The corporate real estate (CRE) function in China is undergoing a major transformation as illustrated in our latest Corporate Research report, The Dragon is Stirring – China Corporate Real Estate Survey 2012. One of the key findings is that global and Chinese companies’ outsourcing practices are converging in most areas. As perceived barriers to outsourcing (primarily concerns over employment levels and loss of control) are waning, a majority of Chinese companies will deliver CRE services via a mix of in-house and outsourcing three years from now. A fringe of listed and private companies is even considering fully outsourced delivery.
But the propensity to outsource is unevenly distributed depending on the type of CRE services. In line with the trends observed globally, property management is most likely to be fully outsourced today in China. More surprising was the level to which energy and sustainability services (ESS) is currently outsourced. Although an area often lacking a substantial level of in-house expertise, ESS is obviously already an important consideration for Chinese companies. Beside large stride progress on corporate responsibility issues and expected cost savings on energy, ESS plays a key role in attracting and retaining high calibre employees. Gaining ground in the acute war for talent that companies in Chinese major cities are experiencing involves demonstrating the sincerity of their corporate ethical values, and a green workplace is one of the ways to achieve that.
Figure 1: Which elements of your CRE function does your company outsource today?
Three years from now, a double digit percentage of Chinese companies is likely to outsource to a higher degree the delivery of a number of CRE functions. They are, in this order:
- – Portfolio and facilities management
- – Project management; design and build-out or fit-out; development services
- – Transaction services
- – Property management
Portfolio strategy and transaction services are more likely to remain undertaken in-house.
As our survey respondents indicated, the pressure of maintaining high-levels of growth coupled with heightened cost control are likely to be major drivers of increased outsourcing over the next few years. Intensified competition and amplified industry consolidation are also likely to force companies to place greater focus on their core business and to outsource non-core functions.
The survey findings are meaningful for service partners. While respondents have indicated a greater willingness to outsource, their preference goes for a hybrid, more fluid outsourcing model. This highlights the importance to invest time and effort in getting to know the unique needs and characteristics of Chinese companies’ portfolios. It also reveals a latent demand for greater flexibility in designing bespoke solutions.
Key takeaways for Chinese companies’ CRE executives are multiple. As they move along the outsourcing curve and adopt more mature positions, they might consider relationships that share goals, risks and rewards in order to achieve a true alignment of interests. They will benefit from being very clear on what they need from their service partner, both now and in the future, and in undertaking a thorough review of what the market can offer.
