EUROPEAN OCCUPIER SURVEY

EMEA RESEARCH AND CONSULTING | MANAGING FOR THE UPTURN

2013/14 EDITION | SPECIAL REPORT

EXECUTIVE SUMMARY
COST MANAGEMENT NO LONGER DRIVING BUSINESS DECISIONS
Corporate decision-makers are responding to the signs of economic improvement in Europe, and gradually shifting their focus away from pure cost management towards a growth and expansion agenda. Concern about weak economies has diminished significantly since last year, and business decisions are increasingly being driven by assessment of future growth possibilities. Cost management is still a significant issue, and efforts to manage costs through lease renegotiation and space reduction remain widespread, but these are increasingly linked with a desire to further organisational growth, and cultural objectives. It does remain the case, however, that business and real estate decisions remain subject to stringent financial criteria and investment hurdles.

FAVOURED EXPANSION LOCATIONS: INDIA AND AFRICA

With growth and expansion now higher up the corporate agenda, there is a broad appetite for international expansion, with a strong focus on emerging markets. It is particularly notable that India and Africa feature more strongly as expansion destinations than was the case last year, in both cases reflecting a combination of rapid economic growth and improvements to physical and business infrastructure and governance-factors which have previously inhibited investment.
EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

CORPORATE REAL ESTATE DEPARTMENT ACTIVITIES AND BUSINESS OBJECTIVES ALIGNING

Financial objectives still dominate the remit of corporate real estate (CRE) teams but, with an increasing eye on the future, there is a greater desire for alignment between real estate activities and broader business objectives. Managed well, this should allow CRE functions to establish a clearer and higher-profile role as facilitators of future growth, and thus provides scope for increased outsourcing of tactical real estate delivery as internal CRE teams become more strategic and customer-focussed. On current evidence, buying patterns for different types of real estate services remain highly variable but the scope exists for further growth in the trend towards outsourcing.

WORKPLACE STRATEGY MOVES UP THE CORPORATE AGENDA

This shift is evident where relocation or expansion is being considered. The motives and criteria for market and site selection reflect a strong focus on taking advantage of opportunities in new markets, and securing the skilled labour resource to do so. Factors such as amenity availability and infrastructure provision are highlighted as levers for attracting and retaining key skilled labour. There is also a strengthening focus on enhancement of business process, efficiency and productivity through building selection and design. Most aspects of the internal working environment attracted significantly higher importance ratings than last year. The ongoing challenge for decisionmakers is in translating these considerations, which tend to be less measurable, into financially-coherent business justifications for workplace strategies.

Corporate decision makers are shifting their focus away from pure cost management towards a growth and expansion agenda.

INTRODUCTION
ECONOMIC UPTURN INFLUENCES CORPORATE STRATEGY
For much of the past five years, with economic conditions weak or recessionary across much of Europe, corporate occupiers have been most concerned with stringent cost management to protect profitability. More recent indicators suggest that the economic conditions are beginning to turn, with positive GDP growth across the 28 EU member states in each of the past two quarters. While the picture remains uneven across different countries, and the aggregate rate of growth to date is slow, some of the larger economies such as Germany, Poland and the UK did move into positive territory earlier and have been posting above-average rates of growth since doing so. So how is the corporate community responding to these changes? What issues are guiding their thinking and behaviour? How is this affecting operational real estate? How are CRE organisations responding? To explore these and other issues CBRE surveyed over 70 corporate occupiers to assess their concerns, plans and challenges across a broad range of issues. The respondents - over half of whom represent corporations headquartered in Western Europe and most of the rest in North America - cover a range of sectors, with the Banking & Finance (B&F) (22%) and Technology & Telecoms (T&T) (20%) sectors the largest groups. Manufacturing accounted for a further 14%.

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

KEY CHALLENGES AS RECOVERY BUILDS

What do corporates assess to be their key challenges at present? Figure 1 below summarises the responses. It is perhaps surprising - at a time of low inflation and low interest rates in many developed economies and with economic recovery in its early stages - that cost escalation is so clearly the key concern, cited by over 60% of respondents. Given the severity and length of the recession, it may be that the dominant cost management mindset will take longer to soften, or may even be so ingrained in the CRE psyche that it will always feature highly as a key consideration. However, it is apparent that there is widespread confidence in economic improvement. While many organisations still remain cautious about the state of the markets, fewer than 50% of respondents identified weak economies as a concern, compared with 70% last year.

FIGURE 1: MAIN CHALLENGES FOR CORPORATES

COST ESCALATION WEAK ECONOMIES TIGHTER REGULATION OR LEGISLATION COMPETITION FROM EMERGING MARKETS LABOUR / SKILLS SHORTAGE ENERGY PRICES OTHER CURRENCY FLUCTUATIONS GEOPOLITICAL UNREST

61% 46% 38% 24% 21% 20% 14% 13% 4% 10% 20% 30% 40% 50% 60% 70%

0%
Source: CBRE

FIGURE 2: EU CONFIDENCE OUTLOOK 5

10.0% 0.0% -10.0%
EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

CONSUMER INDUSTRIAL

-20.0% -30.0% -40.0% -50.0% MAY-03 NOV-03 MAY-04 NOV-04 MAY-05 NOV-05 MAY-06 NOV-06 MAY-07 NOV-07 MAY-08 NOV-08 MAY-09 NOV-09 MAY-10 NOV-10 MAY-11 NOV-11 MAY-12 NOV-12 MAY-13
20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008 2009 2010 2011 2012 2013 TO DATE
% B&F TECHNOLOGY & TELECOMMUNICATIONS BANKING & FINANCE % T&T

SECTOR DIFFERENCES IN KEY CHALLENGES

There are notable differences among the main sectors, many of them reflecting industry-specific issues and challenges. Concern over cost escalation is most pronounced among manufacturing companies, as is concern about energy prices - and it is highly likely that the two are linked. By contrast, B&F companies remain marginally more concerned about weak economies than they are about cost escalation, reflecting low revenue growth and demand for credit. The B&F sector also reports much higher-than-average levels of concern about both regulation/legislation and labour/skills shortages. This understandably reflects the aftermath FIGURE 3: OFFICE TAKE-UP , T&T VS B&F SECTOR
SQ M 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

of the credit crisis and the range of issues faced by the B&F sector, necessitating reputation-protecting measures as well as precipitating tighter industry regulation. Both factors may have knock-on effects on the cost base. B&F companies have seen a marked focus on compliance and risk management, with significant hiring of compliance and audit resources. Indeed, it is likely that some of the focus on labour and skills shortages relates to unfulfilled needs for additional staff in the audit, regulation and risk areas.

* Data For London, Vienna, Paris, Brussels, Prague, Zagreb, Frankfurt, Hamburg, Munich, Berlin, Budapest, Warsaw, Moscow, Bratislava, Barcelona, Dublin.

NOV-13

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

Technology companies current challenges are much more evenly spread, with no single dominant area. Such companies are no more concerned about cost escalation than average, and significantly less concerned about regulation, labour/skills shortages and weak economies the last point a reflection of continued demand growth in much of the sector. The only area of above-average concern for tech companies is competition from emerging markets, an indication of the growth in the skills base and technological capabilities of such markets and hence enhanced ability to compete with established ones. Evidence on the variables such as the penetration of mobile telephony, and enrolment in tertiary education in emerging markets support this point.

LEASE RENEGOTIATION USED TO CUT COSTS

Lease renegotiation (72%) is by far the most widespread initiative, up from 45% last year. In part this reflects the fact that rents have fallen significantly in recent years: despite recent stabilisation, the CBRE index of prime EMEA office rents is still almost 10% lower than its 2008 peak and in some markets the difference is much larger. The ability to reflect these shifts in rental outgoings, and to lock in deals at or near the bottom of the market even at the expense of longer lease commitments, is an attractive option for many occupiers. As the recovery continues the ability to manage cost through lease negotiations will diminish, but the lessons from managing costs in this way at this point in the cycle may open the door for more predictive and proactive reshaping of portfolios and rental outgoings. This more proactive stance towards lease renegotiation has been evident amongst CBRE occupier clients over the past year, as tenants seek to benefit now and avoid exposure to rising rental markets. Space reduction - either to improve efficiency of space usage (61%) or as part of wider business changes (45%) - represent the next most popular choices, which underlines the reality that one of the most effective ways of eliminating cost is to remove real estate footprint. This offers the potential double benefit of portfolio alignment - rightsizing as well as a higher productivity working environment.

A RANGE OF COST-SAVING INITIATIVES

Corporates responses to cost concerns in the current survey have been heavily focussed on trying to secure savings or efficiency gains from existing operational space, rather than discrete projects or changes to external supplier arrangements or location strategy. Initiatives such as energy management, supplier consolidation, local relocations and discrete capex reduction schemes mostly generate responses of under 25%. It is also notable that around three-quarters of the sample continue to assess capex opportunities on their respective merits rather than, for instance, imposing blanket bans or restricting spending to certain pre-identified types of project.

FIGURE 4: MOST SUCCESSFUL COST-SAVING INITIATIVES OVER THE PAST YEAR

LEASE RENEGOTIATION SPACE REDUCTION / IMPROVED SPACE EFFICIENCY SPACE REDUCTION - BUSINESS / STAFF CHANGE CAPEX REDUCTION INTITIATIVES FM SOURCING NEGOTIATIONS RELOCATION TO CHEAPER SUB-MARKETS ENERGY MANAGEMENT INITIATIVES SUPPLIER CONSOLIDATION INITIATIVES HAVENT IMPLEMENTED A COST SAVING STRATEGY

72% 61% 45% 27% 23% 21% 13% 11% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80%

This continuing focus on the operational real estate base both as a source of cost reduction and as a means of driving broader corporate objectives produces an intriguing dynamic for organisations: how best to select, secure, design and manage operational buildings at a cost that produces an acceptable return on investment, but which also furthers organisational and cultural objectives. Evidently this second group of considerations features very strongly in corporate thinking in a number of areas, including location strategy.

presence of the main B&F functions in the CBD core of most major global financial centres. As a result, many are heavily engaged in the nearshoring versus offshoring debate in terms of attempting to reduce footprint in high-cost CBD locations such as London, Paris and New York a balance sometimes referred to as rightshoring as corporates seek an optimal blend of right function and right location.

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

KEY LOCATION DRIVERS

The pattern of responses on this issue indicates an increasingly expansionary mindset at macro-level. In selecting a country or region or city as a potential destination (i.e. before identifying and evaluating specific sites), access to new markets and customers is the most important factor, highlighted by 56% of respondents, up from 40% last year. Quality of location/amenities (48%) also features strongly as does talent availability (38%), although real estate costs (44%) are also prominent. Corporate tax rates, incentives and other grants are comparatively minor factors. Overall, this is a positive indication that business decisions are being based on the right criteria and on a proper assessment of future growth prospects, rather than on reaction to temporary factors or attempts to drive down the cost base. Again, there are notable differences at sector level reflecting industry-specific factors. Firstly, real estate costs are significantly more important for B&F companies than for the sample as a whole (50% vs 44%). This reflects the

NEARSHORING BENEFITS ESTABLISHED MARKETS

There is some evidence that the nearshoring solution is gaining favour, to the benefit of locations such as regional UK markets, western Paris and city fringe locations in some other European capitals. The saving on real estate costs is typically less than that for an offshoring solution, but staff retention rates tend to be much higher and the risk of adverse business impact lower. The evidence among CBRE clients in the B&F sector suggests that this debate has some way to run, and that current thinking is far from uniform across the sector.

TALENT AVAILABILITY DRIVES LOCATION DECISIONS

Secondly, talent availability is cited as vastly more important for T&T companies (63% vs 38% for the sample as a whole), reflecting the critical importance of certain categories of specialist labour to the growth of these companies. The presence in labour catchments of higher education facilities, and of graduates in relevant disciplines, are key location factors for technology

FIGURE 5: MACRO-LOCATION DRIVERS

ACCESS TO NEW MARKETS AND CUSTOMERS QUALITY OF LOCATION INFRASTRUCTURE / AMENITIES REAL ESTATE COSTS TALENT AVAILABILITY REAL ESTATE AVAILABILITY COLOCATION WITH SIMILAR BUSINESSES LABOUR COSTS GOVERNMENT INCENTIVES / GRANTS OTHER CORPORATE TAX

56% 48% 44% 38% 21% 20% 20% 15% 6% 6% 0% 10% 20% 30% 40% 50% 60%

FIGURE 6: BUILDING SELECTION FACTORS AT MICRO-LOCATION LEVEL 8

REAL ESTATE COSTS

85% 56% 45% 21% 25% 15% 7% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 42%

QUALITY OF BUILDING INFRASTRUCTURE / AMENITIES ATTRACT BEST TALENT / KEY STAFF RETENTION

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

ABILITY TO SUPPORT WORKPLACE STRATEGY TRANSPORT LINKS FUNCTIONAL CO-LOCATION WITHIN BUILDING SUSTAINABILITY CERTIFIED BUILDINGS

companies. Labour is known to be a key factor in the development of technology clusters, and the high importance attached to the issue here suggests that some T&T companies are becoming even more drawn towards identifiable talent pools, even where some other location factors may be lacking. The main factors for building selection at micro-level highlight even more markedly the importance of amenity, and the ability to attract talent and boost productivity. Real estate costs remain the major factor (85%) but there is then a group of factors relating to the internal and immediate external building environment, talent attraction and - closely related - the ability of a building to support workplace strategy. This is indicates that working culture, staff productivity and satisfaction etc are all increasingly strong drivers. It is notable that the ability of a building to support new workspace strategy features particularly strongly for both B&F and T&T companies. We view this as, again indicative of an expansionary mindset and growing recognition of the need to provide the right building with the right infrastructure, in the right location for the business and its increasingly mobile labour force. Some of this reflects the demands of a company to secure the factors necessary for growth and profitability; some of it reflects the inherent needs of the emerging young and tech-savvy workforce that demands a fluid, connected and state-of-the-art working environment - but it all points in the same direction. The availability of skilled labour, and the need to provide a sufficiently attractive internal and external environment
1

to attract and retain them, is clearly seen as critical by corporates. This gives rise to two interesting questions. What specific features are most attractive to the labour force? And to what extent do emerging or potential destination markets display the required characteristics?

WORKPLACE STRATEGIES: MOTIVES AND COMPONENTS

The relationships between corporate culture, operational space efficiency, and staff satisfaction and productivity are both complex and highly topical. For instance, CoreNet estimate that 85% of organisations1 believe that their facilities do not reflect their brand well. Soft evidence on the links between working environment and productivity is extensive and widely-accepted, even if issues of causation and a shortage of hard empirical evidence on the benefits still colour the debate. This survey revealed that 94% of corporates have a Corporate Social Responsibility (CSR) programme, and the single biggest reason for doing so (46%) is perceived positive community impact. The extent to which this affects building selection is somewhat mixed: only 13% select accredited green buildings as a matter of policy and it does not feature in building selection in 23% of cases. On the other hand, it is a preference for 58% of corporates. What is certain is that greater attention is being paid to a range of workplace features, although the motives for doing so vary. Over half (56%) identify cost savings as the main motive for implementing Alternative Workplace Strategies (AWS), but other responses show that there is

Brand and Culture, CoreNet Global Research, 2010

FIGURE 7: MAIN DRIVERS OF ALTERNATIVE WORKPLACE STRATEGY 9

COST SAVINGS (INCLUDING SOME SPACE OPTIMISATION OR INCREASING CAPACITY) EMPLOYEE ATTRACTION AND / OR RETENTION BUSINESS AGILITY IMPROVED COLLABORATION INCREASING EMPLOYEE PRODUCTIVITY ACCESS TO CUSTOMERS, COLLEAGUES AND CO-WORKERS BUSINESS CONTINUITY SUSTAINABILITY OR REDUCED CARBON FOOTPRINT OTHER

56% 48% 44% 39% 37% 24% 13% 4% 1% 0% 10% 20% 30% 40% 50% 60%
EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

very strong recognition of the balance required between cost savings and staff satisfaction/productivity and that, if anything, the balance is shifting towards the latter.

EMPLOYEE SATISFACTION SETS ALTERNATIVE WORKPLACE STRATEGIES

A range of factors linked to business efficiency and employee satisfaction were highlighted as key drivers behind decisions to pursue AWS, including employee attraction and retention (48%); business agility (44%); improved collaboration (39%); and increased employee

productivity (37%). In other words there is a broad range of factors relating to internal efficiency, business process and labour productivity that are seen as important, and which are likely to impact on building selection, design and configuration. Importantly, in aggregate the nonfinancially motivated drivers greatly outweigh the costsaving agenda.

FIGURE 8: WORKPLACE FEATURES SEEN AS MOST IMPORTANT TO ORGANISATIONS WORKFORCE

PUBLIC TRANSPORT ACCESSIBILITY INDOOR ENVIRONMENT QUALITY (AIR, LIGHTING ETC) PROVISION OF AMENITIES (RESTAURANT, GYM ETC) FLEXIBLE WORKSPACE OPTIONS (WORKING AWAY FROM DESK) COMMUNICATION TECHNOLOGY SUSTAINABILITY OTHER

73% 54% 49% 23% 41% 8% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 48%

FIGURE 9: PROPORTION OF STAFF WORKING REMOTELY ON A REGULAR BASIS 10

76% OR MORE, 4% 51-75%,, 6%

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

26-50%, 13% 1-10%, 50%

11-25%, 27%

WORKPLACE ACCESSIBILITY STILL KEY

This is reinforced by examination of the specific workplace features seen as most important to an organisations workforce, nearly all of which attract higher ratings than last year, in some cases markedly so. Public transport accessibility remains the most important factor, cited by 73% of respondents (up from 41% in 2012) and probably linked to the perceived advantages of a central, amenityrich location that can provide more lifestyle options for the workforce outside of the work environment. After public transport, however, there is a range of aspects of the internal working environment aimed at improving the quality of the working experience for staff, all of which are seen as significantly more important than was the case last year. The indoor environment (air quality, lighting etc.) is seen as important for 54% (compared with 30% last year); provision of internal amenities 49% (14% last year) and flexible workspace options 48% (33% last year).

In the B&F sector this last figure rises to over 65%. These findings support the strong rationale for the assertion that AWS is more than just working from home or remotely. Since the vast majority of staff still spend most of their time in the office, the focus must be on providing the right range of work environments and associated choices that support internal mobility within a high-quality and healthy office environment. Decision-makers are not short of survey findings on staff aspirations and the claimed benefits of AWS, and this survey adds to the weight of existing evidence highlighting recognition of the need to accommodate workforce demands either explicitly to save property costs or for corporate culture reasons, or both. It helps that among organisations who have implemented AWS successfully, there is now a body of senior supporters who will attest - albeit often subjectively - to the benefits for business productivity. But, however compelling the survey evidence, there are still some CFOs who will want evidence of quantified financial benefit, or at the least a way of translating soft evidence into something more tangible. The challenge for CRE, therefore, remains in being able to demonstrate, quantitatively and causally, the business case for the investment required in implementing a workplace strategy - while remaining aware of the softer benefits for corporate culture, branding and staff attraction - and being able to articulate clearly the links between the two.

REMOTE WORKING STILL UNCOMMON

It is clear that there is a much increased focus on aspects of the internal working environment that improve labour and space efficiency and boost productivity. This is entirely consistent with the surveys findings on work patterns: although remote working is a much-discussed topic, 75% report that less than a quarter of their workforce works remotely on a regular basis, and half report that less than 10% do (although the expectation is that it will increase).

FIGURE 10: EXPANSION DESTINATIONS, NEXT TWO YEARS 11

INDIA REST OF ASIA PACIFIC CHINA LATIN AMERICA AFRICA CEE MIDDLE EAST NORTH AMERICA WESTERN EUROPE

48% 42% 42% 35% 34% 32% 30% 14% 13% 0% 10% 20% 30% 40% 50%
EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

EXPANSION DESTINATIONS
With growth and expansion now climbing the corporate agenda, in addition to asking about the main drivers of location selection and workplace strategy, we also asked companies to identify potential destinations for expansion and relocation. The results reveal a broad appetite for international expansion, with a strong focus on emerging markets and a rather more even spread of target destinations than was the case last year. Western Europe and, to a lesser extent, North America, were expected to see a contraction in operations.

GROWING FOCUS ON INDIA AND AFRICA

India emerges as the most popular destination (48%, up from 24% last year). The other notable increase is Africa, up from 21% last year to 34% in this survey. In both cases, the manufacturing/distribution sector showed above-average expansion appetite. Latin America and rest of Asia-Pacific are roughly on a par with last year, while China (42% compared with 60% in 2012) and CEE (32% compared with 48% in 2012) both recorded lower responses than last year. One explanation is that, as first-wave business penetration/ offshoring/outsourcing destinations, these markets have sufficient coverage to service a growing customer base and are viewed as effectively saturated. The rightshoring trend highlighted is also a contributory factor here, as some customer-facing functions are felt to work less well in terms of service levels in these locations.

Conversely, the opportunities presented by rapid growth in India and Africa may now be sufficient to overcome some of the longstanding barriers such as governance, infrastructure, bureaucracy and lack of transparency that have inhibited inward investment. India has already attracted a large number of occupiers from a range of sectors, including financial and business services, media, technology and telecoms, and pharmaceuticals. This has been supported by a general process of deregulation and a range of specific government initiatives designed to attract inward investment, such as relaxation of rules on foreign ownership, streamlining of the development process and promotion of a range of high-tech growth industries. The expansion of modern office stock in the main cities has also helped. Fuelled by GDP growth of over 6% per year over the past five years and associated increases in consumption, the growth of Indias manufacturing base and off-shoring credentials is producing particular benefits for FMCG and associated businesses for which India is a key target market. Improved international and domestic infrastructure connections have supported growth in a number of cities including Mumbais financial cluster and the multicentric economic hub for the north of India, known as the National Capital Region (NCR), comprising a range of decentralised locations, as well as Delhi itself and smaller outlying cities. Growth in the technology sector has particularly contributed to this phenomenon.

FIGURE 11: KEY PERFORMANCE INDICATORS FOR CRE TEAMS 12

COST SAVINGS

63% 63% 44% 42% 21% 10% 8% 10% 20% 30% 40% 50% 60% 70%

PERFORMANCE AGAINST BUDGET PORTFOLIO / FOOTPRINT REDUCTION

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

INTERNAL CLIENT SATISFACTION COMPLIANCE & RISK CAPITAL RAISING NOT MEASURED AGAINST ANY INTERNAL KPIS

0%

Africa too is seeing rapid economic and population growth, high rates of urbanisation and the expansion of growing consumer goods markets. As a result, growth built largely on a commodities-driven export boom is giving way to more broadly-based growth deriving from energy exports, domestic consumption and a growing finance industry. GDP growth for Africa as a whole has been running at around 4.5% per annum for the past decade and is expected to outstrip that of any other world region between now and 2030. This will be accompanied by rapid growth in the city-dwelling proportion of the population and growth in the size of the middle class: 200m Africans will enter the market for consumer goods in the next five years. Generalisations are difficult in a continent of 54 countries, but some examples illustrate the impact of these sorts of growth rate. A number of African economies - notably Nigeria, Kenya and Angola but also Ghana, Mozambique, Tanzania, and Zambia - are seeing very rapid growth supported by inward investment, infrastructure improvements and a generally easier business environment. In many cases, this is resulting in sharp rises in real estate costs. While energy markets are the prime driver in many of these cases, finance and telecoms are also playing an increasing role. It is estimated that 70% of Africans own a mobile phone, yet only 7% has access to the internet: this fledgling technology platform is still a hindrance to business activity but is also a huge opportunity. There are many markets where the development of democratic and legal institutions is a necessary precursor to corporate interest, but with barriers to entry continuing to erode and a positive economic outlook, corporate expansion into Africa is very likely to continue.

CRE STRUCTURES AND REPORTING LINES

At a time of potential shift in focus away from seemingly obsessive cost management to business expansion, it is worth considering the role and organisation of CRE functions as strategic business partners. The reporting lines of CRE functions remain somewhat fragmented: a reporting line to finance is the most common structure (38%, up marginally from last year), but there are significant proportions reporting to each of the following operations; HR, shared service centres and procurement. Regardless of reporting line however, financial objectives dominate the KPIs of CRE teams either through performance against budget or the achievement of cost savings. It is understandable therefore that cost reduction remains the single largest corporate concern, as assessed by CRE executives. It will be interesting to see whether this changes in future years and in essence is a lagging indicator that will change as economic recovery gains momentum. This creates an interesting dynamic and possibly a contradiction when set against respondents views of their own CRE teams role over the next two years. While real estate strategy was by far the dominant response (82%) and other supervisory and oversight functions were also mentioned, it was notable that activity execution (projects, transactions, lease management etc.) was the second most popular response (61%), and particularly prevalent in the B&F sector.

FIGURE 12: MOST IMPORTANT FUNCTIONS FOR CRE TEAM OVER NEXT TWO YEARS 13
REAL ESTATE STRATEGY ACTIVITY EXECUTION (E.G. PROJECTS, TRANSACTIONS, LEASE MANAGEMENT) CUSTOMER RELATIONSHIP MANAGEMENT DEVELOP REAL ESTATE POLICIES AND PROCEDURES VENDOR RELATIONSHIP MANAGEMENT ACTIVITY OVERSIGHT (ACROSS FUNCTIONS) PROGRAMME MANAGEMENT INDIVIDUAL PROJECT MANAGEMENT

82% 61% 41%

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

31% 23% 20% 13% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

On the face of it, this suggests that there is still a lot of in-house delivery of day-to-day activities being carried out, and that there is considerable scope for the further development of outsourcing. We are some way from steady-state saturation. It may be the case that respondents recognise that CRE departments are increasingly made up of both internallyemployed staff and third-party suppliers. Not only may this blur the distinction between in-house and outsourced delivery, it may also mean that the overriding CRE focus will be on activity execution, with less importance attached to whether that execution is actually delivered in-house or through a third-party supplier.

In any case, it is true that there can be genuine obstacles to the wider deployment of outsourcing. One is that internal structures have not always kept pace with the demands of early-generation global outsourcing: where organisations still have decentralised business delivery processes and locally-controlled budgets, it can be difficult to overlay a global outsourcing mandate, and as a result they are often challenged. Further insight can be gained from looking at the perceived role of the CRE team, and its relationship with the rest of the business. Better alignment of real estate outcomes with business needs is, by some distance, seen as the most likely means of improving the CRE departments effectiveness in supporting business strategy.

FIGURE 13: AREAS FOR IMPROVING CRE TEAMS EFFECTIVENESS IN SUPPORTING BUSINESS STRATEGY

BETTER ALIGNMENT OF REAL ESTATE OUTCOMES TO BUSINESS NEEDS / OBJECTIVES BETTER UNDERSTANDING OF BUSINESS NEEDS REDUCING CULTURAL BARRIERS / RESISTANCE OR FEAR OF CHANGE IMPROVED EXECUTIVE / SENIOR MANAGEMENT SPONSORSHIP BETTER CRM SKILLS IN THE REAL ESTATE FUNCTION BETTER BUDGETING CONTROL ALREADY HAVE IDEAL EFFECTIVENESS WITHIN THE BUSINESS

72% 44% 42% 34% 23% 20% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80%

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Better understanding of business needs, and a reduction in cultural barriers or resistance to change, is also seen as important. These priorities would normally imply a strong focus for the CRE team on listening to and understanding the business, and developing appropriate real estate strategies, whereas there seems to be continuing strong focus on execution of activity at a tactical level. The most plausible interpretation here, as indicated earlier, is that CRE needs to understand the business and develop appropriate real estate strategies, following which execution is critical, regardless of whether it is carried out in-house or externally. The fact that these objectives co-exist does not diminish the importance of either the strategic or the tactical, but does indicate that there is a spectrum on which organisations can sit in terms of delineating responsibility for undertaking this activity, with various factors needing to be considered across different industries, geographies and asset classes.

OUTSOURCING WELL ESTABLISHED

Outsourcing, in one form or another, has penetrated furthest in transaction management (TM), facilities management (FM) and project management (PjM) in each of which 50-65% of respondents typically outsource activities to one or more external suppliers and only 15-20% self-perform. These proportions are roughly the same as reported last year, indicating that broad patterns of buying behaviour for different services are fairly wellestablished.

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

TRANSACTION MANAGEMENT AND FACILITIES MANAGEMENT FAVOUR PANEL OF SUPPLIERS

For both TM and FM, it is still the case that a panel of suppliers (35% in both cases) is preferred over a single supplier (27% and 21% respectively), reflecting a desire to diversify procurement sources. Of the two, TM is much more likely to be purchased under a global or multi-country arrangement with over 80% of respondents highlighting these as their preferred methods, compared with FM where local purchasing is much more the norm. PjM purchasing patterns remain more diverse, reflecting the case-specific nature of requirements, although it is notable that the proportion favouring a panel supplier approach has risen by over 10 percentage points to 41% compared with 2012, while the popularity of the single supplier approach has dropped. While the increasing maturity of project management supply chains does allow

PROCUREMENT OF REAL ESTATE SERVICES

The pattern of responses on procurement of real estate services reinforces this rather mixed picture, and continues to suggest a high degree of fragmentation. While corporate approaches to buying real estate services have become increasingly sophisticated over recent years, there is still great variation in the use of different models, and in the preferred supplier relationships for different types of service.

FIGURE 14: SUPPLIER RELATIONSHIPS FOR DIFFERENT REAL ESTATE SERVICES

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0

3% 18% 14%

6% 15% 20%

1% 28%

1% 11%

1% 10%
DONT KNOW AD HOC

20% 35% 35% 41% 27% 21%

FACILITIES MANAGEMENT

49%

42%
IN-HOUSE

7% 28%

8% 34%

PANEL SUPPLIER SINGLE SUPPLIER

8%
PROJECT MANAGEMENT PORTFOLIO MANAGEMENT DATA MANAGEMENT

TRANSACTION MANAGEMENT

FIGURE 15: PREFERRED LOCATIONAL DELIVERY MODELS 15

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0
TRANSACTION MANAGEMENT

1% 17% 42% 38% 44% 32% 21% 15% 21%

DONTKNOW LOCAL EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE REGIONAL GLOBAL

41% 44% 13%

FACILITIES MANAGEMENT

34% 62% 46% 21%

PROJECT MANAGEMENT

PORTFOLIO MANAGEMENT

DATA MANAGEMENT

for more efficient purchasing behaviour, this is a fairly recent phenomenon and, by its nature, delivery remains more local and fragmented. Buying patterns are very different for portfolio management and data management. Both are much more likely to be performed in-house (40-50% in both cases) although, where they are outsourced, it is more likely to be on a single-supplier basis than for any of the other services. Moreover the incidence of singlesupplier arrangements for PjM is six - eight percentage points higher than was the case last year, suggesting that some progress has been made towards determining best practice in this area. Similarly, portfolio management and data management services are most prone to being provided on a global basis.

This is not to suggest that a stable consensus has been reached as to the most effective approach to delivery of portfolio management and data management services. While there is growing recognition of the importance of effective outsourced services in both areas, there are equally significant obstacles, notably an absence of good systematic portfolio data in the first place or, conversely, extreme sensitivity over the use of such data where it does exist. As a result these are often the last functions to be outsourced but, where this route is taken, it is more likely to be on a global, single-supplier basis since this is viewed as the best way of achieving consistent results, particularly for data management.

While corporate approaches to buying real estate services have become increasingly sophisticated, there is still great variation in the use of different models.

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CONCLUSIONS
FEWER THAN 50% OF RESPONDENTS IDENTIFIED WEAK ECONOMIES AS A CONCERN COMPARED TO 70% LAST YEAR ACCESS TO TALENT AVAILABILITY WAS KEY TO 38% OF RESPONDENTS, BUT FOR TECHNOLOGY COMPANIES IT IS AS HIGH AS REAL ESTATE COSTS STILL A PROMINENT LOCATION DRIVER FOR

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

LEASE RENEGOTIATIONS IS BY FAR THE MOST WIDESPREAD COST-SAVING INITIATIVE USED BY 72% OF RESPONDENTS, UP FROM 45% LAST YEAR

63%

OF RESPONDENTS

44%

QUALITY OF LOCATION AND AMENITIES WAS IMPORTANT TO 48% OF RESPONDENTS

56% OF RESPONDENTS SAID ACCESS TO NEW MARKETS AND CUSTOMERS IS A KEY FACTOR FOR THEM, UP FROM 40% LAST YEAR

COST MANAGEMENT MAKES WAY FOR GROWTH OPPORTUNITIES

The results of 2013s corporate occupier survey point towards a clear shift in the balance between cost management on the one hand, and identification of growth opportunities on the other. Concern about the impact of weak economies has diminished significantly since last year, and business decisions are increasingly being driven by assessment of future growth possibilities. Accompanying this shift is a greatly heightened focus on quality of location and internal building environment, both in its own right and as a significant lever for attracting and retaining labour.

WORKPLACE STRATEGIES FOCUSSED ON THE WORKFORCE

Cost management remains a significant driver of corporate behaviour, reflected mostly in widespread lease renegotiation activity aimed at capturing market rent reductions in actual rental outgoings. Space reduction initiatives are also popular but these are increasingly closely linked with wider corporate aims relating to working culture and environment. This offers the potential double benefit of portfolio alignment - rightsizing - as well as a higher productivity working environment. The drivers of market and building selection, and the components of workplace strategy, both reflect a very strong focus on securing and retaining skilled labour, and on providing an environment that enhances productivity and business efficiency. As a result, most aspects of the working environment such as accessibility, amenity availability, space flexibility attracted far higher importance ratings than was the case last year. This provides further encouragement for corporates to take up the challenge of producing financially-robust business cases for workplace strategies.

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MAIN FACTOR FOR BUILDING SELECTION BY CORPORATES IS STILL REAL ESTATE COSTS AT

85%

56% OF RESPONDENTS IDENTIFIED COST SAVING AS THE MAIN MOTIVE FOR IMPLEMENTING ALTERNATIVE WORKPLACE STRATEGIES

75%
OF RESPONDENTS REPORTED THAT LESS THAN A QUARTER OF THEIR WORKFORCE WORKS REMOTELY ON A REGULAR BASIS

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

OF RESPONDENTS HAVE A CORPORATE SOCIAL RESPONSIBILITY PROGRAMME INDIA EMERGED AS THE MOST POPULAR EXPANSION MARKET AT 48%, UP FROM 24% IN 2012. AFRICA WAS ALSO UP FROM 21% LAST YEAR TO 34%

94%

73%
OF RESPONDENTS, UP FROM 41% IN 2012, SAID PUBLIC TRANSPORT ACCESSIBILITY IS A KEY PART OF WORKPLACE APPEAL

USE OF PANEL SUPPLIER APPROACH FOR PROJECT MANAGEMENT UP BY 10 % POINTS TO

41%

80%
OF RESPONDENTS

TRANSACTION MANAGEMENT IS PURCHASED UNDER A GLOBAL OR MULTI-COUNTRY ARRANGEMENT BY

REAL ESTATE AND BUSINESS OBJECTIVES ALIGN

The shift in focus towards growth is also refocussing attention on the role of the CRE function and its interaction with the rest of the business. There is clearly a desire for greater alignment between real estate activities and broader business objectives. This should provide a platform for CRE functions to establish a clearer role as facilitators of future growth, and thus provides scope for increased outsourcing of tactical real estate delivery.

NEW EMERGING MARKETS

With growth and expansion now higher up the corporate agenda, there is a broad appetite for international expansion. The findings indicate that the opportunities presented by rapid economic growth in India and Africa, coupled with improvements in physical and business infrastructure, are proving increasingly attractive.

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KEY CONTACTS
For more information regarding this report please contact: Richard Holberton Director, EMEA Research and Consulting t: +44 20 7182 3348 e: richard.holberton@cbre.com Alex Andel Head of Client Solutions EMEA, Global Corporate Services t: +44 20 7182 3876 e: alex.andel@cbre.com Simon Johnson Senior Director Transaction Management, Global Corporate Services t: +44 20 7182 3751 e: simon.johnson@cbre.com Mike Gedye Head of Account Management EMEA, Global Corporate Services t: +44 20 7182 3325 e: mike.gedye@cbre.com Sue Asprey Price Head of Consulting EMEA, Global Corporate Services t: +44 20 7182 3129 e: sue.aspreyprice@cbre.com

EUROPEAN OCCUPIER SURVEY - MANAGING FOR THE UPTURN: CORPORATE REAL ESTATE INTENTIONS IN THE RECOVERY PHASE

CBRE GLOBAL RESEARCH AND CONSULTING

This report was prepared by the CBRE EMEA Research Team Consulting a network of preeminent researchers and consultants market research, econometric forecasting and consulting around the globe.

DISCLAIMER
CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

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