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A look at the year ahead

A turbulent economy, generational shifts in the workplace and growth in global markets look set to play key roles in the corporate real estate (CRE) and facilities management (FM) market. WorkPlace Now asked experts from three leading consulting firms, Capstan Advisors, UMS Advisory and Agile OAK, to predict the trends that are likely to have the greatest impact on the year ahead.


Analysts_LP

Paul Garity, Partner, Capstan Advisors


Michael Redding, Managing Director, Agile OAK

Rakesh Kishan, Managing Director, UMS Advisory

Paul Garity, Partner, Capstan Advisors

Over the past three years we have seen a boom in demand for outsourcing services, because many corporations needed to reduce occupancy costs to respond to the economic recession and because other companies accelerated their growth in global markets.

For 2012, we see three trends emerging in the outsourcing market.

  • The first trend is driven by the “let’s make this work better” group of clients who are on their second- or third-generation of outsourcing with a single source or small number of providers. They are demanding performance against KPIs, better reporting, and consistent quality in dedicated and variable staff across the account. But, in return, they are more willing to buy additional services that can add value from alternative work place strategies to life cycle asset management programs to portfolio optimization consulting.
  • The second major trend is from the “let’s try something different” clients, who say that CRE outsourcing has not changed much in 10 years and needs to be radically altered to improve performance. They favor hands-on management of multiple providers by region or function. They are questioning the effectiveness of the typical RFP process and testing new delivery models that promise better integration of processes and technology across their portfolios. These CRE executives and others will shake things up a bit in 2012, but we expect that most companies will wait and see how the new models work out before joining in.
  • Finally, we see service providers managing their businesses better. Despite the overall growth of outsourcing, there have been many changes in leadership positions at service providers over the past six months. Providers are already being more selective in accounts they pursue, but when push comes to shove in a selection process, they still price aggressively to win business. The next step will be to raise prices so that providers can afford the quality account leaders and support resources that clients are demanding. As the economy improves in 2012, we think more clients will shift their focus from cost cutting to value enhancement, and providers will start to price their services more appropriately.

 

Michael Redding, Managing Director, Agile OAK

The FM marketplace will continue to see growth and evolve through 2012 and beyond. A few trends are evident

  • Occupiers will put more focus on establishing longer-term partnerships, with more emphasis during the sourcing process of evaluating partner capabilities and demonstrated ability to deliver services to a high level of proficiency
  • Whereas three-to-five year deal terms are common in the US, we expect to see that stretch to five-to-10 years as occupiers focus on longer term transformation of performance and cost structure
  • There will be a continued move away from “guaranteed maximum price” commercial models for large FM portfolios. This model has proven too unwieldy to baseline and will more likely be supplanted by agreements with guaranteed savings commitments
  • The pace of mergers and acquisitions among FM service providers will continue as providers seek to guarantee market share and strengthen global capabilities
  • In the US market, economic and legislative pressure will drive increased outsourcing in health care and higher education. Globally we expect increased activity in the BRIC countries and are watching state-owned businesses in China.

For service providers these trends represent an opportunity for growth, but also pose a significant challenge to the status quo.

  • Occupiers are going to expect a more consistent experience from the business development stage through to mobilization and on-going delivery of services. Achieving this will require service providers to have more employees in cross functional roles
  • As occupiers become more selective and thorough in their evaluations, service providers will have to be increasingly selective about opportunities pursued
  • Occupiers will be more assertive about ensuring performance and re-bidding underperforming accounts
  • The ability to absorb acquisitions and ensure a consistent client experience across the enterprise will be a critical business success factor

Whether occupiers, service providers, or consultants, there will be increased opportunities for professionals with international experience and the ability to interact effectively across all facets of the business.

Rakesh Kishan, Managing Director, UMS Advisory

Our observations, based on market research and discussions with heads of global CRE/FM at businesses, suggest that 2012 promises to be a year of contradictions, uncertainty, but also increased optimism in many industries. But underlying these seeming contradictory trends will be the new business logic of tomorrow, which will be counter-intuitive at times.

UMS expects the focus on cost efficiency to continue, even as bellwether companies across many industries show record levels of profitability. We also observe shifts in optimism and increases in plant and facility investments, especially in high-growth emerging markets as well as in domestic energy investments. But the business environment continues to be uncertain, fraught with commodity price risks, political risks, supply chain risks, as well as generational shifts in workplace demographics.

Today, CRE/FM leaders have to not only be better connected to their business, they need greater delivery capability that is scalable, agile, and anticipatory. CRE/FM outsourcing deals may be nearing an inflection point as many clients will seek the next generation of value from suppliers. What this will mean is that CRE organizations that can project CRE/FM capability to where it’s most needed by internal clients and have more flexible portfolio strategies and talent-centric workplace environments, will enter into high-performing outsourcing relationships with strategic partners.

Key trends we would expect in 2012 include, a better definition of the role of CRE in the intense war for talent, both growth and contraction of the portfolio in specific markets, continued transition from an operational to portfolio mindset, and greater competition for the “non-core dollar” by suppliers. Supplier competition will be characterized by greater geographical reach and breadth of services in face of more intense competition from regional and, at times, more specialized suppliers. Legacy distinctions will be blurred as suppliers redefine the boundaries of workplace and services. We will see more competition between suppliers who in the past had worked side-by-side.

Technology trends will continue to shape us, our workplace, and our industries through disruptive convergence. How CRE/FM will define its role amongst the three key technology forces of our time - social networks, mobility, and cloud computing - remains to be seen.

 

Summary

While the business environment will continue to be dynamic, a huge opportunity exists for technology integration to enhance the corporate portfolio.

The bar has been raised. End users have better defined needs and higher expectations of a strategic partner. Service providers must not only successfully execute services, but drive sustainable value that’s aligned to their customers’ business. In short, 2012 is the next generation of outsourcing. Back to top

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