Struggling to reduce real estate costs?

June 19, 2014 / By  

Deloitte’s third biennial cost survey in 2013 revealed that businesses today are just as committed to cost reduction as they were in the depths of the previous global recession, with a staggering 76% of respondents expecting their companies to reduce costs over the next two years.

With the significant costs that real estate typically involves, it is natural that corporate real estate (CRE) managers are feeling the pressure. Our Global Corporate Real Estate 2013 survey confirmed this, with 75% of respondents facing increasing demand from senior business leaders to reduce direct real estate costs. However, the results of the Economist Corporate Network’s 2014 Asia Business Outlook Survey (ABOS), sponsored by JLL, revealed that Asian MNCs may be missing big opportunities to reduce costs and improve productivity within their real estate portfolios.

ABOS provides a rich source of forecasts and perspectives on the business and investment environment across Asia, including the adoption rates of various real estate and location strategies by corporates in Asia Pacific (Fig 1).

Fig 1: Real Estate and Location Strategies
(% of survey respondents who have already adopted these strategies or are planning to do so soon)

Source: ABOS 2014

‘Investing in workplaces to improve employee attraction and retention’ was found to be the most common real estate strategy of those assessed (Fig 1), with around 65% of the respondents across all industries either having done this recently or will be doing so soon. Given the high attrition rate in many industries and the ‘war for talent’ in Asia, it’s clear that companies are responding by investing in more engaging workplaces. ‘Increasing workplace density’ and ‘use of flexible or alternative workplace strategies’ were shown to have been done recently or are in the works for 54% and 49% of respondents, respectively. This left one-half to two-thirds of respondents, who were observed to have not adopted such key strategies.

Location strategies were found to have not been adopted widely across sectors, with just a third of the respondents across the different industries either already having or are planning to implement these strategies in the near future. Interestingly, the adoption levels can vary widely by sector (see Fig 2 for an example of ‘Relocating to reduce labour costs’). In the IT and telecoms sector, 53% of respondents indicated no plans to implement this relocation strategy, whereas this figure shot up to 81% in the financial services industry.

Fig 2: Relocating to Reduce Labour Costs (% of Respondents)

Source: ABOS 2014

Overall, the IT and telecoms, the life sciences and the government sectors were observed to lead the implementation of real estate and location strategies, with the financial services, manufacturing and engineering sectors somewhat lagging behind. In any case, increasing the adoption of these strategies could help Asian corporates address ongoing cost pressures and alleviate the pressure CRE professionals face today.

For further details and insights, please refer to the ABOS report.

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