china Corporate Real Estate - Leading at the Speed of Change China Corporate Real Estate Trends 2015

china Corporate Real Estate - Leading at the Speed of Change China Corporate Real Estate Trends 2015

CONTENTS Introduction 02 Executive Summary 04 Theme 1: Evolution 06 Theme 2: Expectations 16 Theme 3: Integration 24 Advancing from Good to Great 26 About the Survey 28 Contacts 30 INTRODUCTION The practice of corporate real estate in China has matured quickly in tandem with China s domestic development and integration in the global economy. With this context in mind, we are delighted to present the China edition of JLL s biennial Corporate Real Estate Trends report, a data-driven exploration of the current state and future direction of the corporate real estate (CRE) profession specific to companies operating in China.

With responses from 43 China-based CRE executives at companies with over 1,000 employees, the survey shows that China s CRE function is continuing to mature toward a strategic and business-driven role. Our survey participants span many industries and organizational sizes. Approximately one-third of our participants work for banking and financial services companies. Since 2012, the positioning of CRE in the expansion strategies of domestic and overseas firms has been part of the discussion. The business considerations of Chinese companies, particularly those with regional and global aspirations, have become increasingly similar to those of their international counterparts. to access customers nationwide. As work practices and use of outsourcing become increasingly aligned to meet fierce domestic competition within China, CRE teams are challenged to drive workplace transformation and create productive spaces to benefit the bottom line. They must acquire the skills, tools, and experience to take the business forward at each stage of development. It is an exciting time for the CRE profession in China. We hope you enjoy the illuminating insights in this report and that they prove helpful to your business. Multinational companies (MNCs) and Chinese firms are expanding their businesses as China s rate of urbanisation increases and improved transport infrastructure and internal logistical capabilities make it easier than ever www.joneslanglasalle.com.cn

ExecuTIVE SUMMARY Our 2015 China Corporate Real Estate Trends survey reveals a CRE function actively engaged in transforming corporations from the inside out, helping domestic firms and multinational corporations (MNCs) alike shape their response to the country s more sustainable pace of economic growth. The survey reveals CRE executives in China leading their global counterparts in their embrace of many new workplace and real estate management techniques. It s no surprise that the results show that forward thinking is the most valued attribute for a CRE executive in China. As anticipated in our 2012 survey, The Dragon is Stirring, China s CRE teams overall are beginning to resemble their global counterparts in terms of work styles, structure and use of outsourcing. As their function matures, some teams have become extremely advanced in their views of corporate real estate, moving into property development, for instance, and monetizing corporate property holdings. The findings of our 2015 survey present three key themes: 1 2 Evolution China s CRE profession matures since 2012, keeping pace with global trends. China s CRE teams are evolving into more strategic and business-driven roles, with growing levels of interaction with both the C-suite and procurement. Increasing centralization is contributing to greater recognition of the strategic value that CRE can contribute, and an increasing openness to outsourcing. 67 percent of CRE executives in China report a strengthening mandate for their work. Nevertheless, as we might expect, there are still some distinct differences between domestic companies and MNCs. Expectations CRE expectations and demands: Leapfrogging ahead. Chinese CRE teams are seeing growing senior leadership engagement in their work - although more is needed - with demands increasing across a range of tactical and strategic tasks. While some of these are demands faced by CREs globally, CRE in China must address unique demands focused on improving 3 productivity outcomes. Also noteworthy, the new national focus on environmental sustainability is now reflected in the Chinese CRE agenda. Integration Integration with other functions, business units offers an opportunity to strengthen CRE. Both domestic and MNC CRE teams in China perceive a need for improvement in their internal relationships with other departments and with business leaders. Similarly, lack of integration with the wider business and lack of C-suite commitment were identified as two of the top constraints for CRE in China, the latter being particularly acute in domestic firms. These themes demonstrate that CRE teams at MNCs and domestic companies have distinct challenges, and that China s CRE story diverges from global trends in some significant ways. To continue to innovate, support growth and rise to increasing C-suite demands, China s CRE teams will need to leverage their focus on the future. Building deeper relationships with other support functions and business leaders, and leveraging technology tools like data and analytics platforms will best position CRE for future success. 4 China Corporate Real Estate Trends 2015

Elevate for excellence Global Corporate Real Estate Trends 2015 5

theme 1 Evolution China s CRE profession matures since 2012, keeping pace with global trends China CRE looks to the future Since 2012, the CRE function in China has been on a growth trajectory that parallels global trends, but with characteristics unique to China. In particular, we see marked differences between CRE roles in domestic companies and MNCs that operate in China. Across the board, Chinese CRE teams are experiencing a broadening mandate (figure 1), with increasing demand for productivity, sustainability and workplace initiatives. For the most part, China s CRE teams are structured for effectiveness, with a high proportion reporting into the C-suite. While a cost-focused view of outsourcing continues to be typical, primary drivers of outsourcing strategy have matured to include extending the CRE team s capabilities and driving productivity. Figure 1: Compared to 3 years ago, how would you assess the strength of the CRE team s mandate? E D Global All China A Much stronger C Stronger B A 28% B 45% C 22% D 5% E 1% D A C B The same Weaker Much weaker The same Weaker 60% 58% C 26% D 7% A 16% Much stronger B 51% Stronger E 0% Much weaker 40% 20% 0% 41% 35% 24% 27% 12% 4% 0% 0% 0% Much stronger Stronger The same Weaker Much weaker MNC China Domestic Base: 491 (Global); 43 (All China); 17 (MNC); 26 (China Domestic) 6 China Corporate Real Estate Trends 2015

China s CRE teams are embracing the future of CRE. Some already are leapfrogging ahead of their global counterparts with innovative approaches to sustainability, workplace and CRE revenue generation. Most impressively, forward thinking has become the most important attribute of CRE in the organization - more valued than delivering cost savings. In this regard, China CRE is far ahead of its global counterparts. Key Findings: 51 percent of China s CRE teams are part of a dedicated CRE department, significantly more than teams globally (31 percent) 35 percent rate forward thinking as the most important characteristic of a CRE team - and it is the most important trait for 46 percent of domestic teams 60 percent of domestic CRE teams view outsourcing as a primarily cost-driven tactic, vs. 28 percent globally 88 percent of MNC respondents expect greater centralization and control of the CRE function in the next three years, vs. 50 percent of domestic company respondents 23 percent of domestic company respondents expect greater decentralization 80 percent of respondents in Chinese CRE teams say that procurement is involved in CRE decisions, vs. 70 percent globally China Corporate Real Estate Trends 2015 7

A distinct feature of China s CRE landscape is that more than 80 percent of CRE leaders report to the C-suite - far more than the global percentage (figure 2). However, CRE teams in China s domestic companies and MNCs face markedly different C-suite demands. The result: their development paths are diverging, with MNC teams moving toward greater centralization at a significantly faster pace than domestic companies (figure 3). And it s no coincidence that the MNCs operating in China are also outpacing their counterparts in other countries. Contrary to global trends, nearly a quarter of China s domestic companies are expected to become more decentralized in the next three years because of more complex organizational structures or a need to adapt to local conditions. This structure is emerging even though almost 40 percent of CRE teams in domestic companies are part of a dedicated CRE department (figure 4), and approximately one third are part of a general administration or shared services department - hallmarks of a maturing CRE function. Figure 2: To what level of the organization does the global head of CRE/CRE leader currently report? C-suite (i.e. CEO, CFO, CIO, COO) Managerial level (i.e. President, VP, Manager) Executive level (i.e. Officer, Executive, Supervisory level) Operational level (i.e. Administrator, clerk) 57% 82% 71% 90% 23% 11% 18% 5% 16% 8% 12% 5% 3% 0% 0% 0% 0% 20% 40% 60% 80% 100% Global All China MNC China Domestic Base: 453 (Global); 38 (All China); 17 (MNC); 21 (China Domestic) (only includes companies who have a global head of CRE) 8 China Corporate Real Estate Trends 2015

Figure 3: What changes do you anticipate in the CRE team structure over the next 3 years? Greater centralization and control No change More decentralized and consultative 61% 65% 88% 50% 26% 19% 6% 27% 13% 16% 6% 23% 0% 20% 40% 60% 80% 100% Global All China MNC China Domestic Base: 491 (Global); 43 (All China); 17 (MNC); 26 (China Domestic) China Corporate Real Estate Trends 2015 9

This may also reflect the fact that in many domestic companies, the CRE function does not manage tasks across the full CRE life-cycle, as is common in foreign MNCs. Instead, the full breadth of CRE activities is often managed by multiple departments. Figure 4: Within what department does the global head of CRE reside? Dedicated CRE department 31% 51% 71% 38% However, this is changing as the value of CRE to the broader business is increasingly recognized in China. Indeed, Chinese domestic corporates express a drive to exceed the performance of MNC competitors. As their companies expand globally, senior leaders have realized that real estate is an essential dimension of corporate operations. Those with CRE responsibilities are taking steps to respond to this growing recognition. Among domestic companies, CRE outsourcing is becoming a more accepted route to extending capabilities and gaining access to best practices. China s ambitious CRE leaders recognize that a more integrated and effective CRE structure can help their companies achieve a competitive edge, and are working to put that in place. Overall, domestic companies CRE functions are gradually aligning with the characteristics of MNCs. Administration/ Shared services Finance Facilities Management /Operations No global head of CRE Other 12% 21% 6% 31% 16% 14% 18% 12% 2% 2% 6% 0% 8% 12% 0% 19% 16% 2% 5% 0% 0% 20% 40% 60% 80% Global All China MNC China Domestic Base: 491 (Global); 43 (All China); 17 (MNC); 26 (China Domestic) 10 China Corporate Real Estate Trends 2015

Resistance to CRE outsourcing declines as drivers move toward the strategic CRE outsourcing is becoming an increasingly accepted practice in China, despite the continued presence of cultural resistance. As our 2012 respondents anticipated, our 2015 survey shows greater centralization of the CRE function and greater use of outsourcing. Already, companies in China outsource some CRE services at relatively high levels such as facilities and property management, where 41 percent of respondents in China overall and 32 percent of domestic companies fully outsource the service. Only 7 percent do not outsource any CRE activities vs. 14 percent of companies globally that do not. Figure 5: Please assess how strategic CRE outsourcing is to your firm. Global All China Outsourcing decisions focused on short-term cost savings 12% 21% 30% 16% 21% 22% 30% 18% 24% 4% 13% Outsourcing decisions are strategic and focused on long-term value 17% 25% 26% 17% While companies in China tend to take a tactical view of outsourcing, more than one-third (39 percent) now view outsourcing as a strategic tool (figure 5). Moreover, the major CRE outsourcing drivers in China include a desire to refocus staff on more strategic activities and productivity improvement, with cost the third-most important driver (figure 6). For domestic companies CRE teams, however, bridging skills gaps is a stronger motivation than cost reduction, perhaps because these teams have less access to CRE talent and global best practices. 0% 20% 40% 60% 80% 100% Global All China China domestic Base: 422 (Global); 38 (All China); 23 (China domestic) (only companies which outsource) China Corporate Real Estate Trends 2015 11

Altogether, CRE professionals in China are developing a maturing perspective regarding outsourcing - with cost reduction just one of many potential outcomes. Nonetheless, lack of trust in outsourced service providers, and a perceived lack of value in their offerings, are seen as the biggest obstacles to outsourcing, particularly among domestic companies. This view is likely to change as the benefits of outsourcing for MNCs become more widely recognized and service providers become more adept at building the trust that leads to engagement. Figure 6: What are the drivers for outsourcing CRE activities in your organization? 100% 88% 80% 78% 71% 65% 71% 75% 67% 60% 56% 58% 55% 46% 40% 38% 20% 0% 10% 0% 17% Refocusing in-house CRE resources on more strategic activities Productivity improvement Cost savings Lack of skills and knowledge in-house Supporting an Initial Public Offering (IPO) All China MNC China Domestic Base: 40 (All China); 16 (MNC); 24 (China Domestic) 12 China Corporate Real Estate Trends 2015

Collaboration with procurement increasing With or without formal shared services structures, crossfunctional collaboration can be instrumental in creating meaningful CRE impact. Although adoption of the shared services model has slowed both globally and in China, collaboration among support functions is nonetheless occurring, albeit at a less formal level. In China, collaboration is much more likely with finance and procurement departments. Over half of China s CRE respondents say that they have frequent interactions with both departments, while 35 percent and 26 percent respectively, anticipate shared services integration with both functions within three years. Procurement has become an increasingly prominent feature of CRE decisions among teams globally, and even more so in China. Eighty percent of China s CRE teams in total report procurement involvement in CRE decisions, vs. only 70 percent of teams globally (figure 7). Looking ahead, more than half of China s domestic company CRE professionals expect an increased role for procurement in three years time, far more than MNC teams (figure 8). Moreover, 38 percent of domestic firms vs 22 percent globally and 29 percent among MNCs in China, have a procurement specialist sitting in CRE again reflecting its procurement s important role (figure 9). One reason is that cost reduction continues to be a top priority for CRE teams and procurement departments alike. The drawback is that, in China and elsewhere, procurement officers tend to view vendor services as commodities rather than as distinct, value-adding offerings, to the detriment of their CRE functions. In our 2013 Global Corporate Real Estate Trends report, many CRE professionals globally expressed concern that their procurement departments did not necessarily have the CRE knowledge to consider factors beyond cost in vendor selection. Also, as foreshadowed in our 2012 China report, many large companies in China are beginning to standardize their CRE practices, and the procurement team plays a key role in the process. Procurement teams are on the front lines of China s aggressive, proactive stance to prevent corruption and improve transparency in all business transactions, including CRE. A centralized purchasing function simplifies regulatory compliance and enforcement of best practices for ethical procurement. Figure 7: Do you have an internal procurement function that is involved in CRE decisions? B B Global China Yes A A No A 70% Yes B 30% No A 80% Yes B 20% No Base: 424 (Global); 40 (China) (only companies that outsource) China Corporate Real Estate Trends 2015 13

Figure 8: Do you anticipate greater involvement from internal procurement in the next 3 years? 100% 80% 60% 40% 52% 52% 69% 42% Figure 9: Where does your internal procurement team who are involved in CRE sit within the organization? D A B C A 22% Sits in CRE C 34% Sits in CRE B 78% Sits outside of CRE D 66% Sits outside of CRE 20% 48% 48% 31% 58% Global China 0% Global Yes No Base: 424 (Global); 40 (All China); 16 (MNC); 24 (China Domestic) (only companies which outsource) All China MNC China Domestic D A C A 29% Sits in CRE B 71% Sits outside of CRE C 38% D 63% B Sits in CRE Sits outside of CRE MNC Domestic Base: 338 (Global); 38 (All China); 14 (MNC); 24 (China Domestic) 14 China Corporate Real Estate Trends 2015

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theme 2 Expectations CRE expectations and demands: Leapfrogging ahead An exciting finding of our 2015 survey is that the majority of both domestic and MNC teams report to a C-suite executive - a significant advance from 2012 and an encouraging development for achieving CRE s full potential. In line with increasing maturity in terms of greater centralization and structure, senior leadership expectations of CRE teams in China are becoming increasingly sophisticated, going far beyond what our 2012 survey suggested and outpacing many global counterparts. The quest for productivity has come to the forefront, both as a driver for outsourcing and for contributing enterprise value through the CRE function. This trend is not surprising, as our 2012 report predicted that C-suite demands for cost containment and innovation would evolve into a broader quest for enhanced productivity. Great strides have been made in the area of workplace transformation, inspired in part by the need to attract and retain young workers. 70 percent of domestic CRE teams state that this is an increasing demand. Innovative workplace strategies tailored for China s unique culture can help meet this demand, and China s CRE teams are acting accordingly - bringing China more in line with global trends. The 2015 survey shows increasing demand and high expectations for workplace initiatives in the next three years. Sustainability and people - related demands are increasingly asked of CRE in China - far more than is seen globally - and are driving China s CRE teams toward workplace innovation. Key Findings: 70 percent of domestic company CRE executives in China report increasing C-suite demand for attracting and retaining talent vs. 56 percent globally 77 percent of CRE executives in domestic companies report increasing demand for addressing the sustainability and corporate social responsibility agenda, vs. 51 percent globally and 53 percent among MNCs in China 73 percent of domestic company CRE professionals report increasing demands to deliver environmental efficiency, vs. 58 percent globally and 53 percent among MNCs operating in China 76 percent of CRE teams in China expect their companies to expand in first-tier cities, while less than half (41 percent) expect expansion into secondtier cities Approximately two-thirds of China s CRE leaders expect to implement a range of workplace transformation initiatives over the coming years 16 China Corporate Real Estate Trends 2015

Less technical aspects of CRE are becoming increasingly important CRE professionals in China are experiencing intensifying demands across nearly all strategic tasks. But some are more intense than others. Several strategic demands are becoming vastly more important in China than in other regions. Enhancing the productivity of the CRE portfolio continues to be a high priority at the global level, and is an even higher priority in China. For CRE teams at domestic Chinese companies, enhancing productivity of the portfolio is on par with sustainability as an increasing senior leadership demand (for both, 77 percent of domestic CRE leaders report increasing demand). Soft skills are rising in importance as well. As the country continues its rapid economic advancement, less-tangible aspects of CRE are becoming higher priorities in China than elsewhere particularly for domestic companies that are beginning to transform their perspectives on workplace and CRE. Attracting and retaining talent, supporting cultural change and driving the sustainability agenda have emerged as pressing demands in response to a changing workforce and business conditions (figure 10). These priorities - none strictly grounded in real estate - suggest deeper changes underway as a result of China s evolving role in the global economy and the growing awareness of environmental concerns. Figure 10: How are the demands of senior leadership/c-suite on the CRE team changing in terms of the following areas related to alignment of CRE with the firm s strategic priorities? Delivering a platform for growth in select markets Attracting and retaining talent Supporting cultural change Enhancing the productivity of the real estate portfolio Enhancing flexible (remote, mobile) working Driving the corporate sustainability/csr agenda Bringing more flexibility to the leasehold portfolio Presenting scenarios and solutions to the business on demand Aligning CRE with business drivers and functional areas (HR, IT, Finance) 48% 46% 53% 41% 56% 60% 47% 70% 59% 58% 59% 57% 75% 77% 76% 77% 62% 65% 82% 52% 51% 67% 53% 77% 64% 74% 81% 70% 65% 75% 76% 74% 57% 59% 76% 45% 0% 20% 40% 60% 80% 100% Global All China MNC China Domestic Base: 491 (Global); 43 (China); 17 (MNC); 26 (Domestic) China Corporate Real Estate Trends 2015 17

MNCs and domestic companies face different tactical demands, different priorities China s CRE teams are experiencing increasing senior leadership demands across a broad range of tactical activities, with distinct differences for domestic companies and MNCs, and divergence from global trends. Reducing operating expenses is where the biggest proportion of CRE leaders globally are reporting increasing demand. While cost reduction remains important, China s CRE teams have other critical concerns. For example, analyzing own vs. lease options tops the tactical demand list in China, with nearly 75 percent of China s CRE professionals overall reporting increasing senior leadership demands in this activity - almost double the proportion of CRE professionals globally. This prioritization reflects a preference in China to occupy a mix of leased and owned facilities. Capital works planning is another uniquely important tactical area for domestic corporates, with domestic CRE teams reporting increasing demands in this area at a much higher level than their global or MNC peers reflecting the need for a real estate platform to support the huge growth of businesses in China (figure 11). Following the Chinese government s historic 2014 mandate for increased environmental responsibility, driving sustainability is a top strategic demand reported by all Chinese CRE executives. Delivering environmental efficiency has emerged as a new priority for domestic companies. Nearly three-quarters report increasing demand in this area, in contrast to just over half of those at Chinese MNCs and those globally. Figure 11: How are the demands of senior leadership/c-suite on the CRE team changing in terms of the following areas related to the tactical delivery of CRE? Reducing operating expenses Challenging the business about presumed space needs Increasing portfolio flexibility Increasing portfolio density Delivering environmental efficiency Reducing portfolio size Capital works planning Analyzing own vs. lease options Raising capital via the real estate portfolio Increasing portfolio size 77% 71% 88% 60% 72% 65% 67% 63% 66% 61% 71% 54% 59% 67% 76% 58% 58% 64% 53% 73% 51% 38% 53% 26% 44% 47% 33% 57% 41% 74% 69% 78% 40% 39% 25% 50% 24% 34% 25% 42% 0% 20% 40% 60% 80% 100% Global All China MNC China Domestic Base: 491 (Global); 43 (All China); 17 (MNC); 26 (China Domestic) 18 China Corporate Real Estate Trends 2015

Portfolio expansion focus: first-tier cities As China s economic growth continues, albeit at a slower pace, the largest cities are attracting most of the attention for portfolio growth. Of the total pool of CRE leaders in China surveyed, 76 percent expect their companies to expand in China s firsttier cities and less than half (41 percent) expect expansion into second-tier cities. Among domestic-company CRE executives, more than 80 percent anticipate growth in the first-tier cities, while less than a fifth are looking at second-tier cities but 32 percent say they plan to expand in third tier cities. In contrast, nearly half (48 percent) of CRE teams globally that expect changes in their company s portfolio in China say they plan to expand in China s second-tier cities (figure 12). their portfolios to shrink. Growth management continues to shape the market, but it s no longer as unmanageable as it once was - and it s clearly following macroeconomic trends toward the nation s largest population centers. As in 2012, rising domestic consumption and the expanded middle class continue to propel the growth of China s domestic companies across a wide range of sectors, including financial services, professional services and Figure 12: Which cities in China will you see your portfolio evolve over the next three years? 100% 80% 82% 76% 70% business processing, technology, telecommunications, e-commerce, life sciences, retailing and healthcare. As the Chinese economy transitions to a service-sector-led economy from a primarily manufacturing economic engine, domestic corporations have additional opportunities to multiply and expand, and their CRE teams are charged with securing high-quality facilities that boost corporate image, appeal to workers and foster strong workplace productivity. In comparison, domestic and overseas expansion in 2012 was like a runaway train. At that time, portfolio expansion was among the most powerful drivers shaping CRE structures and strategies. Immersed in China s rapidly growing economy, most Chinese CRE executives expected their companies real estate portfolios to grow, with domestic portfolios set to grow most rapidly. Today in 2015, nearly 80 percent of CRE executives in China overall still expect to see an increase of their domestic real estate portfolios. That proportion rises to 85 percent for domestic companies CRE teams. Notably, not a single one of China s CRE executives surveyed expect 60% 40% 20% 0% First tier cities 48% 41% 18% Second tier cities Third tier cities Hong Kong, Macau, or Taiwan Global All China China Domestic 14% Base: 207 (Global); 34 (All China); 12 (MNC); 22 (China Domestic) 38% 32% 26% 21% 14% China Corporate Real Estate Trends 2015 19

A new spotlight shines on workplace productivity Expectations for productivity outcomes are high for CRE teams in China higher than expectations globally - and particularly for CRE teams in China s domestic companies (figure 13) space and cost reduction programs are the top priority globally and in China, as companies seek to optimize efficiency. More significantly, nearly 80 percent of China s domestic company CRE professionals report high expectations for workplace productivity, and approximately two-thirds expect to implement various kinds of workplace initiatives over the next three years (figure 14). While not quite reaching the levels of penetration seen globally, this momentum is expected to build in the next three years. Within that time, we see incremental increases in most initiatives (figure 14). In some respects, China s CRE professionals are leapfrogging over their the global Figure 13: What are your company s expectations from CRE around the following productivity outcomes? percent reporting high expectations 100% peers in their openness to exploring workplace changes as part of their talent strategy, particularly among technology companies seeking to attract and retain young talent, and to boost productivity. Our 2012 survey found that more than half of Chinese companies were considering mobile working as a means of increasing productivity, improving workspace utilization, and attracting and retaining talent. While their plans for the future remain ambitious today, China still lags slightly behind the rest of the world with regard to workplace initiatives. In fact, many Chinese respondents, in both MNCs and domestic companies, reported not knowing or being unsure about the implementation of any workplace programs over the past three years. However, some Chinese CRE teams have started to transform their workplaces to accommodate new ways of working for example, more than 60 percent improved technology or workplace experience (e.g. introducing health and well-being programmes) in the past three years. 80% 60% 40% 20% 0% 67% 61% 82% Improve asset productivity 81% 78% 76% Improve workplace productivity 60% 63% Improve business productivity Improve people productivity Global All China China Domestic Base: Improve asset productivity: 269 (global); 30 (China); 17 (Domestic) Improve workplace productivity: 274 (global); 31 (China); 18 (Domestic) Improve business productivity: 271 (global); 30 (China); 17 (Domestic) Improve people productivity: 275 (global); 30 (China); 17 (Domestic) 76% 60% 76% 70% 20 China Corporate Real Estate Trends 2015

However, the challenge is to tackle workplace productivity initiatives while operating within China s unique business culture. Toward this end, Chinese CRE teams are recognizing the need for change management to help overcome resistance to mobile working and flexible workspaces. These trends point to the emergence of new workplace strategies to engage the modern workforce. Figure 14: What do you/your company plan to implement in the next three years? Space/cost reduction programs (eg. increase of utilization) Enhancing workplace experience (eg. health and well-being programs) Improving workplace technology (eg. mobility-enabling technology) Improving quality of the workplace (eg. safety, sustainability) Change management initiatives (eg. organizational and process change) 88% 78% 72% 76% 68% 68% 82% 63% 68% 81% 66% 64% 75% 66% 64% 0% 20% 40% 60% 80% 100% Global All China China Domestic Base: 477 (Global); 42 (All China); 26 (China Domestic) China Corporate Real Estate Trends 2015 21

Environmental sustainability as a national priority is now reflected in CRE An impressive two-thirds of China s CRE teams report a more mature sustainability strategy. Following the Chinese government s 2014 declaration of war on air pollution, along with global consumer pressure, it s no surprise that sustainability and corporate social responsibility has become a top strategic demand, especially for domestic firms. Environmental concerns are an especially high priority for China s domestic-company CRE teams. Nearly three quarters report delivering environmental efficiency as an increasing senior leadership demand (see figure 11), significantly more than CRE teams globally and in China overall. However, with the focus currently centred heavily on addressing deteriorating air quality in China, there is still much to be done and the wide range of responsibilities that CRE is charged with in China can provide an opportunity to demonstrate leadership. The response has been swift as CRE executives aggressively deliver on this demand. More than half of China s CRE teams overall - far more than CRE teams globally - have adopted transformational strategies in which positive environmental and social outcomes are embedded into daily practices (figure 15). Also noteworthy, many manage tasks that are not strictly property-related, such as energy procurement and tracking environmental performance (figure 16). Figure 15: How would you rate the maturity of your firm s sustainability strategy? Global China Ad hoc (some environmental group-wide strategic sustainability commitment) social outcomes is at the core of our business model) 12% 9% 27% 25% 28% 20% 2% 12% 15% 51% Figure 16: Which of the following sustainability tasks are handled by CRE? Environmental performance tracking (e.g. energy and carbon data) Social performance tracking (e.g. health and wellbeing data) Energy procurement Green building certifications (e.g. LEED, BREEAM etc.) Staff awareness and communications Community investment Portfolio-wide risk assessment (e.g. climate change resilience & adaptation) 66% 38% 39% 21% 20% 23% 62% 38% 35% 70% 58% 50% 55% 38% 35% 20% 25% 27% 41% 50% 54% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Global All China China Domestic Global China Base: 465 (Global); 40 (All China); 23 (China Domestic) Base: 491 (Global); 41 (China) 22 China Corporate Real Estate Trends 2015

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theme 3 Integration Integration with other functions, business units offers an opportunity to strengthen CRE The survey results clearly paint a picture of Chinese CRE teams showing strong progress toward maturity in their function and, in some areas, leading their global peers. This work is underway; Chinese CRE professionals are taking proactive steps to become more strategic, and are developing the structures and capabilities on par with their vision of excellence. However, the tough work of removing remaining obstacles is still ahead. Becoming a high-performance CRE team begins with looking in the mirror. Asked to assess themselves against characteristics that JLL sees as the traits of a highperforming CRE team, more than half of respondents in China overall rate themselves at the stronger end of the spectrum for multiple characteristics (figure 17). However, CRE teams at domestic companies do not rate themselves as highly as their MNC counterparts on any one characteristic. Just over half rate themselves as strong or very strong in having the right people in the right roles, while just under half (46 percent) rate themselves the same in using data and analytics to drive better decisions and improve performance. Far fewer rate themselves as strong in any other area. Despite these differences, both domestic and MNC CRE teams perceive a need for improvement in their internal relationships. Integration with other support services is viewed as the greatest weakness (with the lowest percentage of both domestic and MNC respondents rating themselves strong or very strong ), and to be expected when CRE tasks are decentralized among staff with multiple functions. Figure 17: How does your CRE team perform relative to the following attributes? Centralised & empowered CRE organisation with robust processes in place Data and analytics are used to drive better decisions and improved performance A formal CRM (relationship management) function with internal business units exists A robust strategic planning function is integrated with the enterprise The right people are in the right roles CRE integrates with IT, HR, Sourcing, Finance etc. A comprehensive approach to gathering and promoting great ideas CRE uses an appropriate mix of internal and external resources CRE encourages integration and drives change to improve business outcomes Seeking feedback and continuous improvement is engrained in CRE s culture Very Weak Very Strong 5% 19% 21% 28% 28% 8% 5% 4% 5% 4% 2% 4% 2% 7% 33% 30% 28% 4% 4% 38% 35% 19% 5% 4% 38% 35% 23% 2% 4% 9% 12% 16% 30% 30% 19% 27% 28% 2% 23% 4% 31% 23% 27% 23% 19% 27% 23% 31% 15% 28% 30% 26% 12% 42% 27% 19% 8% 35% 21% 14% 35% 31% 15% 15% 28% 40% 21% 7% 19% 40% 23% 9% 19% 38% 27% 4% 28% 40% 12% 35% 35% 4% 30% 30% 14% 35% 31% 23% 33% 19% 23% 31% 23% 23% 19% 0% 20% 40% 60% 80% 100% All China Other areas of perceived weakness are integrating strategic planning with the business and internal relationship management with business leaders. China Domestic 19% Base: 43 (China) 26 (China Domestic) 24 China Corporate Real Estate Trends 2015

Given their balanced self-assessment, it is not surprising that the majority of China s CRE teams say that, while not necessarily well-equipped, they can meet most of the demands they face. Yet, one-fifth say that they are ill-equipped - and less than 10 percent report being well-equipped (figure 18). Figure 19: In your opinion, what are the top three constraints that are hindering CRE from enhancing itself as a strategic value-add to your organization? top ranked answer, percent 40% 35% Greater alignment with the wider business and integration with other business units remains a challenge for many teams globally, and are key constraints hindering greater CRE maturity in China, particularly for CRE teams at domestic companies. Looming far larger in China is the perceived lack of sustained and consistent C-suite commitment - a disappointing trend compared to the heightened expectations reported in 2012 (figure 19). Figure 18: How well-equipped do you feel to meet the changing demands? 80% 60% 40% 68% 74% 72% 30% 20% 10% 0% 19% 19%19% Financial constraints 9% 5% 0% Fragmented or decentralized team 5% 7% 12% Internal skill sets/ knowledge Global All China China Domestic Base: 491 (Global); 43 (All China); 26 (China Domestic) 16% 28% 16% 9% 8% Lack of Lack of effective sustained/ data and consistent C-suite analytics to commitment measure value/ generate insights 17% 23% 19% Lack of integration with the wider business 20% 17% 7% 8% 19% 20% 15% 0% Well-equipped to meet all demands Can meet most demands Ill-equipped to meet the demands Global All China China Domestic Base: 476 (Global); 41 (All China); 25 (China Domestic) China Corporate Real Estate Trends 2015 25

Advancing from Good to Great Next steps: Forward thinking is the key to advancing China s CRE function Where delivering cost savings is the most-desired characteristic for CRE teams globally, forward thinking is the trait most sought-after by China s CRE teams. Already, the CRE function in China is a source of innovation, particularly in the areas of workplace strategy and environmental sustainability. Another positive trend is that domestic Chinese companies increasingly see the value of real estate in achieving their expansion goals. Nearly half of CRE teams in China s domestic companies seek to further develop their characteristic focus on innovation, suggesting a growing awareness that sophisticated CRE practices can potentially help Chinese companies compete at a regional or global level. For CRE teams in China to continue to meet their own high expectations and expectations of the C suite, they should focus on: 1 Obtaining greater senior management backing. Improving their general business skills and building stronger relationships with internal leaders are critical goals that can help overcome the lack of sustained C-suite commitment seen as a top constraint by China s CRE teams. 2 Improving data and analytics capabilities. Although data and analytics was viewed as one of a set of pressing concerns in China (see figure 19), it may be a larger limitation than is perceived. With enhanced data and analytics capabilities, China s CRE teams undoubtedly will be better positioned to demonstrate forward thinking, and could use predictive analytics to present persuasive, factbased innovations to senior leadership. Developing case studies and data-driven evidence to convey the impact of CRE in the language of the business will be essential to the task of enlarging the CRE role to a more strategic level. Data and analytics also provide a path to benchmarking CRE performance characteristics, which would help China s CRE professionals determine the best way forward. Working with outsourced service providers would help with this task, through access to benchmarking data and exposure to CRE practices around the world. 3 Continue making the case for using outsourced service providers to supplement in-house capabilities. Overcoming lack of trust and perceived value of outsourced services will require new processes for assessing providers, as well as requiring CRE service providers to adjust their offerings and capabilities to match the needs and preferences of this growing market. 26 China Corporate Real Estate Trends 2015

More tactically, additional steps to strengthen the CRE role in China could include: Hiring and training CRE staff with strategic thinking and business skills that encompass knowledge of finance and other business areas; Hiring and training for the ability to assess and manage external vendors, and to help vendors become more effective at operating within China s unique business environment; Prioritizing people and people skills, to promote engagement with business unit leaders; Creating a strong data and analytics platform to bring science to long-term strategy and everyday delivery, and to present data-driven, innovative ideas to senior leadership; Defining success and benchmarking progress and position relative to peers, using a benchmarking tool such as JLL s Great Traits diagnostic tool; and Leveraging vendors not only for tactical execution, but also to extend strategic capabilities such as data and analytics and to gain access to global best practices in CRE. The CRE function in China continues to mature at a rapid pace, and has deepened its adoption of global CRE best practices. China s CRE professionals have Figure 20: Please select the three most important behaviours/attributes to your organization. top ranked answer, percent 30% Delivering 23% cost savings 15% Analysing real estate options and scenarios Building and sustaining strong relationships with the business (outside CRE) Forward thinking Generating insights to improve business performance Focusing on innovation, new products and services Business acumen 15% 14% 8% 15% 5% 4% 12% 35% 46% 12% 12% 12% 7% 7% 12% 6% 5% 4% demonstrated their commitment to transformation of their capabilities on the path from good to great, and with focus on specific areas, will continue to flourish. 0% 10% 20% 30% 40% 50% Global All China China Domestic Base: 491 (Global); 43 (All China); 26 (China Domestic) China Corporate Real Estate Trends 2015 27

About the survey JLL s Global Corporate Real Estate Trends is a biennial global survey. Concluded in the first quarter of 2015, the survey collected a total of 544 responses across 36 countries. For this report, we analyzed respondents from 26 domestic Chinese companies and 17 working for multinational corporations with operations in China, all with more than 1,000 employees. Our China sample base represents a broad range of industries. Approximately one-third of respondents belong to the banking and financial services sector, and broad range of other industries are also represented, from professional and legal services firms, telecommunications, technology, consumer products and more. In terms of company size, 40 percent are organizations with 10,000 to 50,000 employees, 21 percent with 50,000-100,000 employees and 23 percent over 100,000 employees. The industry breakdown A 39% I H G D Technology, media and telecommunications D 21% F E Consumer products J B 33% Banking and Financial Services E 14% Retail C A B C 23% Manufacturing and Industrial F 9% Professional Services C The company size breakdown D A 16% 1,000 to 10,000 10,000 to 50,000 C 21% 50,000 to 100,000 A B 40% D 23% over 100,000 B G 7% H 7% I 7% Energy Real Estate Education J 15% Others Note: Does not add to 100 percent; respondents could select more than one sector. 28 China Corporate Real Estate Trends 2015

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Contacts Ian Bottrell Julien Zhang Lei Zhang Edmond Sum Grant Weine Head of Integrated Facility Management, North Asia Head of China Desk / Managing Director, North China Head of Project & Development Services, China Head of Integrated Facility Management, China Head of Transaction Management, China +86 21 6133 5732 +86 10 5922 1261 +86 10 5922 1301 +86 21 6133 5737 +86 21 6133 5322 ian.bottrell@ap.jll.com julien.zhang@ap.jll.com lei.zhang@ap.jll.com edmond.sum@ap.jll.com grant.weine@ap.jll.com Contributing author Susan Sutherland Head of Corporate Research, Asia Pacific +65 6494 3655 susan.sutherland@ap.jll.com 30 China Corporate Real Estate Trends 2015

About JLL JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $55.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com JLL has over 50 years of experience in Asia Pacific, with over 30,000 employees operating in 80 offices in 16 countries across the region. www.jll.com/asiapacific In Greater China, the firm was named Best Property Consultancy in China at the International Property Awards Asia Pacific 2015, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country. www.joneslanglasalle.com.cn About JLL Corporate Solutions A leader in the real estate outsourcing field, JLL s Corporate Solutions business helps corporations improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability. Acknowledgements JLL gratefully acknowledges the assistance of those CRE professionals who participated in this survey. We are also grateful to Kadence International, our research partner for this project. We welcome any feedback on the published results to continue to improve future editions and make them as meaningful as possible for our readers. If you have any comments or would like to participate in future surveys, please email: julien.zhang@ap.jll.com China Corporate Real Estate Trends 2015 31

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