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EM + RE + FM = ?

08 August 2007

There has never been more variety and choice of suppliers for maintaining and improving the quality of accommodation in a large corporate. Andrew Waller and Andrew Carter explain the options now available in the property services market

Estate management (EM) services such as lease management, rents and service charge, valuation and brokerage were provided by surveying firms. In big corporates, anything to do with operating the office, the building, plant maintenance and capital projects was undertaken by in house FM teams or firms born from in house FM teams. This was made even simpler by the fact that few surveying firms recognised corporate occupiers as buyers of services until the early 1990s. This left FM organisations with 'corporates' and estate managers/surveyors as the landlord's advisors. All this has changed in the past five years as EM firms have moved strongly into the corporate sector forming Real Estate (RE) advisory teams, providing 'strategic' and transaction advice, whilst FM companies have expanded into providing a fuller range of services including engineering, building, accommodation planning and workplace productivity consultancy. The recent acquisition of management consultancies by Johnson Controls and Serco and the ever widening set of consultancies owned by Erinaceous, are examples of the expansion of organisations into both RE and FM services. It has not only broadened the scope of services in the UK real estate industry but seems to have added to the confusion of buyers in the market.

Service models
At the moment, RE & FM - these two very different but interconnected service offerings - are formed of, on one hand the transaction & asset based RE advisory sector and on the other, the reactive, pragmatic, servicesorientated FM sector. Highlyrespected, property-focused RE professionals have traditionally brokered boardroom-level transactions and overseen estates management and asset portfolios. Some have moved towards becoming a recognised part of the corporate core of business planning - still operating at board level - with a greater business case orientation. They are, however, often perceived as having a 'mentality' which limits communications with landlords, tenants and occupier clients to asset based or contractual obligation matters.

In contrast, the traditionally service-centric FM sector is ditching its 'brass and boilers' image and fast becoming a recognised profession. Battling a lingering perception that FM people are 'the ones who fix bits of property that break', the sector aims to operate on an equal footing with RE specialists, through fulfillment of a demanding, constantly-evolving role centred on creating optimum working environments for business staff. This involves the management of a myriad supply chain services including accommodation strategies, business support, building maintenance, security, office fittings and equipment, stationery, cleaning and catering - a broad remit for which sophistication and business 'nous' is increasingly required.

Both these RE and FM service providers would do well to look to the development that IT service providers have gone through to help them refine their structure and service offering. They have developed a number of service models over the last 10 years which are maturing and which clients are now able to choose between.

The first generation of solution was to appoint a single large company to supply all aspects of the IT but, in a rapidly developing an expanding IT environment, this simply became too risky. Many companies ended up with obsolete equipment or software as the world moved on and change was costly.

More recently we have seen the emergence of managed service providers who contract to maintain and enhance the IT provision from a number of providers and, if necessary, change seamlessly from a failing provider to a strong one. This approach is now available to small and medium businesses as well as large ones and the 'one phone call' approach is valued by customers.

Corporate occupiers
Reliant on the expertise of both the RE and FM sectors is 'the occupier/client' whose business is conducted from properties procured for that principal purpose. Under constant pressure to effect savings in time, cost and complication - whilst providing an outstanding workplace ambience for staff and visitors that will not only reflect company brand and values but will help to boost recruitment, retention and performance - the occupiers' position is immensely challenging.

Developments in mobile communications technology have resulted in the rise of the home-office and remote working, with the result that property is no longer required to house all staff at all times, but still needs a workplace solution to maximise the productivity of its people. Costs of servicing an increasingly mobile workforce continue to escalate and the inevitable consequence of less but highly utilised property is a higher level of service provision.

To survive and compete in the current dynamic and unpredictable business arena, companies are required to streamline continually, accelerate change, and become more versatile. In response, CRE executives are increasingly forming a 'zero tolerance' reaction to convoluted and disconnected processes that hamper progress and insidiously affect the bottom line. Businesses in general and their CRE executives in particular, are demanding as, a baseline requirement, a seamless property service provision.

Many CRE Executives are actively seeking onestop service solutions which release them from day to day CRE management and which offer:
....Application of in-depth business knowledge to all property-related decisions
....A full awareness of the sophistication of customer, workforce and wider perceptions of corporate image, brand and values
....Expertise in the provision of a workplace environment that will enable competition for and retention of a sought-after, discerning workforce
....Lower cost/higher value maintenance and service provisions
....Increased transparency and simplicity of operations
....Straightforward operating and procurement procedures
....Ensured compliance with H&S, corporate social responsibility and corporate governance legislation.
....Increased performance management and accountability.

The problem with developing a seamless service for the corporate is the history of property service provision and, in particular, the separate evolution of EM and FM. The fact that FM grew out of the business itself and EM concentrated on being a service for negotiating property transactions and developing into RE services as property strategists, has resulted in different relationships with corporates - RE as advisors to the board and FM a line managed service. The business evolution of FM should put it at an advantage in the modern business driven world. However, RE has always held the allure of the entrepreneur and has remained closer to the board room than FM, which many see it as still fixing the bits of property which break.

Nevertheless, as in any well functioning capitalist economy, the need of business for a better co-ordinated approach to accommodating valuable staff is encouraging many service providers to look again at the model for property services. Naturally there are a number of factors driving this and these range from making money through finance to providing value added services. Now, as many different models become recognisable, so they begin to fit into a pattern and we can chart the differences.

Although there are many hybrids, the basic drivers of the differing service providers tend to categorise their approach. These are:
FM service provision: Traditional supply of hard and soft FM services by increasingly efficient teams who are effective at managing subcontracts and resources. This is often thought of as the 'grubby' end of the market but there is recognition amongst the leading CRE teams that FM is emerging as core to managing many critical business functions, such as compliance with H&S legislation, business continuity and, to a large degree, corporate governance. This sector is more comfortable with measuring and reporting performance and is also able to manage energy and sustainability together with areas of corporate social responsibility. It provides services that enable people to work remotely in a variety of settings, receiving all the services necessary for productivity and communication.

It is to the FM sector that the responsibility of manipulating working environments to a level suitable for the attraction and retention of high calibre staff is entrusted and it is increasing corporate awareness of the value of the workplace in optimising productivity, profitability and performance. This value does not, however, usually find its way through to increased fees; margins are low, encouraging many in this sector to move into offering more strategic services. It is by offering a wider range of strategic advice, whilst delivering on the promises of good basic services that these organisations hope to capture the long term business and goodwill of their clients.

RE advisory and EM service provision:
The domain of surveyors and accountants who will deal with strategies, transaction, the leases and liabilities within the estate. There is an overlap with pure FM provision within building consultancy and small works but many RE providers whose client base is mainly landlords still resist convergence with FM and will subcontract where necessary.

Combined RE & FM providers:
These are organisations which have teamed up with or bought in others to offer both services. This is usually a bolting together of distinct RE and FM service groups. Often one of the services is weaker depending on the origins of the 'parent' or greater organisation. Hopefully these hybrids will evolve into
the seamless providers that the corporates are looking for.

Accommodation services provision:
Providing accommodation as a service rather than under a traditional lease has developed into several different forms over the past 10 years. At one extreme we can see the serviced office (and virtual office) arrangements offered by the likes of Regus and HQ. Here offices are provided as, when and where necessary from a homogeneous stock kept ready for occupation. Services such as concierge, printing and internet are added at a price and this appeals to rapidly growing companies or those who like to work flexibly.

At the other extreme, we have seen Mapeley and LSTrillium take over large estates and manage them to order from their clients ¨C the companies who used to own the estates. Here contracts allow flexible occupation in some buildings and more traditional long-term agreements in others. Additional services can be provided as required.

There are key performance indicators and termination clauses to keep these suppliers on their toes. Traditional landlords have, in response, started looking at tenant satisfaction indices.

Property and Asset funding: This takes accommodation provision to another level where the provider will run the FM operation in a corporate's building but will also enhance the value of the asset in partnership with the occupier and then sell the property, sharing the 'profit'. To achieve this, the occupier will need to occupy much less space, releasing part of the building to be let. In turn the provider will fund and undertake the necessary alterations both to the occupier's facilities and the facilities to be let. Fassett and the Asset Factor are two companies that provide this service, albeit in different ways.

There is no silver bullet to the ongoing requirement to improve accommodation efficiency and reduce costs. However, we are beginning to see a range of business models which offer a far more sophisticated approach to providing services - rather than the inflexible models of the past.

Which is right for your business? Clearly this will depend on how the benefits offered by each model are seen or prioritised.

There appears to be a market for all the models at present. Two points emerge from where we are at the moment. The first is that the corporate occupiers need to be certain about what they want and to be able to articulate this consistently to the CRE industry. This will greatly assist in the reduction of the complex range of services and the emergence of services of benefit to the corporate occupier. The second is that FM could well be the force that emerges as the seamless provider because they are closer to the core business issues.

"RE and FM service providers would do well to look to the development that IT service providers have gone through to help them refine their structure and service offering"

"We are beginning to see a range of business models which offer a far more sophisticated approach to providing services - rather than the inflexible models of the past"

....Andrew Waller is a Partner and Andrew Carter a Director in Remit Consulting LLP, a Management Consultancy which specialises in property and asset management business processes and systems

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