1. CBRE Dax 30 Survey: Real Estate Management Savings Potential Adss Up To Three Billion Euros
For the first time, the CBRE real estate consultancy firm conducted a survey of the real estate management practised by German DAX 30 companies, based on information available in the public domain. In its first DAX 30 survey, CBRE found that the operative costs for managing the real estate used by DAX-listed companies add up to approximately 30 billion euros. Included in the overhead are maintenance costs, repairs, rents, and insurance premiums, among other cost items. The upshot of the survey is, however, that no less than ten percent of the overhead, or approximately 3 billion euros, could be saved annually by centralising and professionalising the property management. This equals five percent of the profits these DAX 30 companies realised during the 2014 financial year.
Germany based Corporates do not always take a strategic approach to their property portfolios worldwide. As often as not, the global data transparency falls short of the mark. This limits to fully exploit the cost-cutting potential.
Rental Costs Could be slashed
“Depending on the type of a given portfolio and its current management, rental costs could be substantially lower. In fact, the potential cost cuts often run in the double-digit percentage range,” said Williams. In this context, picking the right time for lease negotiations is of the essence. “If the portfolio is periodically reviewed and actively managed, companies can often take advantage of declining rents to initiate contract negotiations long before the end of their lease term,” as Williams elaborated. To this end, it is of key importance to keep monitoring the market and to compare the current contractual obligations with the prevailing market conditions, especially in volatile markets, so as to be able to choose the perfect moment for re-negotiating a given lease and to lower the costs.
Floor space and site optimisations represent decisions of strategic significance and long-term impact on the profitability of a company. From the perspective of the real estate management, this is another field with serious cost-saving potential, e. g. by consolidating locations, enhancing floor-space usage and productivity, and by relocating certain corporate units to more affordable sites. That said, implementing this type of measure is more difficult because it often requires structural modifications. “It also requires capital expenditures,” said Williams. “No matter what optimisation angle you choose, though, a company ought to be aware of its floor-space needs, on the one hand, and have a detailed knowledge of its properties and the obligations, risks and potential associable with them, on the other hand,” Williams summarized.
“Optimisation approaches across the board manifest the trend that you cannot limit yourself purely to a cost angle,” Williams elaborated, adding that you should also take other things into account beside floor space costs when selecting a location. “More and more often, international companies will take a closer look to find the most sensible locations for their business units, back office and administration, and to identify locations that are particularly attractive in the global competition for human resources,” Williams also said. According to CBRE's annual “European Occupier Survey,” the war for talents and its needs with regard to facilities plays an increasingly central role in decisions to opt for one property location over another.
Another good way to cut costs is to upgrade your facility management. Here, CBRE determined a savings potential of sometimes up to 25 percent of the total costs. Energy costs, for instance, may be lowered by consolidating the portfolio and by being more selective when shopping for an energy partner. Especially maintenance planning is an area frequently underestimated.
Preventive maintenance is highly important, not least because it is typical for corporates not to care until something fails. Not planning with foresight, however, is the most costly variant of all. You end up raising a scaffold to fix the windows, then another for your façade, and a third one for the roof. Just doing patch-ups is expensive.
“On top of that, companies ought to check carefully which of the properties they should own outright and which ones they had better rent,” said von Erdély. “DAX-listed industrial firms owner-occupy around 60 to 70 percent of their real estate.” He added that this represents a very high percentage compared to other countries. Mergers and company takeovers in Germany are often accompanied by rude awakenings. After all, the focus when buying a company is typically on the core business of the takeover target. “Sometimes it is not until the acquired company is being integrated that a buyer will realise that some properties require costly refurbishments,” is von Erdély's experience. “Companies tend to underestimate both the threats and the potential of real estate. But the potential is particularly interesting, because a competitor who has a clearer idea of the true potential of a given property may end up placing the winning bid with a more attractive purchase price,” said von Erdély.
This makes professional real estate management indispensable, and for globally active companies more so than for others. However, real estate holdings spread across the globe often lack transparency of data and strategic control of business-critical versus not-critical properties. Most properties are subject to operative management only, which means that companies limit themselves to moving ahead with construction projects, negotiating leases and optimising costs. “Especially companies in the United States take a more progressive approach in the pro-active management of their real estate portfolios. US companies tend to integrate both in-house and third-party real estate experts in decision-making processes right from the start,” Williams commented. Value-optimising real estate management is much more actively pursued here. A good case in point is the real estate management practised by international banks. Many banks, for instance, choose highly presentable premises with a smaller footprint in Manhattan for their headquarters while moving their back-offices and administrative units to more affordable locations in New Jersey.
Dr. Alexander v. Erdély
Head of Global Corporate Services+
49 211 86 06 61 33
Head of Client Solutions GCS
+49 69 17 00 77 86
Dr. Jan Linsin
Head of Research Germany
+49 69 17 00 77 663
About CBRECBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com