is given more difficult targets / key performance indicators CRE function is called upon to report more frequently on portfolio status / issues CRE function is charged with reworking the CRE strategy CRE function is tasked with enhancing portfolio data and understanding CRE function is required to be able to articulate the true costs of the real estate portfolio to the wider business on demand
BaSE: 316 RESPondEnTS

These are some possible legacies of the global financial crisis on the role of the corporate real estate team. In your opinion, to what degree have they taken place in your organization?

10 Global Corporate Real Estate Survey 2011

Today, the CRE function has greater visibility within the business than it has had at any other time. This visibility is a route to greater engagement that is further enhanced by senior business leaders now having an active interest in real estate, a growing understanding of real estate portfolio costs and a desire to work this area of operations harder and smarter. This provides an opportunity for the CRE community to engage and make a greater contribution.

Fig 5 >> Status of respondents current approach to workplace mobility

Limited or partial program has been implemented 14% Comprehensive program is in place and underway Workplace mobility program is in the planning phase Plan has been proposed but not yet scoped out or developed No plans underway at this time 25%

7%
13%

Workplace mobility and productivity will be a key success route for CRE in this changing climate
This contribution can be made through a more intense focus upon transforming the nature and culture of the workplace. Seventy-seven percent of survey respondents regard the need to attract talent, the quest for enhanced productivity, the right-sizing of the portfolio for a new

41%

BaSE: 244 RESPondEnTS

How would you describe your organizations current approach to workplace mobility (i.e. ability to work from multiple places)?

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organizational reality or a desire to change the culture and nature of work as top influences on future real estate strategies. Creating more efficient workspace that is conducive to modern work styles and receptive to the work-style demands of knowledge workers i.e., to make the workplace more productive will assist CRE leaders in building additional value for their businesses. Fig 5 shows that the current level of implementation for workplace mobility programs can be best described as patchy. More comprehensive programs can assist organizations to meet required targets. The barriers to implementation, outlined in Fig 6, need to be addressed and overcome in partnership with senior business leaders if improved workplace productivity is to be achieved.

Fig 6 >> Perceived greatest constraints to the adoption of workplace mobility programs
Management and/or employee engagement Resistance/fear of change Lack of executive buy-in Technological deficiencies Maintaining organizational culture 17% 17% 39% 44% 44%

BaSE: 18 RESPondEnTS

In your opinion, what limits the adoption of workplace mobility in your organization?

Global Trend #2: Balancing the dual forces of growth and right-sizing
Respondents are seeing the return of growth pressures within their businesses, but in select geographies. These growth areas typically coincide with opaque real estate markets which present operational challenges and where we advocate using locally adept and in-situ real estate professionals who understand market nuances. Net portfolio growth is anticipated to be strongest in the Asia-Pacific region and in particular North Asia, driven essentially by the growth of China. In contrast, net portfolio growth is predicted to be flat or negative across North America and Western Europe as corporate occupiers seek to rationalize or consolidate portfolios often enabled by workplace mobility programs.

Key Statistics
39% of respondents forecast an increase in the total size of their global real estate portfolio over the next three years, while 31% predict a reduction Respondents forecast their portfolio growth to be strongest in North Asia with a 60% net growth in portfolio size predicted over the next three years, followed by Latin America (34%) and Central and Eastern Europe (34%) The finance sector is forecast to grow most notably in North Asia with 63% of respondents predicting portfolio growth. The technology sector is also predicting portfolio growth in North Asia (67%), Latin America (44%) and SE Asia (44%)

1 2 3

CRE Implications
The varied global growth trajectory does not lend itself to a one size fits all approach and CRE leaders will need to be selective, innovative and run a number of strategies in parallel. CRE leaders will need to ensure teams are effectively structured and skilled to tackle the twin requirements of driving growth and right-sizing. Emerging and opaque markets will challenge CRE teams to build a knowledge base quickly. Understanding of market practice, orthodoxies, and conditions will be essential for CRE teams to present deliverable options to their business, be able to communicate risks and give guidance on realistic lead times.

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a returning growth dynamic will influence real estate strategy

Survey respondents identified a growth dynamic returning to their businesses over the next three years. Growth was the standout issue shaping respondents future real estate strategies (Fig 7).

Fig 7 >> The most influential factor shaping future real estate strategy
Growth Cost pressures Uncertainty and risk minimization Rationalizing/consolidating space Upgrading the quality of space Attracting talent
BaSE: 316 RESPondEnTS

35% 11% 7% 5% 4% 4%

Variance in growth rates is high and will force corporate occupiers to make selections
Projected GDP growth rates across the world show a tremendous variance (Fig 8). Corporate occupiers are prioritizing targeted opportunities in their attempts to benefit from the return to a more stable economic climate. However, the specific location of the selected growth presents a challenge and will add to the pressure already being felt by CRE teams. Growth most likely will be pursued in rapidly emerging markets and therefore concentrated in markets where local real estate expertise is most valuable.

As we emerge from the global financial crisis, which of the following will be most influential in shaping your current and future (3 years from now) real estate strategy?

Fig 8 >> Select GdP growth rates 2011-14 (% pa)

China India Brazil Russia Australia United States United Kingdom Germany France
Source: Global Insight, January 2011

9.0 8.6 5.4 3.7 3.1 3.1 2.3 2.1 2.0

1 Global Corporate Real Estate Survey 2011

This selectivity in growth is represented in Fig 9, which illustrates where respondents expect to see net growth in portfolio sizes over the next three years. Net growth is strongest in the Asia-Pacific region. Three sub-regions dominate with a number of respondents predicting portfolio growth (for a listing of which countries are included in regional breakouts, see page 25):
1. 2. 3. North Asia (primarily China) 60% South Asia (primarily India) 43% South East Asia 37%

Providing the platform for growth presents a challenge

The challenge facing corporate occupiers is the relative lack of transparency and varying degrees of maturity around real estate. It is revealing to compare the previous growth map (Fig 9) with Fig 10, drawn from Jones Lang LaSalles most recent Real Estate Transparency Survey, which shows the varying levels of market transparency across the world. It is clear that the markets in which respondents are pursuing growth are also the markets that have low levels of transparency. Where opaqueness exists, CRE organizations may experience:
1. Slower speed-to-market 2. Higher barriers to entry 3. Cost and complexity around routes to market exit

Lower growth rates in mature markets place downward pressure on portfolio size
Respondents suggest that in the United States and Western Europe overall portfolio size will remain flat or reduce over the next three years. This downsizing has already been seen in these mature Western markets. Over the last 18-24 months, corporate occupiers have sought to drive consolidation within their portfolios and release surplus space back into the market hence driving vacancy rates in Europe and the United States, for example, to new record high levels. Going forward, there will be a push to drive better utilization rates within consolidated portfolios, further dampening demand for additional office space in mature markets. Utilization rates currently run at around 40%, which represents a huge cost and inefficiency to corporate occupiers. This will be a further powerful stimulus for strategic real estate initiatives that aim to drive a more efficient and productive workplace.

In the EMEA region this same Eastwards and Southwards shift is evident. Strong portfolio growth is predicted for Central and Eastern Europe (34%) and the Middle East (24%). In the Americas the growth dynamic is Southwards, in the Latin America region (34%).

The emerging market dynamic is apparent and the opportunities presented by the BRIC nations are being responded to by global businesses particularly in the absence of strong economic growth forecasts within the more mature sub-regions of the world.

The need to deliver the platform for growth in real estate markets places pressure on CRE teams over the medium term. CRE teams need to enable the pursuit of growth, but the wider business may be ill-informed about the practicalities of expanding within an opaque, emerging market. Entering emerging markets is not new, and ensuring CRE teams are equipped with options and clarity around cost and risk should enable them to meet the broader company growth objectives.

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Fig 9 >> net portfolio growth over next 3 years

Negative Net Portfolio Growth Stability (0% Net Growth) 0-10% Net Portfolio Growth 10-25% Net Portfolio Growth 30-50% Net Portfolio Growth 50%+ Net Portfolio Growth Not Covered

Fig 10 >> Global Real Estate Market transparency

High Transparency Transparent Semi-Transparent Low Transparency Opaque Not Covered

Note: Respondents provided views on likely portfolio growth at a sub-regional level. Results therefore mask clear differentials within subregions and are often influenced by the presence of a strong emerging market. Projected growth in North Asia, for example, will be influenced by the rise of China and does not suggest similar levels of portfolio growth in Japan.

Global Trend #: Progressing towards partnerships

Hybrid delivery models, where services are delivered through a combination of an in-house team and outsourced real estate service providers, will increase in popularity over the next three years. While well established in the US, this trend is growing stronger among EMEA corporates where tactical functions, such as transaction services, have the greatest tendency to be outsourced. Those currently operating a fully-outsourced model, or seeking to do so over the next three years, anticipate developing fewer but stronger and deeper relationships with service providers. With a push for CRE to be more strategic around how they engage for real estate services, CRE leaders should focus on their future delivery model. Currently, nearly a quarter of respondents are unable to categorize their likely model three years from now.

Key Statistics
23% of respondents were unable to articulate their likely model of corporate real estate services three years from now 67% currently deliver CRE services via a hybrid model this will rise to 70% over the next three years 24% deliver CRE services entirely inhouse but this will reduce to less than a fifth over the next three years 9% currently adopt a fully outsourced model of service provision, rising to 11% by 2014 70% will do so via an exclusive partnership arrangement 41% of those adopting a hybrid delivery model outsource property management; 34% also outsource transactional services to the market 72% of those adopting a hybrid delivery model retain portfolio strategy work in-house

1 2

CRE Implications
Undertake a skills audit of your existing real estate team. Identify gaps in your capability to respond to tasks given by your stakeholders. Consider relationships that share goals, risks as well as rewards where you can achieve a true alignment of interests. Be clear on what you need from your service provider both now and in the future and undertake a thorough review of what the market can offer. Evaluate current relationships in terms of the value delivered to ensure that the relationship remains relevant to immediate circumstances and future strategy.

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Globally there is movement towards partnerships with service providers as fully in-house delivery models diminish, driving growth of hybrid and fullyoutsourced models over the next three years
Nearly a quarter of all respondents were unable to articulate a clear vision of how their real estate services will be delivered in 2014. This inability is underpinned by a range of potential factors:
Lack of understanding of the wider business strategy Inability to see a clear future given the fog of uncertainty Lack of understanding within CRE teams as to market options Inertia in thinking about how to do things differently and bring about change

Even though CRE planning horizons are generally three years, there is little apparent associated thinking around how the CRE team needs to evolve and draw on the external market in order to boost capability, capacity and ultimately, productivity. Unless clear long-term strategies about future CRE service delivery are developed, there is a risk that CRE will be seen as ineffective, weak and hindering the evolution of the business through a lack of innovation. Currently, real estate services are most typically delivered through a hybrid model that combines in-house capabilities with injections of additional capacity and capability from external service providers on a geographical or functional basis, or both (Fig 11). Sixty-seven percent of respondents currently adopt this model of delivery, rising to 70% by 2014.

Growing adoption of the hybrid model over the next three years will come at the expense of purely in-house service delivery. This is unsurprising given the twin pressures to facilitate both growth and right-sizing and the inevitable resource pressure that this generates. As CRE teams are required to implement strategic programs aimed at driving increased workplace productivity, a turn to the market will be required to tap expertise and best practice. Twenty-four percent of respondents globally deliver services in-house today, but this is predicted to reduce to 19% three years from now. On a global basis we will also see some corporate occupiers evolve further up the outsourcing curve and shed the hybrid model to be fully outsourced. There is variation in this trend both geographically and by sector, with US-domiciled corporations

Fig 11 >> Real estate service delivery models now and 3 years from now
Now 3 years from now 24% 19% Fully in-house
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67% 70% Hybrid Fully outsourced

9% 11%

Which of the following best describes how your organization structures its corporate real estate needs at present and how it will do so three years from now?

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Models for partnering Equity

Common equity ownership Common goals Common risks / rewards Long-term

Strategic alliance
Supplier collaboration Higher level of commitment and investment Longer-term strategic value add Senior management engagement

alliance
More exclusive agreement Higher degree of trust and collaboration (CRE, IT, HR) Focus on value add and mutual advantage Senior management interaction

Value / Benefits

Preferred

Relationship out-task

Many vendors Price based on scope Commoditized product One-off contract

Task-based, relationship driven Generic product / service Cost focus Expanded activity

Contractual relationship Defined scope Mutual trust Recurring activity

Time / Degree of Change

Source: Jones Lang LaSalle, 2010

and the technology sector being particularly strong proponents. Nine percent of corporate occupiers presently adopt a fully outsourced model with this rising to 11% over the next three years. A key constraint to greater adoption of this model is the high level of decentralization currently evident in organizational and CRE structures. This can lead to fragmentation and issues of control that are complex for an external partner to manage.

Those developing hybrid delivery models tend to outsource tactical components with strategic elements being retained in-house
Acknowledging that the hybrid delivery model is most prevalent, our survey also assesses which real estate functions are currently outsourced and which were retained in-house (Fig 12). More outsourcing

occurs with tactical or process-driven functions such as transaction services or property management. The motivation will often be geographical coverage, resources, expertise and also the instantly accessible knowledge of market conditions, practices and opportunities held within the service provider community. Strategic functions, such as portfolio strategy, have a tendency to be retained in-house.

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Fig 12 >> Real estate functions presently delivered in-house or outsourced in a hybrid delivery model
Transaction Services PM/Design and Build etc Portfolio and Facilities Management Portfolio Strategy Property Management Energy/ Sustainability Services 20% 34% In-house Mixed 7% 12% 23% 72% 39% 53% Outsourced 59% 59% 48% 34% 29% 29% 24% 41% 13% 3%

Those operating a fully-outsourced delivery model or who are planning to do so within the next three years are moving towards fewer and deeper partnership relationships with service providers. Those respondents adopting a fully-outsourced model were further assessed in terms of the nature of their current relationships and how these are likely to evolve over a three year window (Fig 13). We asked respondents to classify their fully-outsourced delivery model as involving either a preferred vendor panel; as an exclusive agreement either geographically or functionally with a vendor; or as an exclusive partnership-based relationship in which goals, risks and rewards are shared by both service provider and client. Half of those with a fully-outsourced model

BaSE: 316 RESPondEnTS

How would you best describe the current organization of specific CRE tasks?

Fig 13 >> The structure of relationships with fully outsourced service providers both now and 3 years from now
Now 3 years from now 12% 8% 22% Outsourced to preferred vendors via select panel 38% 70% Outsourced to a vendor with an exclusive agreement Outsourced to exclusive partner or multiple partners with shared goals, risks and rewards 50%

presently adopted this partnership model as a means of fully leveraging service provider platforms and innovation. Critically, this is forecast to rise to 70% of those adopting a fully-outsourced model by 2014. This suggests an advanced market that is moving towards the development of stronger, deeper relationships with fewer partners.

BaSE: 316 RESPondEnTS

What type of outsourcing do you currently practice or plan to practice three years from now?

Global Trend #: Reshaping CRE structures and skills

The intensity and pressure being placed on CRE leaders is such that the restructuring and re-skilling of CRE teams is becoming more urgent. Specific skills to drive a more strategic real estate agenda are required and generate the need to invest in current CRE skills and possibly seek talent from both outside the industry and from service providers. Decentralization in many organizations is a constraint in delivering more efficient, strategic and consistent real estate services. Respondents anticipate a shift towards greater centralization and the establishment of core regional or global teams within the next three years. Overall organizational structures are flattening and CRE leaders are becoming located within wider support or shared service functions being headed by non-real estate professionals.

Key Statistics
63% of respondents have a direct reporting line into the C-suite 73% anticipate the CRE function to become highly centralized, driven by a core regional or global team within the next three years 31% have seen no further investment in the CRE function since GFC and do not anticipate this to change 41% saw no reduction in headcount within their CRE function during the GFC and do not expect future cuts 24% anticipate their teams will undergo talent upgrades within the next three years 74% have turned to service providers to provide innovative solutions to challenges emerging out of the GFC, with a further 15% expecting to do so within the next three years

1 2

CRE Implications
Identify other sectors outside of real estate that have a need for the types of engagement and relationship management skills required bring in new thinking and methods to elevate the existing team. Generate a long-term plan for the evolution of the CRE team that supports and facilitates broader business growth strategy, anticipates needs and delivery constraints and ensures that capability is aligned with changing needs. Post a skills audit to identify skills and capability gaps, and drive required change within your team so that core requirements are prioritized. As non-real estate professionals take the helm, there is a need to raise their understanding to ensure that CRE is accurately represented at the board level. Be able to summarize issues facing your portfolio, your team and your ability to deliver.

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Existing CRE structures across the globe are mixed with functionality, often decentralized and in some cases not even within a dedicated CRE department
The structure and situation of the CRE function within the wider business varies among our survey participants. While there will always be idiosyncrasies based on legacy issues, underlying business structures and the varying effects of the GFC on the size and shape of corporate occupiers, the diversity in CRE team structures is significant. One emerging structure that respondents identified was the rise of a wider operational or a shared service department under the

Fig 14 >> Location of the CRE leader within the corporate occupier structure
47% Dedicated CRE Department Corporate Office/General Management Procurement Technology 3% 18% 1% 7% 2% 5% 17%

Administration/ Shared Services Human Resources

Supply Chain/ Logistics Finance

BaSE: 316 RESPondEnTS

Under which department does the person who leads corporate real estate sit in? overall leadership of a Chief Operating Officer. The ultimate oversight of CRE by someone drawn from a different operational background may expose the function to some different thinking. Consider the evolution of technology outsourcing since the mid-1990s and what could be learned from leaders that have experienced that market and its evolution as a possible route to innovation and improving skills of current CRE teams (Fig 14).

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The majority of CRE leaders currently report to the C-suite (Fig 15). The growing cost consciousness of corporate occupiers is bringing CRE teams increasingly into reporting alignment with Chief Financial Officers and finance departments. This will likely intensify when proposed changes to global lease accounting standards are implemented in 2013* as property will have an instant balance sheet impact and thus will become more central to corporate financial well-being.

Fig 15 >> Seniority of CRE leaders reporting line

C-suite 10% 1% 26% Managerial level Executive level Operational level

63%

With a return to optimism and growth, there is concern over the structure and skills of the CRE functions future readiness
We posited a number of future scenarios in terms of potential CRE structures and asked respondents to assess the likelihood of these scenarios emerging over the next three years (Fig 16). The structural scenario that was most likely to occur according to respondents is a shift towards more highly centralized real estate functions, which are driven by core regional or global teams, thus shifting in-house talent requirements. Encouragingly, given the size of the task facing CRE teams in a post GFC era, there is not anticipated to be a strong reduction in the headcount size of CRE teams over the next three years.

BaSE: 316 RESPondEnTS

What level in the organization does the CRE lead report to?

Fig 16 >> Mean scores for future scenarios for CRE structures overall sample and by key sectors
Scenario CRE function to become highly centralized and driven by a core global team CRE function to be overseen by the CFO/COO as an operational part of the business CRE team to be split into different functional roles and structured/ managed globally CRE function to be reduced in size
1 = Will definitely not happen 5 = Will definitely happen Mean values exclude those respondents who believe scenarios already occurring

Mean Value across the survey 3.4 2.9 2.7 2.6

*Global Lease accounting Changes The US Financial Accounting Standards Board (FASB) and its counterpart, the International Accounting Standards Board (IASB), have proposed changes to global lease accounting treatment that will fundamentally alter the impact of leases on organizations income statements and balance sheets. While the new rules are not expected to go into effect until at least 2013, given the need to report two prior years comparative information, companies will need to begin to prepare immediately, particularly those businesses that draw heavily on lease arrangements. For more information about the changes, please visit our Jones Lang LaSalle website, LeaseAccountingChanges.com.

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There have been some reductions in human resources during the GFC with 24% of respondents noting a reduction in headcount during this time. Going forward, the dominant themes seem to be those of investment and, more significantly, of the upgrading of talent. Forty-four percent of respondents have witnessed some additional investment into the CRE function, directly or indirectly, with a further 25% anticipating investment within the next three years. Similarly, 54% of respondents point to upgrades in terms of talent within their teams and a quarter anticipate further improvements in this area over the next three years. The key issues are where that investment is made and which talent is brought into the CRE function.

Investment should be prioritized to appropriately drive the reshaping of teams to focus more time and effort towards engaging with senior business leaders. CRE teams need to better manage those initiatives that reinforce the crucial productivity agenda that is central to effective portfolio management. Reporting higher in the organization is a key driver for CRE to get more strategic and either start or expand their outsourced relationships. As the drive towards placing, as a minimum, tactical real estate delivery with outsourced service providers continues, the need for strong technical real estate skills may diminish. Greater importance should be placed on attracting new talent that has

a track record of building and developing strong inter-personal relationships with senior business leaders. This is both a challenge and opportunity for CRE teams as this provides a catalyst with which to enhance skill sets and accelerate career paths. The new environment is one that brings greater scrutiny, pressure and challenges direct from the C-suite. Being able to respond and engage with these leaders in a language they can relate to will serve to elevate the reputation of the CRE function, build confidence and showcase the added value that CRE teams undoubtedly bring to their organizations.

Real Estate Expert order Taker Project Executer Provider Vendor and Customers Go-Between

Business advisor Solution Creator Program Innovator Partner Manager of outcomes

2 Global Corporate Real Estate Survey 2011

About the survey

This report summarizes the results of Jones >> domicile Location
18% 7% 5% 18% 52%
18% 18% Americas Americas EMEA Asia Pacific (excluding Australia) Asia Pacific Not Specified Australia

Lang LaSalles inaugural Global Corporate Real Estate Survey. The survey was conducted between August and November 2010. Over 500 responses were obtained from CRE leaders across the world via a combination of face-to-face interviews, phone interviews and a web-based survey tool. All respondents addressed the same standardized questions, although faceto-face interviews clearly enabled greater elaboration of key points. These extended points have been used in our analysis and have assisted greatly in structuring this

7% 7%
5% 5% 18% 18%

EMEA

(excluding Australia) Australia Not Specified

52% 52%

>> Sector
19% 9% 11% 30% 31% 19% 19% 9% 9% 11% 11%
30% 30% Banking and Finance Finance Banking and Technology/Telecom Manufacturing/Industrial Professional Services

report.
Technology/Telecom Manufacturing/Industrial Others

As is evident from figures to the left, our survey responses were well balanced and reflective of the views of CRE leaders drawn from a diverse range of sectors and domicile and operational locations, as well as companies of varied size. Jones Lang LaSalle used Harris Interactive to help collect, compile and segment the resulting data. For the final analysis, we used responses from companies with 5,000+ employees which totalled 343 out of the 504 responses

Professional Services Others

31% 31%

>> Company Size by number of Employees

20% 15% 30% 35%
20% 20% 15% 15% 30% 30% 35% 35% 5,001 10,000 5,001 10,000 10,001 50,000 10,001 50,000 50,001 100,000 50,001 100,000

received.

More than 100,000

More than 100,000

Jones Lang LaSalle 25

The strength and variety contained within our sample has furnished us with greater analytical power enabling us to further interpret results through three analytical lenses:
1. Sector to reflect the varying perspectives of specifically the banking and finance; professional services; industrial/manufacturing; and technology/ telecommunications sectors.

2. Domicile of respondent company recognizing that behavior and strategy is often determined by overarching corporate culture, our results isolate the unique perspectives of American, European and Australian domiciled corporations. 3. Location of individual respondent there is also a clear geographical influence on survey responses, particularly in the context of emerging markets and results obtained have therefore been filtered to highlight specific insights from those located in emerging markets.

Key Markets
Asia Pacific north asia China (Mainland), Hong Kong (SAR), Japan, Macau (SAR), Mongolia, North Korea, South Korea, Taiwan South asia Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka South East asia Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam australasia Australia, Fiji, New Zealand, Papua New Guinea, Solomon Islands, Other Oceania Countries americas north america Canada, Mexico, USA Central america Bahamas, Belize, Costa Rica, Cuba, El Salvador, Guatemala, Honduras, Nicaragua, Panama, The Caribbean Countries Latin american Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela Europe, Middle East and africa north africa Algeria, Egypt, Libya, Morocco, Tunisia East africa Burundi, Chad, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Somalia, Sudan, Tanzania, Uganda West africa Cameroon, Central African Republic, Congo, Congo R.D., Benin, Burkina Faso, Gabon, Gambia, Ghana, Guinea, Guinea Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, Western Sahara Southern africa Angola, Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Zambia, Zimbabwe Central and Eastern Europe Armenia, Azerbaijan, Belarus, Bosnia, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kosovo, Latvia, Lithuania, Moldova, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Ukraine Middle East Bahrain, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Yemen Western Europe Austria, Belgium, Denmark, Finland, France, Germany, Greenland, Iceland, Ireland, Liechtenstein, Luxembourg, Netherlands, Norway, Sweden, Switzerland, UK Southern Europe Albania, Andorra, Cyprus, Gibraltar, Greece, Italy, Macedonia, Malta, Monaco, Portugal, San Marino, Spain, Turkey, Vatican

26 Global Corporate Real Estate Survey 2011

Further suggested readings from Jones Lang LaSalle can be accessed via our website at joneslanglasalle.com
Best Laid Plans: Key considerations for portfolio planning, 2010 Lifting your game: Scenario planning for real estate, 2010 Global Real Estate Transparency Index (GRETI) - Mapping the World of Transparency - Uncertainty and Risk in Real Estate, 2010 EMEA Occupier Conditions - Quarterly Market Publication United States Office Occupier Outlook - Quarterly Market Publication Asia Property Market Digest - Quarterly Market Publication Real Estate Standards Global Index Making CRE Partnerships Work in Asia Pacific, 2010 Better by Design CRE Structures, 2011 Asia Pacific Corporate Real Estate Impact Survey (CREIS), 2003-2005

#1 What Corporates Want #2 Faster, Better, Cheaper #3 Turning the Corner #4 Reducing Real Estate Costs - New Motives, Old Objectives

about the authors dr Lee Elliott Head of Corporate Research, Europe, Middle East and Africa (EMEA) lee.elliott@eu.jll.com +44 0 20 3147 1206 Based in London, and with more than a decade of property research experience, Lee is responsible for delivery of Jones Lang LaSalles corporate research program in EMEA. He is also responsible for delivering insight into occupier markets and corporate real estate trends at a global level. Lauren Picariello Head of Corporate Research, Americas lauren.picariello@am.jll.com +1 617 531 4208 Based in Boston, Lauren is responsible for the strategic development and implementation of the corporate research program in the Americas. She works closely with clients and leverages her in-depth understanding of the office market to provide occupiers with a competitive advantage in the marketplace.

Holly Yang Head of Strategic Marketing, Asia Pacific holly.yang@ap.jll.com +65 6494 3844 Based in Singapore, Holly heads a team of marketing and strategy specialists, including Jones Lang LaSalles corporate research program for Asia Pacific region. She has spent more than nine years working in corporate real estate and has over twenty years of experience researching and reporting on corporate audiences, trends, and behaviors.

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about Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2009 global revenue USD2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.6 billion sq ft worldwide. LaSalle Investment Management, the companys investment management business, is one of the worlds largest and most diverse in real estate with approximately USD40 billion of assets under management. about Jones Lang LaSalle Corporate Solutions As a pioneer of the corporate real estate offering, our platform provides unmatched services across a single project, country or global portfolio. Our commitment to shaping our business around helping our clients improve their productivity and by delivering on our promises keeps us at the forefront of our industry. Our global platform of transactions, lease administration, project and facility management services is backed by our expertise in strategic consulting, workplace and portfolio strategy to provide an end-to-end service offering. With over 30,000 employees focused on serving business globally, we manage over 600 million sq ft of facilities and 52,000 leases, and complete more than 4,450 projects and 13,000 transactions every year. We have the experience and scale to drive greater efficiency, risk management and sustainability for our clients across the globe. about Thomson Reuters Thomson Reuters is the worlds leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, healthcare and science and media markets, powered by the worlds most trusted news organization. With headquarters in New York and major operations in London and Eagan, Minnesota, Thomson Reuters employs 55,000 people and operates in over 100 countries.

acknowledgements
Jones Lang LaSalle gratefully acknowledges the assistance of those corporate real estate professionals who participated in this survey. We are also grateful to Thomson Reuters Real Estate team who are our partners for this project. For more information, go to www.reutersrealestate.com. We welcome any feedback on the published results in order to continue to improve future editions and make them as meaningful as possible for our readers. If you have any comments or would like to participate in future surveys, please email holly.yang@ap.jll.com.

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Jones Lang LaSalle Global

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