In January, GlaxoSmithKline, a global pharmaceutical firm, appointed Chicago-based commercial real estate services giant Jones Lang LaSalle as the real estate services provider for its entire 80-million-sq.-ft. portfolio. From now on, Jones Lang LaSalle’s corporate outsourcing team will single-handedly provide transactional support, property management and consulting for GlaxoSmithKline’s 750 properties throughout the world.
Jones Lang LaSalle has already been serving the firm in various capacities over the past 10 years, but the consolidation of all of GlaxoSmithKline’s real estate needs in the hands of a single real estate services provider signifies a desire not to waste in-house resources on portfolio management and instead focus on the core business, which is pharmaceuticals, according to Peter Roberts, Jones Lang LaSalle’s CEO for the Americas. That desire is becoming more and more common throughout the corporate world.
Also in January, Jones Lang LaSalle signed a framework agreement with Volvo Cars Corp. to serve as its preferred global supplier of real estate services, including site selection, negotiations, valuations, dispositions and acquisitions.
Last year, the revenue Jones Lang LaSalle Americas earned from property and facilities management rose 25 percent, to $335.6 million.
“Our clients, both occupiers and investors, are becoming more global, looking for more efficiency and looking to do more with [fewer] providers,” says Roberts.
Other commercial real estate services firms are seeing the same trend. Microsoft Corp. recently appointed CBRE as integrator of services for its 34 million-sq.-ft. global property portfolio. CBRE will now provide real estate strategy consulting and portfolio planning, property management and lease administration for the technology firm, in addition to managing other service providers through construction and facilities management projects.
In mid-2011, the United States Postal Service also awarded CBRE an exclusive contract to provide strategic corporate real estate solutions for its 300-million-sq.-ft. national portfolio, including leasing transactions and asset dispositions.
For the entirety of 2011, CBRE signed 173 new outsourcing contracts—a record number. The firm’s outsourcing revenue on a global basis rose 14 percent.
“We are very excited about the growth in our outsourcing business,” says Mike Lafitte, president of the Americas with CBRE. This year, he says, “We expect that business to grow in the low double-digit range. We still view the space we would call outsourcing as being in relatively early days and we are very bullish on the prospects of that business.”
According to a Global Corporate Real Estate Survey, published in August 2011 by Jones Lang LaSalle and Thomson Reuters, 9 percent of more than 500 corporate real estate executives surveyed last year said their companies outsource all of their real estate functions and 67 percent said their companies divide the work between in-house and outside real estate departments. By 2014 the fully-outsourced figure should rise to 11 percent, while the hybrid figure should rise to 70 percent. Of those corporations that will completely outsource their real estate portfolio management, 70 percent will do so through an exclusive partnership with a single real estate services provider, Jones Lang LaSalle and Thomson Reuters predict.
Today, the most commonly outsourced services include property management, at 41 percent, and transactions, at 34 percent. The least outsourced service is portfolio strategy, at only 3 percent.
Musical chairs
The trend of corporate outsourcing will have several implications for the real estate brokerage world, the most significant of which will be the addition of new business lines and further industry consolidation. Since corporate clients increasingly prefer to work with a single real estate services provider across their holdings, the real estate firms with the greatest advantage will be those offering global reach and multiple service lines, say executives at Jones Lang LaSalle, CBRE and Cushman & Wakefield.
One way these companies will try to stay competitive will be through launching new service lines and hiring professionals with skill sets that are lacking in-house. For example, Jim Underhill, CEO of the Americas with Cushman & Wakefield, notes, “We are where we want to be [in terms of markets], but we look at some of the major cities we are in and realize that we don’t have the full complement of services clients are asking for.”
In March, a search for available positions at Cushman & Wakefield turned up a considerable number of posts for research/financial analysts, as well as for facilities managers/technicians. For its part, CBRE has been reshuffling its management personnel, including bringing back Whitley Collins from Jones Lang LaSalle to head its occupier services practice in the Americas. Collins spent 18 years with CBRE before moving on to The Staubach Company and then Jones Lang LaSalle in the mid-2000s.
Colliers International, another commercial brokerage firm with offices throughout the world, would like to grow its institutional sales team and its mortgage finance business, according to Warren Dahlstrom, president of Colliers’ U.S. investment services group. Over the past year, the firm has hired more than 25 experienced brokers for its institutional sales division, bringing the overall team to more than 70 people. The reason Colliers would also like to beef up its mortgage finance capabilities is that clients have become “quite used to being served with a full-service sales and debt capability,” Dahlstrom says. “So as we build our institutional sales capabilities, we will also build our mortgage finance business.”
Of course, if these same firms want to add new capabilities and manpower quickly, the easiest way to do so is through acquisitions. In October, CBRE completed its $900 million purchase of ING Group’s real estate investment management businesses in Europe and Asia, plus ING’s global real estate securities business, merging them with its existing real estate investment management practice to create CBRE Global Investors. Headquartered in Los Angeles, the practice now serves more than 600 institutional clients across 21 countries and has about $94.8 billion in assets under management.
In February, Newmark Knight Frank owner BGC Partners Inc. signed an agreement to buy the assets of Grubb & Ellis, a national commercial real estate services firm, through a Chapter 11 sale. At the time, Michael Lehrman, global head of real estate at BGC, commented in a statement: “Our expanding position in the real estate marketplace, reflecting BGC’s strategy to grow our real estate business, is creating new capabilities for talented real estate professionals as we extend relationships with top-tier corporations and financial institutions, and introduce innovative tools to broaden the services our brokers offer to clients.”
Grubb & Ellis operates about 100 offices across the country with a total of approximately 5,000 real estate professionals. It specializes in management services, transaction services and investment management. As of third quarter 2011, the firm was reporting a 12.6 percent drop in revenue from management services, which include property and facilities management for corporate owners and occupiers, and a 13.4 percent drop in revenue from investment management. The numbers indicate it has been lagging behind market competitors in picking up corporate outsourcing and investment sales assignments.
On a smaller scale, last May Jones Lang LaSalle purchased Primary Capital Advisors, an Atlanta-based real estate lending and servicing firm focusing on the multifamily sector. The deal gave Jones Lang LaSalle the opportunity to become a Freddie Mac seller/servicer and allowed it to work on the sale of the $460 million RREEF multifamily portfolio involving 2,580 apartment units in Washington, D.C.
“It’s less about this individual firm or that individual firm and more about our clients,” says Roberts. “Clients tend to favor firms that have the broad geographic capabilities, broad service lines capabilities and the financial resources to invest in innovation.”
According to James D. Kuhn, president of Newmark Knight Frank, “It’s not necessarily the service lines that we will focus on. What’s more important is how you integrate your service lines to benefit the company, how you integrate management and leasing with capital markets, how you integrate the tenant rep business with facilities management. I think it’s myopic to say, ‘I am going to build this group or this practice.’ I believe the most successful firms will be the ones that can integrate the various practices to be able to service clients in many different areas.”