Real Estate Managers Pressured to Cut Costs in Slowing Economy but Companies Still Expanding
May 14, 2014, Hong Kong – CBRE has released the 2014 edition of its China Occupier Survey, a report that looks at trends in how multinational corporations are managing their commercial real estate (CRE) portfolios in China. The report is based on responses to a questionnaire that was distributed to CRE managers.
"Our 2014 China Occupier Survey will be of interest to corporate real estate teams wishing to understand how other organizations are managing their property portfolios in China and gain ideas on how to possibly improve management of their own China portfolio," said Nick Rose, Director, Office Services, CBRE China. "As the survey also probes views on prospects for enterprise growth and discusses recent investment and occupancy trends, the report may also interest anyone with broader interest in the state of China's economy and wider business environment."
Overall Positive on Growth
Despite stating that their companies face serious challenges such as cost escalation and a weak economic outlook for China, over 68% of survey respondents indicated their firm will continue to add headcount in the country over the next three years, and 52% believed their organization will also continue to expand geographically within the nation as well. This optimism varies somewhat by industry, however, with most service companies generally showing far stronger intention to expand than manufacturing companies.
Expansion and Relocation
The preferred destination for expansion/relocation is Eastern China, with Shanghai in particular standing out as the number one choice for MNCs considering new China headquarters. The opening of the new Free Trade Zone in Pudong will likely further enhance Shanghai's allure as a corporate headquarters city.
Occupancy costs are the number one factor CRE professionals consider in choosing a new location, followed by quality of infrastructure and quality of building.
CBRE believes that the following trends are likely to develop in the future, in particular for cost-sensitive industries like manufacturing:
1) The emerging trend of relocating to decentralized areas. This bodes well for decentralized submarkets that have a supply of high-specification buildings and well-equipped infrastructure to support them.
2) Average- to high-quality buildings in decent locations will also remain an option for occupiers.
3) In order to explore different options available in the market, occupiers will start to plan further ahead (sometimes two to three years) before their current lease expiry to secure the next lease at a competitive price. As a result, preleasing before construction completion is becoming an increasingly common phenomenon and will continue to do so.
Work Place Strategies
From an employee’s perspective, public transportation accessibility is almost unanimously rated as the most important factor in the workplace, followed by indoor environment/air quality and sustainability. This implies that transportation networks such as subway lines will certainly have significant impact on the success of any new district or decentralized building and suggests employees’ increasing awareness of the importance of a healthy working environment.
CRE professionals taking the survey expected that flexible work styles such as telecommuting and mobile working will be increasingly used within their organizations, yet these professionals seem to be taking little initiative to adapt new technologies that could enable more efficient business communications and help achieve their top goal of cutting operating costs.
Around a quarter of organizations surveyed still allow their local businesses to make final decisions on CRE, but most companies (55%) intend to better centralize their CRE functions. Corporate purchasing and procurement departments continue to become more involved in China real estate decisions, a trend likely driven by the need for cost control amid a slowing economy.
The survey also suggests that almost 60% of China CRE functions (whether separate or embedded in other departments) reside outside Mainland China, even though the distance may sometimes lead to delays, bureaucratic interference in decision making and missed opportunities.
While CRE professionals reported that controlling occupancy costs is currently their overall top priority, most of the measures they are adopting seem to focus on short-term solutions that may have a limited impact on an organization’s long-term real estate portfolio optimization.
The questionnaires were sent out to over 500 China-based CRE professionals from various industries and received a total of 73 responses. Sector-wise, 48% of the respondents are from Manufacturing, followed by 13% from Leasing and Business Services, 12% from Finance and 7% from Transportation, Warehousing and Postal. Geographically, 45% of the organizations are headquartered in North America, followed by 27% based in Europe and 22% in Asia. All companies under this survey are MNCs except one domestic financial company.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
About CBRE Group, Inc.
CBRE 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 (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.