Insight September 2016 UK Corporate Occupier Survey In association with: rics.org/insight
UK Corporate Occupier Survey UK Corporate Occupier Survey 2 RICS Insight Paper 2016
rics.org/insight Steering Group: Julian Lyon MBA (dist.) FRICS Director, Worldwide Occupier Services Savills JLyon@savills.com Steven Lang Director, Commercial Research Savills SLang@savills.com Guy Brett Director, Real Estate Performance Improvement EY gbrett@uk.ey.com Paul Bagust Director, UK Commercial Property Professional Group RICS pbagust@rics.org Report written by: James Rentoul Research Team Leader ComRes james.rentoul@comresglobal.com ComRes is a member of the British Polling Council and abides by its rules. Full data tables are available on the ComRes website www.comresglobal.com Published by the Royal Institution of Chartered Surveyors (RICS) RICS, Parliament Square, London SW1P 3AD www.rics.org The views expressed by the authors are not necessarily those of RICS nor any body connected with RICS. Neither the authors, nor RICS accept any liability arising from the use of this publication. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Copyright RICS 2016 RICS Insight Paper 2016 3
UK Corporate Occupier Survey Contents Introduction... 5 1.0 Executive summary... 6 2.0 Occupancy strategy... 7 3.0 Real estate...10 4.0 Outsourcing...12 5.0 Methodology...14 4 RICS Insight Paper 2016
rics.org/insight Introduction Welcome to the first RICS UK Corporate Occupier Survey report which has been produced in association with EY and Savills. Given the contribution to the economy of the commercial property industry in 2015 was around 68bn or 4.1% of the total UK economy, the complexity and importance of property within the UK economy cannot be underestimated. We are seeing rapid progress in technology, social aspirations and work environments and real estate is at the centre of this. Commercial property is owned and occupied by UK corporations but also by overseas organisations. It is both a business resource, providing space for activities which create value within the economy and an investment providing a return to those who own the assets. It creates employment for those who develop, let, manage and advise on real estate. This report surveyed 150 real estate decision makers at large companies in order to: Measure the relative impact of real estate on recruitment and retention of staff Generate a picture of planned changes in property occupancy in the UK regions Understand business priorities when making property decisions Provide an indication of businesses outsourcing plans. Thank you once again to our sponsors for their support and insight in producing this work. We do hope you find this report interesting and that it provides the foundation for the analysis of future trends. Paul Bagust Director, UK Commercial Property Professional Group RICS At EY we are committed to asking better questions and helping our clients find the right answers. This survey starts to answer some tough questions facing the real estate and FM industries. Will property occupancy be affected by Brexit? Will demand for commercial property in London and the South East be at the expense of the regions? Should companies invest in real estate rather than remuneration to attract staff? This survey provides the commercial property and facilities management industries with a degree of reassurance that property occupation by UK corporates is expected to grow and the trend in outsourcing set to continue. EY will continue to assist corporate occupiers to improve workplace performance and the real estate industry to meet the changing demand. Guy Brett Director, Real Estate Performance Improvement, EY At Savills, our clients are at the heart of our business and we understand the importance of monitoring market trends and sentiment, especially in a period of change. Savills Worldwide Occupier Services team is delighted to have worked with RICS and EY on this occupier survey, exploring occupier sentiment within the current market, as well as some key drivers of real estate decisions, particularly staff welfare and retention. This echoes the findings of other research recently carried out by Savills, as well as the experience of our corporate occupier clients. Julian Lyon Director, Worldwide Occupier Services, Savills RICS Insight Paper 2016 5
UK Corporate Occupier Survey 1.0 Executive Summary Business demand for property is expected to grow although regional variations are large The overall proportion of real estate decision-makers expecting the amount of property that their business owns or rents in the UK to increase is 41%, with net change at +33. However, there are large variations in net change by region, with the biggest change at +13% in the South East, and the smallest at +4% in the South West. London is at +7%. This suggests that there is a wide variation in how businesses view prospects in different regions, and suggests that property increases in the South East may not be focussed on London. It is clear that business premises are seen as impacting on recruitment and retention of staff. Although pay and benefits, and company culture and reputation are the factors most likely to be rated as important to recruitment and retention, factors related to the building itself are also rated as important by a sizeable proportion. The property factors rated as most important are proximity to transport links and quality of the premises and facilities. Interestingly, although only a third say that quality of the premises and facilities is important to recruitment and retention, half say that size and quality of premises is important when looking for new premises. Understanding the impact of the link between quality of premises and successful recruitment and retention could help to demonstrate the value of quality property to businesses. Real estate decision-makers expect the amount of outsourcing in the sector to increase. With one in ten saying that they expect their business to do more outsourcing in the next three years, it appears that the market for outsourced services will grow amongst this group (businesses with 250+ employees). The key things businesses say they will look for in an outsourcing company are cost, and service capability and expertise. Companies who take over these services when they are outsourced may benefit from exploring what service capability means to those organisations looking to expand, and identifying the qualities that can be emphasized to differentiate their services on more than purely cost. Image source: WalkingCamera / Shutterstock.com 6 RICS Insight Paper 2016
rics.org/insight 2.0 Occupancy Strategy 2.1 Two in five expect their business to own or rent more property in the UK over the next five years Q2. Over the next five years, do you expect your business to own or rent more, less or about the same amount of property in each of the following areas? 8% Less UK Overall 2% Don t know The regions with the highest levels of expected growth are the South East (20%) and the Midlands (20%). Expected growth is lowest in the South West (13%), and real estate decision-makers are most likely to say they expect the amount of property owned or rented in the South West to decline (9%). Looking at businesses according to where they are headquartered, rather than the regions where they expect to change their property occupancy, businesses based in London and the South East are the most likely to report a change in their property occupancy. This compares to companies based in the Midlands where 50% predict their property occupancy to stay the same. 49% Same 41% More Base: All respondents = 150. Q2. Over the next five years, do you expect your business to own or rent more, less or about the same amount of property in each of the following areas? 60% Expected changes in the amount of property owned or rented 40% Respondents (%) 20% 0% -20% +13% +12% 20% 20% -7% -8% +9% +9% 16% 16% -7% -7% +7% +4% 14% 13% -7% -9% -40% -60% The South East The Midlands The North Devolved Regions London The South West More Region Less Base: All respondents = 150. RICS Insight Paper 2016 7
UK Corporate Occupier Survey Image source: Christian Mueller / Shutterstock.com 2.2 Quality and accessibility most likely reasons for changing the balance of property businesses occupy in different regions Three in five of those who expect the amount of property occupied by their business in different regions to change cite quality of the premises and facilities (57%) as a reason. Under other, the majority of comments fell into a few core themes: Expanding the business, moving closer to or buying out competitors, or consolidating the workforce into a smaller number of buildings. Incremental sales growth, business acquisitions and possibly logistics. Acquiring new suites for business and relocating existing sites where capacity has been exceeded. Looking at strategy across the UK, may have super offices as opposed to mini offices which can do more. Q3. For what reasons do you expect the amount of property that your business occupies in different regions to change? 100% Reasons behind expected regional changes in the amount of property owned or rented 80% Respondents (%) 60% 40% 20% 57% 39% 35% 34% 30% 60% 16% 0% Quality of the premises and facilities Proximity to transport links and amenities Technology and digital connectivity Access to a skilled labour force Reason Flexibility of working arrangements Wage costs Other All respondents who expect the amount of property occupied to change = 88. 8 RICS Insight Paper 2016
rics.org/insight 2.3 The vast majority of respondents say the Brexit decision has made no difference to their organisations relocation plans The fact that one in eight respondents say their organisation is now more likely to keep operations in the UK (12%), may suggest that some organisations are scaling back their expansion plans. Respondents from organisations in the smallest bracket surveyed (250-999 employees) are the most likely to say that their business is now more likely to keep operations in the UK (15% compared to 5%-8% of those in other size brackets). There are also regional differences, with businesses in London and the South East more likely to say they are now more likely to keep operations in the UK (20%) than businesses in the Midlands and the North (11% and 7% respectively). Q5. As a result of the UK vote to leave the European Union, is your organisation now? 4% Don t know 12% More likely to keep operations in the UK 82% The result of the EU referendum has made no difference to your organisation s plans 2% More likely to relocate operations outside the UK RICS Insight Paper 2016 9
UK Corporate Occupier Survey 3.0 Real Estate Image source: I Wei Huang / Shutterstock.com 3.1 Company factors (pay and culture) more important than real estate factors to recruitment and retention Pay and benefits, and company culture and reputation are the two factors most likely to be cited as important to recruitment and retention (64% and 62% select in their top three respectively). However, half of all respondents cite proximity to transport links and amenities as one of the most important factors (49%). This suggests that pay, benefits and culture are most important to recruitment and retention, but property factors are not to be discounted. 3.2 Overall cost or size and quality most likely to be important when choosing property After cost, size and quality, location-based factors are most likely to be cited as important, with the quality and availability of the local workforce (44%), proximity to transport links (41%) and proximity to clients and markets (36%) all cited as important to more than a third of businesses. Factors related to the property itself appear less important, with sustainability (31%), flexibility (21%) and connectivity (11%) the least likely to be cited as important. 10 RICS Insight Paper 2016
rics.org/insight Q1. Which, if any, of the following are most important in enabling your organisation to recruit and/or retain the staff it wants? Please select up to three. 100% Factors important to enable recruitment and retention (top three) 80% Respondents (%) 60% 40% 20% 64% 62% 49% 43% 34% 31% 0% Pay and benefits Company culture and reputation Proximity to transport link and amenities Reason Flexibility of working arrangements Quality of the premises and facilities Technology and digital connectivity Base: All respondents = 150. Q4. When making choices about new property for your business (to own or rent), which, if any, of the following are most important in your decision? 100% Factors important when choosing property to rent or buy 80% Respondents (%) 60% 40% 20% 52% 50% 44% 41% 36% 31% 21% 11% 0% Overall cost Base: All respondents = 150. Size and quality of premises Local workforce quality and availability Proximity to transport links and amenities Reason Proximity to clients and markets Sustainability, including environmental performance and energy efficiency Flexibility of premises, e.g. allows hotdesking Digital connectivity RICS Insight Paper 2016 11
UK Corporate Occupier Survey Q6. In three years time, do you think your organisation will outsource real estate and facilities services more or less than it does now, or will the balance remain roughly the same? 4% Less outsourcing 11% More outsourcing 84% Broadly the same Q7. For which of the following reasons, if any, does your organisation intend to change its real estate and facilities outsourcing strategy? Top four reasons for changing real estate and facilities outsourcing strategy Improve service quality Lower cost Greater control of services Improve responsiveness Base: All respondents = 150. All who intend to change their outsourcing strategy = 22. 1% Don t know 4.0 Outsourcing 4.1 One in ten real estate decision-makers plan to outsource more real estate and facilities services in three years Smaller businesses surveyed are less likely to report that they think their organisation will be outsourcing more in the next three years (6% of organisations with 250-999 employees, compared to 20% of organisations with 1,000+ employees). This suggests that larger businesses are more likely to be able to realise the benefits of outsourcing. Of those who expect their organisation to change their outsourcing strategy, the main reasons are around service quality and cost, with around three quarters citing each of these. 4.2 Service capability and expertise, and cost are factors most important to businesses choosing a company to outsource to Although service capability and expertise is most likely to be rated as very important (66%), cost is most likely to be rated as important overall (95%). Soft factors like CSR and cultural fit are the least likely to be rated as important. Companies who plan to increase the amount of property they own or rent in the UK overall in the next five years are less likely than those who plan to own or rent less property to rate cost as very important when choosing an outsourcing provider (48% vs 75%). Large companies (1000+ employees) are much more likely than smaller companies (250-999 employees) to rate the extent to which the outsourcing company conducts work itself, rather than subcontracting as very important (55% vs 37%). 12 RICS Insight Paper 2016
rics.org/insight Q8. When deciding which companies to outsource real estate and facilities services to, how important, if at all, are each of the following in influencing your decision? Service capability and expertise 0 Percentage % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 91% Cost 95% The extent to which the outsourcing company conducts work itself, rather than subcontracting 78% Corporate social responsibility 79% Cultural fit with your organisation 75% Very important Fairly important Not very important Not at all important Don t know Base: All respondents = 150. Image source: IR Stone / Shutterstock.com RICS Insight Paper 2016 13
UK Corporate Occupier Survey 5.0 Methodology ComRes conducted a survey of 150 real estate decision-makers at large companies employing over 380,000 people across a range of sectors. UK Corporate Occupier Survey Sample size Methodology 150 real estate decisionmakers at large companies 250-999 employees (66%) 1,000+ employees (34%) Telephone Fieldwork dates 11th 25th July 2016 Weighting The sample broadly reflects large companies in the UK, but the data are unweighted Respondents are involved in decision-making in at least one of the following areas: Real estate decisions Facilities management Estates management Location strategy Workplace strategy Throughout this report, findings marked with an asterisk (*) are where the number of people in a group mentioned is below 50. These results should be treated with caution and should be considered indicative rather than representative. Image source: IR Stone / Shutterstock.com 14 RICS Insight Paper 2016
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