Corporate Outsourcing for Real Estate Grows in 1st Half

September 15, 2004 · by DesignIntelligence

For corporations, real estate holdings can be a gold mine and a curse. According to a recent study by Ernst & Young, real estate is typically “the second-largest expense on a company’s income statement.”

For corporations, real estate holdings can be a gold mine and a curse. According to a recent study by Ernst & Young, real estate is typically “the second-largest expense on a company’s income statement.”

But how to manage costs and increase profits is often difficult for the corporation from within—many have decided to outsource, said Ernst & Young’s Thom Bogle. He found that in the first half of 2004, nearly 100 corporations had handed-over to the top four real estate services firms: DB Richard Ellis Group, Cushman & Wakefield, Jones Lang LaSalle and Trammell Crow.

Rent, tax, outside contracts, repair and maintenance costs, utilities, and insurance are among the largest expense categories, according to John Maher, a regional president at Trammell Crow Company. “Then you’re going to have a payroll for the organization that supports that portfolio,” he said. “Within these categories there are multiple spend areas. For example, food service, mail service, janitorial, and landscaping are all part of your outside contracts.”

Beyond immediate short-term savings, a long-term benefit is better big-picture control of costs, compared to piecemeal management/maintenance of individual holdings scattered nationally or internationally.

“As you begin to operate with different models, you begin to make better decisions. You’re managing your data better. Therefore, you’re able to control your costs in a way that you couldn’t before changing the way that you operated,” Bogle said.

The study cited one small financial institution that outsourced the “non-core” functions of its real estate.

“They saved 43 percent in staffing costs—including the cost of outsourcing and the internal staff that remained,” one source said. Other steps, such as developing standards and better procedures, generated an additional 35 percent savings on their expenses.

Technology can support these efforts, including new software that helps manage real estate operations and related finances. Embracing a portfolio approach to real estate is critical. “The key is tying the real estate strategy to the business units and core business of the company,” Bogle said.

“We’re seeing ... the recognition that corporate real estate really is a business process,” concluded Maher. “When you begin to combine real estate with technology, people, and procurement, and influence change in that corporation to support the needs of the business, you’re going to have a much better value proposition.”

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