In the wake of the financial crisis, companies are examining new ways of managing their corporate real estate, trying to be creative and extracting better value.
“Organisations are now looking to trim space at the same time as they are increasing headcount: less is more,” said Oliver Jones, newly appointed head of corporate real estate at EC Harris, a leading built asset consultancy firm.
Separately, Singapore was named Asia’s most expensive country in which to build and made the top 10 most expensive countries in the world, in a list headed by Switzerland.
In its International Construction Cost Report, released earlier this month, EC Harris named Hong Kong as the second-most expensive place in Asia.
According to the survey, which benchmarks the cost of building in each country against the UK, the price of construction in Singapore is nearly 7% higher than in the UK. China came in fifth among Asian countries, behind South Korea and Thailand. Sri Lanka was named the cheapest place to build in Asia.
Richard Warburton, regional head of cost and commercial management in Asia for the firm, said Singapore continues to be the most expensive Asian country to build in despite a drop in tender prices of between 5% to 8% last year. “The Singapore market appears to be recovering on the back of sustained demand and strong economic growth in that country. We are also seeing localised hot markets, such as the substantial amount of new office building fit-out activity that is underway,” he added.
According to Warburton, the greatest uncertainty in tender price inflation among Asian countries is in Hong Kong, where prices are already running at 93% of those in the UK.
The report found that China experienced significantly less cost growth than Singapore and Hong Kong, and South Korea and Thailand, despite the injection of more than $500 billion into the economy to counter the financial crisis and stimulate construction growth.
The Asian region’s Pacific neighbours, Australia and New Zealand, are both among the top 10 most expensive countries for construction. Australia comes in at number four, with costs 20% higher than the UK, while New Zealand is number nine, with 11% greater costs.
In this environment of high-cost construction, companies need to recognise that less is more, not just about selling space, but about creating value and linking with IT companies to come up with smarter ways of working, said Jones.
In reality, most locations are fully automated these days and the space requirement is not so high, but most companies need the space just to maintain a physical presence, whether on Main Street or Wall Street. But, empty space is a liability, so there is an incentive to give it to smaller companies as part of a marketing package. Property is then deployed as a real asset, rather than a cost.
Jones also suggests consolidating space and at the same time generating cash by sub-letting vacated floors in a “non-traditional sense” – for example, setting up a service office to market to clients. The point is to create value, by retaining rather than selling space.
Following a commission awarded in 2007, EC Harris’s helped save ABN Amro €18 million ($23 million) by advising the bank on the management of it property portfolio, consisting of 635 buildings occupying 1.8 million square metres in 54 countries.
Most recently, EC Harris has been contracted on a three-year basis by the Hong Kong Jockey Club, to improve facility management for the public grandstand at its Shatin Race Course.
In China, apparently, smart corporations are collaborating more in their real estate strategies, combining their infrastructure capabilities, achieving lower risks with fewer fee commitments.
It’s also about lifestyle. “The internet business model and mobile working means that people no longer think that coming to the office to work five days a week in front of a desk is a smart way to spend their lives. So it’s more than simply cost-cutting,” said Jones.
