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WHAT OCCUPIERS WANT SERIES

OCCUPIER STRATEGY DRIVERS:

GLOBAL SURVEY 2016


43%

#1 CEO CHALLENGE

TALENT

PLAN TO COME BACK TO TOWN

58%

#1 CRE DRIVER

COST

REPORT TO FINANCE

58%

69%

HAVE COST SAVING TARGETS

ADOPT AGILE WORKPLACE

22% USE CO-WORKING SPACE

2 / CUSHMAN & WAKEFIELD

“CRE is still struggling to break out from cost-driven strategies, but companies are gradually adopting agile workplace and co-working whilst relocating suburban offices to urban areas.”


EXECUTIVE SUMMARY Corporate real estate (CRE) leaders around the world are focused on strategies to attract and retain superior employees and help enhance their productivity. At the same time, they must continually find ways to reduce occupancy costs. The overriding challenge is to balance these two goals, which are often in opposition to one another.

“Acting as an industry health check, the survey explores the fine balance at play between workplace costs and value.” This is the picture that emerged from a new global CRE survey conducted by Cushman & Wakefield in conjunction with CoreNet Global in 2016 as a follow-up to the 2015 study of industry trends, which

reinforces the criteria that is really driving occupier decisions. This year, our survey examined not only location and workplace strategy as corporate value drivers, but also CRE’s alignment with business strategy alignment. As in 2015, the findings show an on-going tension between the aspirations of CRE executives and their practical decision-making. This year’s results suggest a reason for that misalignment: too often, CRE’s attempts to advance corporate strategic goals must take a back seat to cost savings targets. Acting as an industry health check, the survey explores the fine balance at play between workplace costs and value with a sizable gap still evident between occupier aspirations and occupancy realities when it comes to committing to relocation and or expansion.

266 RESPONDENTS 76% INTERNATIONAL OCCUPIERS

68%

North America

20% EMEA

12%

Asia Pacific

MULTINATIONAL: 77% NATIONAL: 23% A strong representation of US headquartered multinationals 73% of respondents with more than 25 locations

The 266 respondents were predominantly from large global or regional organisations, over 76% of which are international occupiers. Survey responses came from CRE leaders in several business sectors, all of which were well represented by a sizeable pool of respondents. Surveys were conducted on-line and on-site at each regional CoreNet Global Summit. Responses were analysed globally, regionally and by industry sector.

“CRE leaders balance talent attraction efforts with cost reduction mandates.” cushmanwakefield.com / 3


CRE & STRATEGY ALIGNMENT COST-DRIVEN DECISIONS OVER STRATEGIC PRIORITIES How successful are CRE executives in translating their wider organization strategy into day-to-day decision making? Based on responses to questions on their perception of business challenges, we learn that they’re having a difficult time transitioning from traditional cost center models to more strategic resource models that support organizational objectives. The depth of the challenge becomes evident when we compare the Cushman & Wakefield/CoreNet Global survey results with those of the Conference Board CEO Challenges survey. Talent management and innovation are at the top of CEOs’ agenda, so it’s natural to suppose that CRE strategies would be aligned with those goals. Instead, occupancy cost tops the list of CRE priorities, as cost concerns drive the potential for portfolio optimisation.

“Talent management and innovation are at the top of CEOs’ agenda, so it’s natural to suppose that CRE strategies would be aligned with those goals. Instead, occupancy cost tops the list of CRE priorities, as cost concerns drive the potential for portfolio optimisation.”

4 / CUSHMAN & WAKEFIELD


GLOBAL CHALLENGES AND DRIVERS

Company Strategic Challenges What does the CEO say*

View of the CRE executives

CRE Strategy & Portfolio drivers CRE decision drives

Portfolio opportunities

TALENT

INNOVATION

CUSTOMER RELATIONSHIP

OPERATIONAL EXCELLENCE

SUSTAINABILITY

BRANDING FLEXIBILITY COST

Despite the growing challenge for Talent availability & retention, COST REMAINS MAIN CRE DRIVER * Conference Board survey 2015

“The concerns of CEOs may be reflected in CRE aspirational goals, but as a practical matter CRE remains focused on traditional cost and operational efficiency strategies.”

Talent management issues are second to cost when the question is about strategic challenges, but when it comes to priorities for day-to-day decision-making, talent falls to fourth place. As for the goal of fostering innovation in the workforce, the impact of CRE is negligible, in terms of decision drivers and perceived portfolio opportunities. Thus, the concerns of CEOs may be reflected in CRE aspirational goals, as a practical matter CRE remains focused on traditional cost and operational efficiency strategies.

cushmanwakefield.com / 5


WHY THE DISCONNECT? One reason might be the too strong alignment of CRE to CFO. It might not be a coincidence that 58% of survey respondents report to the CFO, and 58% of firms have cost savings targets. But we view these results as a massive missed opportunity for CRE to add strategic value, especially in the technology/ media/telecomm (TMT) sector, where the battle for talent is most intense, but where a significant 70% proportion of respondents are more heavily focused on reducing cost than on attraction and retention. We may be surprised at this level of misalignment, but many CRE directors are not. Approximately 48% of survey respondents globally said their CRE strategy is not aligned, or is only partly aligned, with their overall corporate strategy. But the survey results may also point to a solution:

“As organizations grow larger, the global alignment of real estate to wider business strategy is getting increasingly difficult without a centralized CRE function.”

6 / CUSHMAN & WAKEFIELD

we found a strong correlation between firms with centralised CRE functions and budget ownership, and those that report strong alignment with business strategy. As organizations grow larger, the global alignment of real estate to wider business strategy is getting increasingly difficult without a centralized CRE function. However, the survey showed that centralized CRE teams often have difficulty in translating critical corporate challenges into practical decision-making. While nearly 58% of respondents have annual cost saving targets, very few take talent or innovation – let alone sustainability – into account when making budget decisions. Centralised control can be a powerful tool, but without the ability to advance nonfinancial strategic objectives, that tool is not being put to its best use.


58% OF CRE DEPARTMENTS REPORT TO CFO

58% HAVE COST REDUCTION STRATEGIES BUT VERY FEW TAKE TALENT OR INNOVATION – LET ALONE SUSTAINABILITY – INTO ACCOUNT WHEN MAKING BUDGET DECISIONS

“CRE departments typically report to the CFO rather than the CEO - centralized control can be a powerful tool, but without the ability to advance non-financial strategic objectives, that tool is not being put to its best use.”

48% CLAIM THAT THEIR CRE STRATEGY IS PARTLY/OR NOT ALIGNED TO CORPORATE STRATEGY

cushmanwakefield.com / 7


LOCATION DECISIONS SHIFT TO URBAN, CONNECTED SITES Where a corporation locates within a metropolitan area region has direct impact on all of the top C-suite challenges: access to talent, ability to innovate, strong customer relationships, operational excellence, and sustainability. Location selection reveals the ways that strategic drivers are translated into practical decision-making.

Whilst cost remains the key location criteria for 28% of survey respondents, a number of other factors are rising up the agenda. The importance of cost in making location decisions has diminished since last year, as occupiers increasingly locate where they can attract talent, gain flexibility and enhance operational efficiency.

CORPORATES ARE MOVING BACK TO CORE URBAN AREAS

Urban relocation %

Suburban Business Parks

8 / CUSHMAN & WAKEFIELD

Business services 41%

Creative Urban Environment

TMT 46%

Financial services 56%

Central Urban Districts


The dwindling supply of suitable labour to carry out business operations remains a fundamental challenge for companies, and is addressed by international and local site selection strategies. Survey responses show a growing preference for occupiers to locate in urban areas that offer strong transportation infrastructure and the opportunity to engage talent. The effectiveness of traditional models is being reassessed, especially the separation of front- and back-office operations. While central business districts (CBDs) are the most sought-after hubs for occupiers, urban areas as a whole remain attractive with 64% of respondents globally choosing either CBDs or creative urban environments for their offices. Suburban business parks continue to attract a sizable portion of occupiers, with 24% opting to locate within these markets, especially for companies in the industrial and life sciences sectors. However, there remains a fine balance between proximity to production sites and working environment. If the

latter is simply not attractive enough for millennials, locating within suburban areas may become a barrier to recruitment and retention of talent, if suitable facilities and infrastructure are not in place.

43% OF RESPONDENTS SAID THEIR ORGANIZATIONS PLAN TO RELOCATE SUBURBAN SITES TO MORE CENTRAL LOCATIONS Survey results were not uniform across all regions. For example, public transportation options are important to more companies in EMEA and Asia-Pacific regions than in North America. A CBD location is important to more than half of EMEA companies, compared to less than a third of Asia-Pacific companies. Urban creative markets are preferred by more companies in North America than in other regions.

“The importance of cost in making location decisions has diminished since last year, as occupiers increasingly locate where they can attract talent, gain flexibility and enhance operational efficiency.� cushmanwakefield.com / 9


DESPITE ASPIRATIONS COST REMAINS A KEY DRIVER IN PRACTICE Importance of rail station < 10 mins walk

53%

75%

NORTH AMERICA

EMEA

82%

ASIA PACIFIC (increased)

Preferred location CBD

URBAN CREATIVE

40% 32% 56%

CBD locations are preferred across sectors (40% respondents) mainly real estate companies

26% 19% 15%

24% 15% 22%

Creative urban environments are popular with Business services and construction and architecture sectors

28% IDENTIFY COST AS PRIMARY KEY DRIVER Similarly, variations in location preference are found in different industry sectors. In EMEA, 67% of financial services firms may move office functions back to urban environments, while 45% of TMT sector firms are considering the same strategy. In North America, the possibility of moving from suburban to urban locations has occurred to 45% of financial services firms and 50% of TMT occupiers, while 67% of life science operators continue to favour suburban areas.

SUBURBAN PARK

Industrial TMT occupiers favour suburban business parks

Location decisions often illustrate the tensions among different drivers and objectives, as companies seek the right balance of cost reduction, talent access, visibility to customers, and flexibility. Most respondents, especially in EMEA and North America, view these conflicting objectives as difficult to reconcile outside of core urban areas, which provide access to talent, offer branding opportunities, and enhance flexibility. Approximately 43% of respondents said their organizations plan to relocate suburban sites to more central locations, and this trend has increased year on year. To meet cost targets, companies relocating to urban areas increasingly adopt agile workplace strategies, making better use of more expensive space.

“The dwindling supply of suitable labour to carry out business operations remains a fundamental challenge.”

10 / CUSHMAN & WAKEFIELD


â&#x20AC;&#x153;The effectiveness of traditional models is being reassessed, especially the separation of frontand back-office operations.â&#x20AC;?

cushmanwakefield.com / 11


WORKPLACE PERSISTENT GAP BETWEEN RECOGNITION AND ADOPTION CRE leaders around the world recognize that the work environment is an important factor for attracting and retaining talent. Nine out of 10 global survey respondents said the physical workplace is a fundamentally important or critical factor in securing superior workers and enhancing their wellbeing. While there was significant variation by industry sector – from a high of 100% in the life sciences field to a low of 67% among public-sector respondents – the vast majority of occupiers see a connection between workplace and strategic corporate goals. Yet, many said their workplace practices fall short of providing a “great place to work” or an ideal environment for attracting innovative workers. Only 63% of respondents said their companies dedicate less than 25% of space to collaboration, although this varied by industry: 47% of financial services firms devote at least one-quarter of space to collaboration, but only 8% of industrial sector firms do.

WORKPLACE STANDARDS

25%

EMEA

33%

US

44%

33%

ASIA PACIFIC

of global responses indicated that they have compulsory workplace standards, with Asia Pacific witnessing a higher proportion.

WORKPLACE AS A CRITICAL OR VERY IMPORTANT TALENT RETENTION FACTOR

89%

North America

91%

EMEA

96%

ASIA PACIFIC

IS WORKPLACE A KEY TALENT RETENTION FACTOR

94%

TMT

12 / CUSHMAN & WAKEFIELD

94%

Business Services

88%

82%

Industrial

Financial Services

67%

Public Sector


AGILE WORKING WILL BECOME THE NORM SUPPORTED BY GLOBAL WORKPLACE STANDARDS Compulsory global workplace standards

33%

25%

NORTH AMERICA

44%

EMEA

ASIA PACIFIC

Agile workplace strategies including desk sharing Introducing or testing: 60% Contemplating: 29% Not planning: 11%

Introducing or testing: 89% Contemplating: 11% Not planning: 0%

Introducing or testing: 78% Contemplating: 19% Not planning: 4%

Global workplace standards

18%

41%

Construction and Architecture

34%

Real Estate

19%

TMT

44%

Business Services

25%

29%

Yes, compulsary Guidelines only No standard

Financial Services

Public Sector

Industrial

cushmanwakefield.com / 13


COLLABORATIVE & CO-WORKING INITIATIVES Given the extent to which CEOs are focused on talent management and innovation, and the role that collaborative and co-working spaces can play in achieving those goals, itâ&#x20AC;&#x2122;s somewhat surprising to see how many companies are still limited to traditional workplace models. In fact, there has been no increase in the percentage of companies using their workplaces to foster talent attraction, and innovation has not changed since the previous survey was conducted in 2015. But all is not stagnant in the world of the workplace. Where co-working spaces have been tested, their adoption rate has been faster than expected, with close to 22% of respondents saying that co-working is now part of their core portfolio strategy. In addition, there has been a stunning year-on-year increase in the percentage of companies implementing agile workplace policies. In EMEA, 89% of respondents are either implementing or testing agile policies to increase flexibility and provide a more engaging and productive workplace. The figure is a surprisingly high 78% in Asia Pacific, and a lower-than-expected 60% in North America.

14 / CUSHMAN & WAKEFIELD

IS AT LEAST 25% OF YOUR COMPANYâ&#x20AC;&#x2122;S SPACE COLLABORATIVE?

TMT

41%

Financial Services

47%

Industrial

8%

Business Services

31%

Public Sector

20%

Life Science

25%


CONCLUSION The alignment of CRE strategies with corporate priorities continues to be an elusive goal, but the survey results show progress in several areas compared to the previous survey conducted by Cushman & Wakefield and CoreNet Global. There persists a penny-wise-and-pound-foolish focus on occupancy cost reduction, often at the expense of furthering talent management and innovation goals. On the other hand, the fast-rising levels of flexibility and co-working space, and the changing location strategy to more effectively pursue talent, show that C-suite executives are starting to make the connection between leading-edge CRE strategy and corporate success.

CONTACTS

TAMĂ S POLSTER

Co-head of Strategic Consulting EMEA Global Occupier Services tamas.polster@cushwake.com

NEIL MCLOCKLIN

Co-head of Strategic Consulting EMEA Global Occupier Services neil.mcklocklin@cushwake.com

DAVID PETROCZY

Business Consultant, Strategic Consulting EMEA Global Occupier Services david.petroczy@cushwake.com

ANDREW HEARD

Research andrew.heard@cushwake.com

cushmanwakefield.com / 15


About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firmâ&#x20AC;&#x2122;s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services with revenues of $5 billion across core services of agency leasing, asset services, capital markets, facilities services (branded C&W Services), global occupier services, investment management (branded DTZ Investors), tenant representation and valuations & advisory. To learn more, visit cushmanwakefield.com or follow @CushWake on Twitter. Copyright Š 2017 Cushman & Wakefield. All rights reserved. CUS100646 01/17

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Occupier Strategy Drivers Global Survey 2016  

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