When CBRE started spending hundreds of millions of pounds on facilities management businesses, the real estate community wondered why. Why was the world’s biggest broker buying what is a comparatively low-margin business?
“There is a complete misunderstanding at a local level, not just our people, but the industry as a whole,” says CBRE’s UK managing director, Ciaran Bird. “What do people think of FM? They assume they are people that change lightbulbs and clean toilets.”
But toilet cleaning is not a service CBRE offers. What it does offer, says EMEA chief executive Martin Samworth, is an end-to-end service. And it is that which the acquisition of Norland for £250m in 2013 and the subsequent $1.5bn (£1.2bn) purchase of JCI’s Global Workplace Solutions in 2015 has enabled.
With both businesses now fully integrated into CBRE, Samworth, Bird and Ian Entwisle, EMEA chief executive of the GWS business, are keen to show how the comparatively low margin work can mean big business.
“Clients want end-to-end solutions. Not only the FM services but all of them: ME, events, data management, project management,” says Samworth. “They want to wrap that up under a contract either globally or regionally for a single service provider to get quality control and pricing efficiencies. To enable us to do that, rather than be an organiser of those services, it was best that we self-performed and self-delivered those services so we could ensure quality control and make sure that we were competitive on pricing.”
“If you go back 15 years everyone was spot buying different services in different buildings,” adds Entwisle. “In the past two years we have seen, for the first time since the acquisitions, full global contracts with occupiers worth more than £100m for FM, project management, transaction management and brokerage services as an integrated package.”
So, in simple terms, the acquisitions have really and truly turned CBRE into the Big Green Giant, enabling it to provide every single service to a potential client.
And it does appear to be having an impact on revenues. Figures released in February for CBRE’s 2016 finances show total revenues of $13bn, up by 20% from $10bn in 2015. Occupier outsourcing provided $6bn of that revenue, a not too shabby percentage when sales and leasing combined provided $4.6bn. However, while 100% of that sales and leasing revenue was from fees, less than a third of outsourcing revenue (some $2.3bn) was from fees.
But, says Entwisle, CBRE is still only a small player in the GWS market and there is so much more for it to capture.
“We are a very small player, probably less than 5% globally, so there is a long way for us to go,” says Entwisle. “If we were to do all our services with all our current clients, we would double the size of the business overnight. There is a long way to go in our growth pattern. We have an aggressive growth plan and are confident we can deliver it.”
He adds: “I would like to be in a place where occupiers are disadvantaged by not approaching CBRE. That we are the first because we have got global scale, because we have got all the services, because we can meet all their demands. Then price becomes irrelevant, it is all about service and quality.”
And it is that combination of services that CBRE believes will deliver the income and profit, not just FM, investment, leasing, etc as individual services.
It is an oft heard mantra from Bird, and one he repeats here: “Occupier is king in the property industry.”
CBRE’s EMEA occupier business
• 120m sq m under management
• 77 countries
• 6.8m occupants
• 15,000 employees
Being able to service that occupier is why CBRE has splashed so much cash on its FM businesses over the past few years – and why it is being equally acquisitive in the proptech sphere, buying firms such as Floored, ESI and most recently Mainstream. It is with the occupier that the pitch for a full suite of services can be made and Entwisle says no-one is closer to the occupier than his team.
“The teams within the FM sphere are on these contracts and on-site 24/7, 365 days a year, so are very close to the customer, they understand the customer’s needs, which is key,” he says. “Where are they moving? Are they closing buildings? Are they rationalising portfolios? Whatever it might be, the FM teams are very close to that and that leads through to the brokerage business.”
“There isn’t one occupier out there that isn’t looking at their margin – how to be more efficient, how to add value,” adds Bird. “So you go to the expert advisers to enter into strategic partnerships where you look at how you can most efficiently run your portfolio while saving value. I think the days of them pretending or wanting to be real estate experts have gone. Now they are saying ‘why don’t we concentrate on what we are the experts at and do that really well and outsource to the experts?’”
But, he says, there is still the persistent issue of education, particularly in the UK, when it comes to outsourcing.
He says: “In the United States, outsourcing to experts is a ‘why wouldn’t you?’ Here there is a belief that it is just all about fees. I have had many conversations with heads of procurement and their first reaction is: ‘You want my job; where is that going to add value; and aren’t you just looking for fees?’ Whereas in the corporate outsourcing world it is far more strategic and long-term and because of the size of these accounts, the conversations are at C-suite, they are not necessarily with procurement or real estate, they are at a strategic level.”
“We are creating environments for them to run their enterprise and people and produce more at potentially more cost-effective rates,” explains Samworth. “This is not just about cost optimisation. This is also about productivity optimisation. The two things are very important and very complementary, but also very different.”
“I think we are at the start of something transformational for our industry,” adds Bird. “Globalisation and offering a one-stop shop are here to stay. Certainly in the UK, and also across the globe, the growth is huge.
“From a transactional point of view, our people are recognising the value that Ian’s team and their knowledge and relationships are adding and that is critical. At the start, there was a question mark. Why are we on this journey? Now, they are realising that we can offer our clients a better service and therefore are at a serious advantage.”
And if Entwisle’s dream comes true and the firm is able to convert the long-term FM contracts it has with some 200 Fortune companies into transactional services, that advantage really could be massive.
Listen to the full interview below
The whole solution
Francis Crick Institute CBRE’s London development team was appointed to advise the Wellcome Trust, UCL, MRC and Cancer Research UK on the acquisition of land to build a new medical centre of excellence. The firm’s planning department advised on planning and environmental consultancy before being awarded the facilities management contract for the £700m campus.
Shell As well as providing facilities management services to Shell’s fuel stations in 22 countries worldwide, CBRE also provides project management in select countries and transaction management, lease administration and consultancy services on 9,000 sites for the oil giant worldwide.
Main image: © Stefan Kiefer/imageBROKER/REX/Shutterstock
To send feedback, e-mail Samantha.McClary@egi.co.uk or tweet @Samanthamcclary or @estatesgazette
