--> Gill Blog: Out-tasking – Outsourcing Alternative for Corporate Real Estate

Gill Blog

Monday, November 22, 2004

Out-tasking – Outsourcing Alternative for Corporate Real Estate

by John Clutterbuck LL.B.,
Gill Advisor for Corporate Real Estate Services

Outsourcing is recognized as one of the greatest organizational shifts of the last few decades and is ranked as one of the top business ideas of the last century by Harvard Business Review.

In recent years, the pressures on corporations to cut costs and focus on the core business have been the key drivers of outsourcing as a solution for many non-core functions under the rubric of business process outsourcing: information technology, human resources, marketing, sales, facilities management and real estate.

Outsourcing is not an entirely new concept in commercial real estate. What is new is a shift in the focus of corporate real estate. In the past, property owners have driven the real estate industry. In the future, corporate space users will be the focus of leading real estate service providers.

Traditionally, commercial real estate agencies emerged as an outsourced marketing and disposition capability for property owners and developers. Brokerage agencies were formed to satisfy the needs of property owners to dispose of vacant space more efficiently than setting up an internal marketing and sales infrastructure for each building owner’s properties. As such, the organization and motivation of real estate agencies evolved to satisfy the needs and goals of property owners.

Commercial real estate agencies compete with each other for listings with large property owners and favour the leasing or disposition of owners’ portfolios. The outsourcing of the leasing or sales process to a broker is specific to a vacancy or building and is governed by a listing agreement for each property. Commission-based compensation that pays the property owners’ agents only for achieving the property owners’ goal—a signed lease or agreement to purchase the property—is the norm in commercial real estate. For the most part, real estate brokerage is still a property-focused business model based on transactions that are beneficial to the property owners and their agents. Traditional real estate brokers see corporate space users as solutions to property owners’ problems.

In the past few decades, corporate space users have become recognized as the appropriate focus of commercial real estate and some traditional brokers have evolved into exclusive tenant rep agencies. However, such evolutions have typically failed to align properly with the objectives of corporate space users, because most brokers continue to focus on the specific goal of the property owner—the signing of the lease or purchase agreement. For the corporate space user, the legal commitment to space by the signing of a contract with a property owner does not represent the completion of the real estate process. More often than not, a signed lease or purchase agreement marks just the beginning of the next important stage of a process for the corporation toward its workspace objectives.

Most corporations do not have the experience, internal resources or specialists on staff to achieve their corporate real estate objectives. Many of these corporations are realizing the benefits of out-tasking successive elements of an integrated real estate process. Not only can companies save money and avoid costly errors performing unfamiliar real estate tasks, but their senior executives remain focused on the core business and their customers. In the context of a board-level appreciation of business process outsourcing, it's natural for leading companies to think positively about out-tasking as a solution for real estate management.

Canadian banks were among the first in this country to pick up on trend toward outsourcing corporate real estate, which began in the United States. With large real estate holdings and clearly more profitable core business opportunities in banking, it was a strategic move for the banks to transfer real estate assets and liabilities to pension funds and the management of all their real estate operations to an emerging industry of outsourced real estate service providers. This is a true outsourcing business model that serves well the needs of the banks, utilities, telecoms and the largest multi-national corporations. Although the implications of outsourcing real estate are on a different scale for most small to medium-sized enterprises, the benefits to most companies can be no less important.

For many companies, there is a close relationship between the company and its corporate workspace, so it is often preferable for senior executives to maintain direct control of the real estate process by out-tasking rather than outsourcing. Out-tasking is assigning the work involved in discrete, specialized real estate tasks, rather than responsibility for the corporate real estate portfolio as an enterprise. In addition to real estate brokerage, out-tasks most often include market analysis, site selection, transaction management, lease administration, design, construction management and project management, as well as outfitting, furnishing and equipping workspaces. Selecting out-tasking rather than outsourcing, executives make a conscious decision to retain control over their corporate real estate process. This recognizes that the company, particularly its real estate executive, is ultimately responsible for the company’s assets.

Out-tasking is often a "strategic catalyst" that rationalizes the real estate processes of a corporation. Executives think carefully about overall real estate strategy when making the positive decisions to determine which parts of the real estate process are appropriate for out-tasking to a trusted advisor and which parts of the real estate process are better handled in-house. This mixed mode approach—retaining responsibility for strategy and selectively outsourcing components of an overall real estate process following an analysis of needs and capabilities—ensures a proper allocation of resources and talent. Very often, it's a tactical implementation of a strategy that is consistent with overall corporate outsourcing objectives.

To address the needs of corporate space users, real estate professionals must create added value, not just the cost reductions that have driven larger enterprises to outsource real estate. Some corporations form an alliance with a professional services firm that adds value by providing the resources and specialists to do the work involved with specific elements of the real estate process under an out-tasking contract. In such a relationship, the real estate professional is a trusted advisor and unbiased advocate for the client in all the out-tasked phases of the real estate process. Aligned with the goals of the corporate space user, multi-disciplinary corporate real estate professionals form true alliances with their clients to deliver integrated real estate solutions that are based upon the needs of the client, not the greed of a broker. The added value of out-tasking the real estate process is the re-alignment of the cost-benefits of traditional real estate brokerage with the broader objectives of corporate space users and the effective integration of multi-disciplinary real estate professionals working as a team with company executives.

What are the top 10 factors in successful out-tasking?
1. Understanding the corporate goals and objectives
2. Sharing a strategic vision or plan
3. Forming alliances with the right service providers
4. Effectively allocating resources and talent
5. Properly structuring the out-tasking contract
6. Opening communication among alliance partners
7. Gaining support and involvement of senior executives
8. Aligning compensation with client objectives
9. Measuring financial benefits for the client
10. Managing relationships effectively

In the end, corporate real estate is not about property. It's about people.


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