Who is the Client You, the Occupier or the Agent? Does the Property Industry service the needs of the Occupier?

Transcription

1 Who is the Client You, the Occupier or the Agent? Does the Property Industry service the needs of the Occupier? Executive Summary of the discussions at the Royal Society of Chemistry May 15, Introduction Nick Cook, the Principal and Managing Director at Avison Young UK, opened the event by reminding attendees that the Property Directors Forum 1 was set up to provide a VOICE for Occupiers, alert members about the changing environment of the commercial property market and work together to raise the profile and strategic importance of occupier property directors. He pointed out that in the last few years the adviser landscape in the property sector had changed dramatically as a result of a period of significant consolidation. This raised the question about whether this change was good for occupiers. To prompt the discussion, Nick introduced two speakers Peter Bill and John Toogood. Nick provided a brief overview of the new sponsor of the event, Avison Young, an international commercial real estate advisory firm which recently opened its first office in Europe. 2. Summary of presentation by Peter Bill Peter Bill is an author and columnist at the Evening Standard. His presentation responded to the question Who is the Client You, the Occupier, or the Agent? and highlighted the following key points for consideration by occupiers: Property yields have fallen and yet capital growth stands at 2/3 of peak values Smart players such as Land Securities are already beginning to switch off the development pipeline, which suggests that they already feel the current hot market is nearing its end 1 The Forum now has over 90 active members of its LinkedIn Group and 130 who have attended events. Forum members manage over 20,000 properties, employ more than 2million people in the UK and have a combined revenue total of over 500bn per annum.

2 Developers have no long term interest in the sector but work the market cycle to make a fast profit and get out Changes to space utilisation practices such as no dedicated desks etc - were beginning to feel an employee backlash Market is booming in London, not so much outside London Occupiers should value their properties at the current market value so that they do not become an asset-stripping acquisition target The property market is a network and Property Directors should understand who has the influence in the network and use it to their advantage There is a pyramid of power at play with agents as the number of agents reduces, so their control over occupiers increases Only a few agents have the skills to carry out the biggest deals. Property Directors should be careful in matching the skills to the required task when selecting an agent Occupiers deal with people who they can feel they can trust. This trust is essential but occupiers should ensure they have more than one agent relationship to call on or they will see their power restricted. A copy of Peter Bill s presentation is available here. 3. Summary of presentation by John Toogood To further prompt discussion via a round table workshop, John Toogood, a senior Corporate Real Estate Director at Iron Mountain and also a member of the Property Directors Forum, reviewed the current agency model: Not so long ago there was a lot of choice in advisors that offered a frequent and personal touch, a long term relationship and independent advice But the recent consolidation had changed that dramatically, with the following consequences o With the creation of very large global companies there is a lot less choice o These firms often concentrate on winning the pitch with a senior team and then only providing senior attention once contracts near renewal dates o Many agencies are now bigger than their clients and have a firm eye on their own share price o Many firms are owned in the USA which brings a certain style, behaviour and culture which is not always suited to the European landscape o Large firms can provide access to top quality specialists as part of a global mandate but this may not always meet the needs of local property requirements A copy of John Toogood s presentation is available here.

3 4. Round Table Discussions The presentations were followed by a session of Round Table Debates where 11 questions were under discussion. Half of the participants were asked to debate whether the current agency model is broken and where. The other half were asked to concentrate on the solutions and the implications for Property Directors. The main conclusions from these discussions are recorded below. Is the agency model broken? Half of the delegates discussed the following questions: 1. Is the global mandate model broken? 2. Are you happy with the service you get from the mandate advisor? 3. Do you trust the motives of your mandate advisor? 4. Is the quality of service good enough? 5. What is stopping you adopt another model? The summary of the Round Table debates were presented by Trevor Routledge, Global Real Estate Leader at Mondelez International, Iain Rackley, Avison Young and, David Penniston, Property Director from Safestore. The main conclusions were as follows: One size definitely does not fit all scenarios; therefore the global mandate works some but not all of the time. However, building a team of in-house experts is too expensive so there is a need for an outsourced model Global mandates are helpful where there is a need for global control, greater visibility, consistency and governance. However, this can mean that control actually passes from the business to the global agent. Therefore, it is important to be able to exert pressure locally to ensure the right level of service is received Global mandates work less well in terms of flexibility, access to local knowledge and the motivation of local advisers to exceed expectations. Giving a mandate to a small number of rostered agencies may be an alternative solution Global mandates need a very clear property strategy across regions to have a chance of delivering genuine business value. They also need an exceptional Key Account Manager, who has a high level of knowledge about the client business and who is rewarded based on the value delivered, to supervise and co-ordinate activity across regions Procurement issues, such as the cost of processing each supplier, can legislate against sourcing local experts

4 If Property had greater financial recognition for its strategic rather than transactional contribution then there may be less clamour for a global mandate The cost and profit models of global firms can predicate against local service and affordability A best of breed model that provides local experts supervised by a global co-ordinator could be a viable alternative to a single global mandate. Many delegates felt that multisourcing was a much safer option Adoption of other models is limited due to the time available internally to manage multiple relationships What can and should be changed? The remaining delegates discussed the following questions: 1. What advisory/delivery model do you favour? 2. What other models could we all learn from? 3. Would you prefer that strategic advice is split from transactions? 4. Does the outsource model really work? 5. How could you improve what you have (given you might not be able to radically change it)? The summary of the Round Table debates were presented by Julian Lyon, Manager, European Real Estate at General Motors, John Rickard, Head of Real Estate & Facilities Management, EMEA from SunGard Financial Systems and Steve Probert, Property Operations Manager from British Airways. The main conclusions were as follows: Agents that serve landlords are clearly conflicted when it comes to providing occupiers advice. There should be occupier only agents Outsourcing needs close supervision to work globally and to ensure that local advisers are hungry and proactive. To ensure this there needs to be some kind of risk/reward model introduced Companies should specify what non-core expertise is required in which countries and then select their adviser support accordingly

5 There is a real issue connected to combining advice with transactions. To quote one delegate, this is like marking your own exam paper! Few businesses allocate budget to strategic property advice. Therefore businesses need smart ways to create a budget perhaps by linking strategic budgets to savings delivered from advice To ensure property gets the correct strategic treatment, the role of Property Director should become a Board position A multi-agency roster of advisers that matched clearly specified needs could be a viable alternative to a global mandate With a Global mandate it is important to have full cost transparency i.e. know the fee structure up front and have the option to change a local agent 5. Summary of survey at the event Delegates completed a questionnaire to add some statistical depth to the discussions. The results are summarised below: 44% either say yes or maybe when asked if Property Directors failed to win the argument about the importance of property to their business community Over 9 out of 10 (91%) agree that Property Directors should have stronger board support Over 8 out of 10 (87%) of respondents believe that agents are giving them good value 40% said yes when asked if their advisors are too transaction led, whereas 12% said maybe and 48% said no. The almost equal view in the response indicates that some advisers should develop a more strategic position or that advice should be separated from transactions Over half (56%) think that their advisor doesn t really understand their business Global mandates work sometimes for over three quarters of respondents (76%). This makes it clear that global mandates only work in certain scenarios and indicates that clients need to be clear about what the business needs before appointing a global firm. It confirms the need to challenge and improve the model Over half (54%) think that surveyors understand basic financial metrics. There is clearly room for improvement/learning the language of the Boardroom

6 Roughly one third (65%) believe that procurement has become too influential. This may indicate a need for the PDF to educate some procurement teams about the special needs of the property sector There is a very clear signal that price has become too important in the selection of advisers (for 75% of respondents) 70% favour the 'best in class' approach when it comes to their advisors 74% think it is common for the pitch team to change over a short time to a low cost transaction team Property directors have to do 'soup to nuts' - should their advisors be able to do the same - 79% agree with this statement 88% believe that strategic advice should be separated from the transactional fees All respondents see strategic advice as valuable 20% of respondents are not prepared to pay for strategic advice 80% think that the internal property function should be funded by the centre, whereas 20% said maybe When it comes to the external property support, 56% think it should be funded by the centre, 28% think maybe, while 16% disagree 67% think that government legislation in the form of lease accounting will make organisations look at their real estate burden in a different way 70% agree that property industry is not being proactive enough For 73% of respondents panels of advisors work better than the global mandate. 6. Next steps In closing the event, Nick Cook concluded that delegates had identified enough reasons why companies should challenge the global mandate model and ensure that they find an alternative that works better for all parts of a business. He recommended that PDF members work together between the events to develop a more flexible and effective model that would serve companies better as the global economy begins to recover. He highlighted that while advisers may be becoming global organisations, the complexity and volatility of the global economy demanded access to genuine local experts. He encouraged the PDF to help identify the most effective model. May 21, 2013