Outsourcing has grown in popularity over the years to reduce costs, provide flexibility in meeting variable demand, and provide critical expertise in leasing, market analysis, and various technical knowledge and skill (such as design and engineering disciplines).
Outsourcing CRE Key Players
Outsourcing CRE services is now a major industry on a global scale. Large companies such as Jones Lang LaSalle (JLL), Cushman and Wakefield, and CBRE are equipped with all the necessary disciplines to execute the entire CRE lifecycle from site search, lease negotiation, tenant fit out, and on-going property management. Global in scale, these firms operate worldwide and can bring local knowledge and expertise to bear in most major global markets.
Benefits of Outsourcing for Different Business Sizes
Large Corporations
Corporate real estate outsourcing is popular with large multi-divisional corporations. These organizations benefit from the detailed market knowledge and comprehensive service offerings provided by outsourcing firms.
Smaller Enterprises
Smaller start-up enterprises also find value in outsourcing transaction services to gain detailed market knowledge in the designated target area for the leasing project. Outsourcing firms work daily in the markets and maintain a detailed database of recent transactions.
Defining the Scope of CRE Outsourcing Services
Limited Scope
A key issue that the corporate real estate manager needs to address is the scope of the outsourcing services. This may include limiting the scope to market analysis and site selection only.
Full-Service Outsourcing
Alternatively, a full-service outsourcing arrangement may include lease negotiation and contract finalization. One of the concerns with outsourcing is the perceived loss of control. Corporate real estate managers worry about whether the outsourcer can be trusted to execute the project in a completely objective and professional manner.
Addressing Concerns with CRE Outsourcing
Trust and Transparency
The key to a successful outsourcing relationship is the question of trust. Trust can be achieved by insuring that the entire transaction process is totally transparent. This would include such things as detailed trip reports, market surveys, meeting minutes, and an audit trail of how the lease negotiation transpired, and how the transaction unfolded, including competitive bids.
Managing Fees and Interests
There’s always a concern about fees and whether the real estate broker, who is typically commissioned by the landlord based on the ultimate transaction value, is truly operating in the corporate real estate manager’s interest.
Building Trust in Outsourcing Relationships
Time and Multiple Transactions
A successful outsourcing relationship requires time. It will take multiple transactions for the outsourcing firm to learn the client culture and processes. Similarly, it will take time for the CRE manager and staff to gain confidence in the outsourcing firm.
Establishing Performance Criteria
An important tool to build trust is to establish a detailed set of performance criteria to use in measuring the performance of the outsourcing contractor. These criteria would include at a minimum, adherence to schedule, adherence to agreed budget, and efficiency and quality metrics. The CRE team should solicit feedback from end users on such questions as communications, service quality, and meeting expectations.
Managing Outsourced CRE Services
Senior management strives to maintain core functions in the enterprise and to focus human resources on customer and profit objectives. CRE for most companies is a non-core function and thus is a likely target for outsourcing. But outsourcing CRE services requires deft management and attention. In the next several blog entries I will explore CRE outsourcing in greater detail and focus on the role of information technology in the outsourcing process.
