Effective cost management helping business to expand operational footprint

Many businesses are looking to expand their operational footprint, particularly in emerging markets, in spite of the continued pressure to control costs, according to CBRE’s 2012 Occupier Survey. The annual survey revealed that, in spite of the uncertain global economic outlook, 47% of corporate occupiers expect to expand their operations, although much of it is likely to be overseas rather than in the UK.

The weak state of the economy is seen as the greatest challenge by over 70% of respondents followed by cost constraints and tightening regulation, particularly for the technology and finance sectors which made up the greatest proportion of respondents this time. The twin pressures of selective growth and ongoing cost containment have required organisations to manage their portfolios more intelligently, driving productivity improvements through effective workplace strategies and by leveraging technology to enhance the employee experience and support more collaborative property solutions.

With the high level of concern around cost escalation, many businesses have pursued a range of initiatives to secure real estate cost savings. While most had already carried out substantial cuts across their portfolio, the current economic situation has meant they are having to re-examine their real estate cost base, and consider further cuts. As in 2011, consolidation and space reduction measures together with renegotiation of financial terms of the lease have been identified as the most effective methods of generating new cost savings and in spite of the continued emphasis on costs, less than 25% of respondents say they have put in place any restriction on capital expenditure.

There are, however, sharp distinctions between sectors with regards to portfolio growth plans. The figure for the Banking & Finance sector represents a striking anomaly, with over 70% of the companies within this industry intending to reduce their operational footprint over the next two years. The recent announcement that Lloyds has sold 600 branches to the Co-op is indicative of the scale of activity in this area. The expectation of increased M&A activity and appetite for locational expansion, reflect strong corporate cash reserves. What is less clear is what it will take for companies to resume spending.

Commenting on the research, James Brounger, Managing Director, CBRE South Central says:

“After salaries, occupational costs account for the largest proportion of corporate expenditure. In the current environment, many firms are understandably placing an emphasis on controlling, or reducing, these costs. The findings of this year’s survey are intriguing, as only 24% reported any restrictions on real estate capital expenditure and almost half intend to extend their footprint, which presents an interesting balancing act for management teams requiring them to be more innovative as they seek to balance these strategies.”