In Depth: To Squeeze Gold From Stone

Companies in Western Europe and the U.S. have been practicing outsourcing for development of solutions on optimizing real estate portfolios for many decades. One of the examples is the corporate property services agreement between Shell and Jones Lang LaSalle, with JLL operating Shell’s offices, filling stations and even refineries across the globe. The agreement provides for development of strategies of growth and optimization of the existing portfolio. Another example is the JLL-Procter & Gamble deal whereby JLL provides facilities and projects management services in 76 countries, totaling over 1.5 million square meters.

Services offered to major corporations include the development of corporate strategies of operating and enhancing property portfolio in accordance with long-term objectives and corporate culture, decision-making on purchase or sale of real estate, and offering effective solutions towards improving work environment by ensuring better interaction between co-workers in terms of layout of buildings and work desks. Those efforts require solving one of the most vital problems all companies are facing – correct assessment of their future need for office space, which is especially important on a rapidly growing market.

Those issues remain largely ignored by Russian companies. Rare exceptions are real estate management programs adopted by Alfa Bank, MTS and Rosgosstrakh. Nevertheless, there are several main categories of consumers who are likely to seek such services in near future. Those are major government-owned companies with huge real estates assets (RZhD, Gazprom, Sberbank, etc.,) large privately-owned companies running wide networks of branch offices (banks, mobile phone operators, insurance companies) and leading retail chains.

On the whole, the Russian market still lacks a structured approach towards real estate management. Companies rarely take measures to address their future demand for office space, and only do so when that demand arises paying little heed to the general development strategy. Such practices result in uncontrollable, chaotic and unpredictable accumulation of various properties by large companies, less effective management of those facilities, higher operating costs and lack of coordination between departments. In other words, short-term tactics prevail over long-term strategies.

Special attention needs to be attached to conformity between architectural design and corporate image. Even the largest Russian companies still fail to understand that their head offices should correspond to professional image. Companies across the globe attach great significance to office design; moreover, the fa?ade of the building, its design solutions become a part of corporate image, a trade mark of sorts. In Russia, we do not see such examples.

While even the most well-known and prosperous international companies do not shun office development for own use and plan the project as a commercial product in line with market requirements, Russian companies continue to build office facilities – gigantic and expensive properties – proceeding solely from their own requirements, ignoring considerations of effectiveness or realistic requirements. Such approach poses a risk of non-liquidity in terms of optimal terms of external financing, potential sale price as well as effectiveness of property operations and company’s image.

Real estate in Russia is often viewed as a separate and independent asset by most Russian corporations who fail to see in it an instrument, which could help reduce costs and boost earnings. To a certain extent, this may be explained by the fact that in most cases people now involved in property operations in Russia are administration support personnel who have only a vague notion of corporate development strategies. But it is obvious that competent property management may improve financial results (an effective corporate strategy may reduce operating costs by 10%-30%) and enhance its image, which is especially important for companies preparing for IPOs.

This piece was contributed to Vedomosti by Alexandra Shaforost, deputy head of strategic consulting department at Jones Lang LaSalle. The point of view of the author does not necessarily reflect the position of the editors.