Taking a Pulse on the REFM Outsourcing Market
Stan Lepeak, Director, KPMG Global Sourcing Advisory Research
Doug Burr, Senior Manager, KPMG Advisory
KPMG LLP (US) and KPMG Holdings Limited (UK) recently released the results of its inaugural Real Estate and Facilities Management (REFM) Pulse survey. This survey is the newest addition to the Pulse family of research studies. Similar to the other KPMG Pulse surveys, this study assessed current REFM outsourcing market trends and conditions, deal drivers, challenges and service delivery models, global REFM sourcing trends, and REFM outsourcing deal attributes. Results are based on surveys and interviews with over 60 end-user organizations undertaking REFM outsourcing efforts and over 130 REFM service providers.
The challenging business climate that exists is exerting great pressure on end-user organizations to reduce REFM costs and improve their process performance and their global delivery and operating models. For many organizations, REFM costs are the second largest cost behind personnel. Outsourcing REFM services has become a compelling solution for many firms that can potentially reap annual savings from outsourcing of 7 percent to 20 percent off of pre-outsourcing levels (based on EquaTerra* and KPMG member firm client engagement experiences).
The growth of REFM outsourcing is part of a larger trend of how organizations deliver and manage core operating systems (e.g., REFM, IT, F&A, HR, customer care) globally. Leading organizations today employ a broad range of service delivery models and techniques, including alternative delivery models such as shared services centers (SSCs), offshore captive operations, and IT and business process outsourcing (ITO/BPO). KPMG member firms have developed a model labeled the Extended Global Enterprise (EGE) that provides a framework to design, build, deploy, and manage service delivery globally.
The traditional REFM model was to perform all of its activities using internal resources. Over time it has evolved from out-tasking, outsourcing (bundling of services), and integrated facilities management to a global integrated facilities management model—an REFM instantiation of the general EGE framework. Most end-user organizations today still prefer to outsource REFM tactical services and have in-house staff perform most of the strategic activities. However, a growing number of service providers are demonstrating advanced capabilities enabling them to move up the value chain in terms of services offered. They are becoming better able to integrate into existing business operations to provide more high-value and strategic services (e.g. portfolio strategy planning).
These trends are reflected in the bullish position REFM service providers are taking on near and especially longer term demand for REFM outsourcing. Service providers polled in the REFM Pulse were asked about their projections on buyer demand for REFM outsourcing over the next 12 months (see figure below). While 21 percent of service providers expect demand levels to increase over the next one-to-two quarters and an equal number expected demand levels to decrease, longer-term expectations are stronger. The number of service providers expecting REFM outsourcing demand levels to grow increased for both three-to-four quarters and 12+ months out.
Higher, longer-term demand projections from service providers were tied to expectations for an improving economy in 2012 and less economic uncertainty among buyer organizations, a factor cited as slowing deal flow. Recent market events, including the equity market crashes of early August, bring this position into question but the longer term trending for increased REFM outsourcing seems clear.
For more from KPMG on REFM, including the full REFM Pulse survey report, visit our library.
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