Minding the property

Posted on 18 Apr 2008 by The Manufacturer

Outsourcing property management is widespread in the US but has aroused only limited enthusiasm in Europe. Robert Pols looks at some of the issues involved

Cinderella was perhaps short-changed in having only one solutions provider. The modern industrial world is full of people wanting to be your fairy godmother – someone who invites you not to bother your pretty little head with this worry or that and to outsource your care to her. When property management is the care in question, the proposition certainly appears attractive. After all, when recent figures suggest that up to 15 per cent of business costs are ploughed into the management of the property portfolio, it seems good sense to ask whether outsourcing offers a cheaper and more effective option.
It’s not hard, therefore, to see why an organisation like Proctor & Gamble (P&G) should decide to embrace it. P&G outsources the management of owned and leased corporate properties covering nearly 13.8 million square feet to Jones Lang LaSalle. The arrangement stretches across 60 countries on six continents and covers a broad range of services including strategic facilities planning, occupancy planning, remodelling and furnishing, maintenance, repairs and employee convenience services. For P&G, clearly, the contract ministers to a headache of global proportions.
But for most companies, headaches of that size are more a matter of aspiration than fact, and outsourcing property management may seem a less pressing concern. A survey by Remit Consulting found that 27 per cent of respondents outsourced the management of their entire portfolio. But it was the retail and leisure sectors that figured most prominently in the sample, and manufacturers and distributors were in a distinct minority.
In fact, property management covers a very broad spectrum of activities. At one end are services (such as buying, selling, letting and lease negotiation) that exercise many manufacturing businesses infrequently, and that are most valued by clients in the commercial and residential sectors. But they can also assist manufacturers: Denby Pottery achieved substantial savings by contracting property managers to appeal against its rating list entries; Electrolux sought help in disposing of a surplus warehousing facility; and Stanley took advice on acquiring leasehold parts of its Woodside Works to allow an unencumbered freehold sale. But at the other end of the spectrum – and of more regular concern to many businesses – is the day-to-day physical management of properties.
This, it transpires, is an ill-defined area, where property management and facilities management overlap. Examine the activities of a cross-section of property and facilities managers and you’ll find both offering such services as building maintenance, repairs, safety, catering, cleaning and security.
There are some companies, of course, who need the full spectrum of management services for their properties. Bibby Group and Antalis, for instance, signed up sbh.uk – a distribution property specialist – to handle the full range of acquisitions, disposals, rent and lease renewals, surveys, dilapidations, maintenance and fit-outs across their 60 properties. But, in practice, it’s the facilities management end of the scale that’s more likely to interest many companies, and even that won’t be right for all of them.
“Outsourcing isn’t good per se,” suggested Kevin Taylor of leading Edinburgh law firm Shepherd and Wedderburn. “It’s just one option, and some companies will have light in-house needs. Someone like Sainsbury’s, that has a property estate worth £8.6 billion and a company valuation of £6 billion, can make decisions in a very different way from a business that’s in a tenanted building.”
Furthermore, he insisted, a prospective client must feel sure of its ground. “A company has to decide how confident it is about letting someone else understand its operation. An outsourced services provider must thoroughly understand a client’s business, but not everyone will be looking to share the necessary information.”
One organisation that’s not attracted by outsourcing is Milbank Floors, a manufacturer of precast concrete fabrications for the construction industry. The company has three factories and two offices at Brandon in Suffolk and a further two offices and factories at Earls Colne in Essex. “We have neither a facilities manager nor a company that takes on the job for us,” said managing director Sean Milbank. “For things like painting and decorating we’ll tend to use our own maintenance staff. In the case of something more specialised, the office manager or the production director will call in our usual contractor. We have a health and safety officer, of course, and we have one contract with a company that regularly inspects and tests our fire equipment and another with a company that collects and recycles waste. We do our own environmental audits, and we run a canteen for our people at Earls Colne.”
Admittedly, Milbank Floors has a rather individual angle when it comes to buildings, for it has accumulated its own experience of what makes a property manageable. “By the time we came to invest in our newest factory, at Brandon,” Milbank observed, “we were building our own facility with our own products on our own land, and we did think about designing for appearance and maintenance as well as for use.”
This gives a somewhat personal slant to the concept of property ownership, so it was not surprising that he added, “As a company we like to have as much control as possible.”
Another business that prefers to retain its hold on the reins is CBS Rotary Power Motion,- a distributor of power transmission and fluid power products and a member of the nationwide Independent Authorised Distributor Alliance. The company owns properties in Kidderminster, Tewksbury and Hereford and rents premises in Birmingham, Tredegar, Redditch and Pontilas. But the preference is for ownership.
“Buying is actually fairly hassle-free,” argued managing director Sean Thorogood. “It’s so much better from the investment point of view, and you end up with greater control. Where we rent properties, it’s simply because we didn’t have a purchase option at the time. But if we had a choice, we would buy.”
As things stand, however, CBS has a mixed portfolio of properties, each of which is managed according to its specific nature and needs. “Outsourcing the management of our properties is an issue that hasn’t raised its head,” said Thorogood. “The concerns we face are much the same as you face when owning a house. The situation would naturally be very different if you had an office block with 100 units in it, but our premises are very simple. Stock needs to be kept secure and dry, and good alarm systems are imperative. Then we deal with external maintenance as required, and employ someone to deal with such jobs as, say, weeding when needed. We certainly don’t neglect the sites. We also make sure that every depot has a contract with a fire protection company, while other regulatory concerns are addressed via our ISO compliance and our health and safety risk assessments. When you’re running our kind of operation, you’re there at the site and you’re on top of the day-to-day management. Things might be rather different, though, for other kinds of business where sites have a more complex utilities infrastructure.”
It’s an apt distinction, for there are some companies who do benefit from outsourcing property management and others who could. But, as Kevin Taylor pointed out, success isn’t guaranteed. “A company may outsource its facilities management one year and then, five years later, bring it back in house. Such cyclical patterns can often be put down to the way in which the decision to outsource has been implemented. If you’ve not managed it well – and maybe not received the benefits you were expecting – you may well want to go through the decision-making process again.”
So, he continued, a disciplined approach is required. “Not all companies have clear processes or written-down procedures, so when it comes to outsourcing, they lack a clear sense of precisely what is wanted. It’s necessary to define all the functions to be outsourced and to identify just what goes into delivering them. A company must ask itself a number of questions. Can costs be reduced and services improved? Is it possible to establish a single point of responsibility without loss of control? Can we demonstrate that this is the best mode of service delivery based on empirical evidence? Do we really need strategic management, as opposed to a reactive commodity?”
If the answers are all positive, the prospective client will then want to examine the credentials of possible service providers. According to the Remit survey, the most common priorities are proven experience and team expertise, followed by quality of reporting and cost. Interestingly, the choice often falls on a small specialist f irm rather than on a large and widely known organisation.
Then, if the preparation has been sound and the choice well made, there are significant benefits to be had. “There’s a cost certainty in respect of the management of buildings,” Taylor concluded, “and there’s a transfer of risk to the facilities/ property management provider. In addition, there’s the added value that arises from choosing a strategic solution in preference to commodity provision.”