1. Changing Winds Ahead Japan Corporate Real Estate Trends 2013

2. Jones Lang LaSalle 3 As the CRE function matures and gains more importance within Japanese companies, we have created the Jones Lang LaSalle Japan CRE Index, an industry first, to compare and contrast the state of CRE in Japan against the rest of the world. This index will help monitor the progress being made by Japanese CRE teams in furthering their real estate agendas. We sincerely thank those of you who shared your thoughts and perspectives. Your invaluable input has provided a clear picture of the pressures facing CRE teams in Japanese companies. These survey findings reinforce our conviction that there are tremendous opportunities for Japanese companies and we are excited to embark on the CRE journey together. Introduction We are delighted to introduce the first Japan edition of Jones Lang LaSalles biennial Global Corporate Real Estate Trends report, which provides powerful insights into the current condition and future direction of corporate real estate (CRE). With responses from more than 30 Japanese companies, the survey results show that amid continuing challenges in the economic and operating environment, CRE teams have been charged with tackling a broader and more strategic agenda, while often not being adequately structured or equipped. This mismatch exposes the CRE function to some fundamental risks. Mitigating these risks requires change in the remit, structure and method of CRE. Without a transformation of the function, CRE will not be able to keep pace with the increasing demands of the broader business nor will it move away from an undervalued positioning. However, we believe that with great risk comes even greater reward. With the right decisions, CRE can turn risk into opportunity to drive productivity enhancements and position the function as a key contributor to corporate competitiveness. For CRE functions in Japanese companies, who are currently behind the global CRE outsourcing norm on most fronts, the opportunity to contribute is even greater. Toshinobu Kasai Managing Director/Country Head Jones Lang LaSalle, Japan toshinobu.kasai@ap.jll.com 3. 4 Japan Corporate Real Estate Trends 2013 Executive Summary Towering expectations and inadequate structures are the conflicting characteristics of the CRE function in Japan today. Over the years, CRE teams in Japan have been facing increasing pressure. Senior business leaders are placing high expectations in productivity improvements, both in terms of increasing output (working better, faster) and reducing input (operating cheaper). This focus on productivity improvements triggers amplified strategic demands placed on CRE, with a strong emphasis placed on workplace development. While workplace transformation is taking on a new resonance and relevance, more companies in Japan are looking abroad for growth. CRE teams are required to provide platforms supporting business ambitions, mostly in emerging and frequently opaque real estate markets. These challenges present risks, in particular in a background of technology limitations, capacity caps, strategic skill gaps, frequent absence of a centralized, dedicated CRE function and less elevated reporting lines that all contribute to dilute strategic alignment. Such structural constraints may restrict progress. However, emergent scrutiny and multiplying expectations are also providing CRE teams with an unprecedented opportunity to shine if they demonstrate that they can transform not only the working environment, but also the financial contribution and business-wide positioning of CRE. A two-pronged approach can help to mitigate risk and successfully seize opportunities. Aware that those proactively leading their organizations to a more productive workplace will be the winners, CRE teams are considering new ways to reach their goals. Externally, varied paths to outsourcing are gaining momentum in Japan, following a trend initiated by global peers. A new generation of engagement with service partners is materializing as a complementary means of delivering on time and on quality. CRE outsourcing is starting to be perceived as a strategic imperative where value derives from long- term partnership and shared goals. These new practices are placing CRE in a unique position to dramatically impact the culture, performance and competitiveness of their organizations. Internally, CRE teams are increasingly collaborating with corporate senior executives and other support functions, these deeper partnerships helping them to deliver beyond expectations. CRE executives should venture out of their comfort zone and work closely with the other functions to engage both corporate senior leadership and employees. The next wave of collaboration will be instrumental in implementing structural change and supporting the workplace productivity agenda. Many options can be designed to bring in the skills and capacity needed to fulfill the intensifying CRE agenda. They all require a fundamental rethink of the CRE contributionone that will shape not only the future form and function of the CRE team, but also its opportunity to add strategic value and deliver competitive advantage for CRE teams. The CRE function in Japan is already showing early signs of transformation and CRE teams exhibiting a budding willingness to adopt new behaviors. However, more has to be done. CRE leaders need to make a stronger case to gain senior leadership sponsorship and enroll senior leaders as champions of the elevation of the function in companies in Japan. To make that most-needed step change happen, the conversation should be started with the senior leadership, without delay. 4. Jones Lang LaSalle 5 Significantly, none of the CRE leaders and executives responding to our survey in Japan felt well-equipped to meet all the senior leadership demands placed upon their function. A number of existing constraints can explain this lack of confidence. Structural limitations and weak governance are diluting the strategic alignment with the business and undermining CRE efforts to progress further as a value contributor. In particular, few CRE teams benefit from elevated reporting lines with only 26% of the CRE heads reporting directly to senior leadership. This is aggravated by frequent capacity caps, skill gaps and decentralization of the CRE function. Coupled with the amplifying strategic demands, the inadequacy of CRE structures raises the possibility of CRE under-performing, or being perceived to underperform. To overcome todays obstacles and successfully deliver an ambitious CRE agenda, CRE teams need to combine the various strategies at their disposal. Internally, CRE teams often have a track record of collaboration with other business support functions. While this takes place today more on an ad hoc, project basis, there are signs that a more structured form of collaboration with other support functions is developing within organizations in Japan. Among other benefits, shared services types of integration have been perceived as an efficient way to overcome the barriers to workplace transformation, such as employee resistance and lack of management engagement. Externally, partnering with service providers to bring in skills and grow the function is an option increasingly considered in Japan. CRE outsourcing is gaining momentum in the country, although still lagging well behind global peers. There are both cultural and organizational reasons for this gap. Three key trends identified for CRE in Japan CRE teams in Japan are presented today with multiple opportunities to shine. Senior leadership is increasingly demanding the function to contribute to productivity improvements, from supplying optimum conditions for growth and competitiveness to moderating cost savings. Some workplace productivity enhancement projects have already been initiated and the trend is expected to continue to get stronger in the future. CRE teams are also required to build or expand overseas platforms for their businesses. Emerging economies, which often are also the least transparent markets, are attracting the most interest. Operating in such challenging conditions is exposing CRE to the risk of underdelivering if expectations are not carefully managed. Enhanced demands from senior leadership present CRE with fresh opportunities 1 Mismatch between demand and capacity results in underperformance risks 2 Forward-looking CRE teams stake on winning partnerships3 5. of Japanese companies surveyed believe that CRE can contribute to the bottom line 10% Enhanced Demands from Senior Leadership Present CRE with Fresh Opportunities 6 Global Corporate Real Estate Survey 2013 Enhancing productivity is the new rationale for CRE with workplace productivity grabbing the attention of CRE and senior leadership alike Globally, economic realities and capital expenditure constraints have maintained pressure on CRE teams to implement short-term tactics, often to the detriment of longer term strategic moves. This focus has been aimed at bolstering corporate financial performance through cost savings and/or capital release. Most CRE teams are finding it challenging to continue achieving year-on-year cost savings targets through tactical means, as most of the easier opportunities within portfolios have already been realized. A more strategic set of demands is therefore gaining significance, such as driving improved workplace and worker productivity. Embracing new work styles and implementing supportive new workplaces has been a strategic vision, if not immediate intention, for years. This is changing rapidly with workplace transformation taking on a new resonance and relevance. If backed by management engagement and employee supportthe primary sticking points in implementation to datethis has the potential to transform not just the working environment, but the financial contribution and businesswide positioning of CRE, as well. Japanese companies are not yet that far along the journey compared to their peers in other developed countries. However, as they realize that their space has a role to play in contending with competitive pressure, more are starting to consider new workplace strategies as a path to achieve their goals. receive increasing demand from the senior leadership to reduce direct real estate costs, 70% to reduce operating expenses and 62% to increase workplace utilization 74% regard lack of managementengagement as the keyconstraint to workplacetransformation. Employeeresistance scored the same 25% expect demands on workplace utilization to increase further over the next three years while only a third expect real estate portfolios to increase in size 71%An overwhelming majorityface moderate to high expectations from the senior leadership to improve the productivity ofreal estate assets (92%),of the workplace (89%), ofpeople (92%) and of the business (96%) Although real estate constitutes a cost by nature, as acknowledged by the 90% of responding companies in Japan that consider CRE to be more of a cost center, a minority, and hopefully growing, 10% are aware that it also presents them with means to bring value to their organizations. Over the years, the contribution that is expected from CRE in terms of added productivity and competitiveness for the benefit of the entire organization has translated into ever increasing demands from senior leadership in addition tonot in place oftraditional delivery mandates. As challenging as these demands might be, they also represent opportunities. 1 6. Jones Lang LaSalle 7 Particularly pronounced in an already cost-focused, global environment, the emphasis placed on productivity ultimately is one of the key strategies senior leadership can act upon to encourage and sustain strong corporate performance when growth slows. In Japan, survey respondents also indicate that reducing direct real estate cost, cutting portfolio operating expenditure and limiting exposure to future real estate overheads rank high on the senior leadership priority list. As a consequence, productivity enhancement is now deeply ingrained in the day-to-day focus of many CRE teams worldwide and in Japan. Expected productivity outcomes include reducing and avoiding cost; reducing and managing risk; increasing speed to market; output quantity and quality; talent retention; collaboration and creativity. Central to the productivity debate in Japan, improving real estate asset productivity comes first, being a high expectation for 42% of CRE executives and moderately expected by another 50% (Fig. 1). Increasingly, senior leadership pressures to improve workplace productivity are also encompassing workplace, people and business productivity (high expectations in 32%, 29% and 28% of companies, respectively). Figure 1: Senior leadership expectations for CRE to deliver respective productivity outcomes QUESTION: What productivity outcomes is your organization expecting the CRE function to deliver? 8% 3% 35% 57% 43% 54% 28% 68% 4% 29% 2% 33% 61% 6% 38% 60% 63% 8%8% 50% 42% 7% 41% 52% 10% 43% 47% 24% 72% 4% 31% 66% 3% 32% 57% 11% No expectation Moderate expectation High expectation AsiaGlobal Japan Asset Workplace Business People Among the broadening range of demands placed on CRE teams by the senior leadership, productivity improvement is a standout strategic priority 7. 8 Japan Corporate Real Estate Trends 2013 Survey responses leave no doubt as to the fact that CRE portfolios have started undergoing a process of transformation over the past three years (Fig. 2). Ongoing pressure on operating costs has led over half of Japan respondents (64%) to increase the utilization rate of space. Optimizing occupational density has also been a focus, with 48% pointing to an increase in the ratio of headcount to unit of space, followed by the quality of space that increased for 44% of respondents in terms of design or from an environmental standpoint. The need to transform the corporate workplace felt by CRE over the last couple of years will only become stronger over the next three years, in Japan and worldwide. It will be critical for CRE teams to respond to density and utilization demands without negatively impacting space quality or worker experience. Figure 2: Extent of change in the global corporate workplace as seen by Japan CRE leaders over the last three years and envisaged over the next three years QUESTION: To what extent has your global corporate workplace transformed over the last 3 years? Multiple constraints have limited the amplitude of workplace transformation to date, with the standout limitations recognized by the Japanese respondents being employee resistance and lack of management engagement. However, one should expect to face these problems as they are typically present. It is worth noting that while in most countries global respondents identified financial constraints as the most restricting limitation to workplace transformation, this was not the case in Japan. Workplace productivity is being addressed through CRE, but there are many who believe that more could and ought to be done Increased Decreased AsiaGlobal Japan overthelastthreeyearsoverthenextthreeyears 79% 78% 7% 9% 71% 4% 68% 65% 12% 8% 64% 9% 72% 15% 62% 70% 9% 53% 17% 42% 33% 19% 59% 17% 36% 48% 32% 16% 58% 15% 31% 4% 73% 5% 76% 4% 48% 6% 67% 5% 67% 8% 44% 61% 12% 48% 4% Portfolio Quantity Design Quality Utilization Rate Density 0% 8. Jones Lang LaSalle 9 is the anticipated net portfolio growth in Brazil and in India, followed by China (32%) and Russia (23%) 35% Japan respondents are anticipating a net reduction of their portfolio at home (-19%) and in developed markets such as Canada (-8%) and Spain (-4%), while portfolios are expected to stagnate in the US and Germany (both 0%) Central to sustaining growth and competitiveness, the platforms CRE teams are mandated to provide the business with are geographically selective, and most often focused on emerging markets. A successful delivery platform in complex and less transparent markets can boost the status of the CRE function and elevate the recognition of the value it contributes to the wider business. However, the task also bears the possibility of not being able to deliver to the stringent time frames and standards of senior leadership. This can expose CRE to one of its greatest reputational risks if expectations are not managed. of respondents in Japan reckon that developing and emerging markets will take up less than 50% of their time over the next three years 68% CRE teams are also required to build or expand platforms for their businesses stats report that their portfolioswere impacted to a certainextent after the 2011 Tohokuearthquake, and 18% toa great extent. 54% haveadjusted (or are planningto) their supply chains as aresult of the disaster 64% Middle East and Africancountries such as Turkey(20%), South Africa (16%),UAE and Saudi Arabia (both12%) are also experiencingnet portfolio growth see the lack of political transparency as the single greatest challenge when expanding into these markets, while 14% rank the lack of suitable real estate offer 32% 9. 10 Japan Corporate Real Estate Trends 2013 Figure 3: Level of Risk Aversion in Japan Since 2010 QUESTION: Compared to 2010, how would you rate your business attitude toward risk (appetite for growth versus operational risk)? Slower domestic growth triggers overseas expansion in spite of risk aversion The strategic significance of driving revenue and growing market share in emerging markets is not lost on senior leadership Corporate investment around the world is placing a continuing dual emphasis on building operational platforms in emerging markets while right-sizing portfolios in developed markets. Three quarters (74%) of those surveyed in Japan believe that their organizations have grown more risk averse since 2010 (Fig. 3). This is a substantially more conservative stance toward risk than their global peers. Global respondents expect their net portfolio growth in developed western economies to be either flat-lining or reducing. Japan responses show that a greater proportion of occupiers are anticipating a plateauing or decrease of their portfolios based in developed western economies, especially in Western Europe and North America (Map 1). The BRICs (Brazil, Russia, India and China) continue to receive a lot of attention. Key growth areas targeted by Japanese headquartered companies over the next three years are largely expected to be emerging markets where net portfolio growth is anticipated to reach 35% in Brazil and India, 23% in Russia and 32% in China. Other consensus expansion areas include the Middle East, Southeast Asia and Central Europe. While net portfolio growth is predicted to be strongest in emerging markets, these also tend to be the most opaque (Map 2). Japanese company CRE professionals are increasingly aware that this paradox could represent one of the greatest reputational risks for their function. As that operational reality dawns, it will impact CRE teams capacity and their ability to continue to address their extended agenda. Almost a third (32%) of respondents estimate that they will spend at least one-fifth of their time involved in emerging markets over the next three years. 15% 30% 44% 22% 27% 30% 21% 18% 34% 7%16%20% 4%5%8% Slightly more risk averse Slightly less risk averse A lot less risk averse Much more risk averse No change Global Asia Japan 10. Jones Lang LaSalle 11 Map 1: Net Portfolio Growth Anticipated Over the Next Three Years Map 2: Global Real Estate Transparency 2012 Source: Global Real Estate Transparency Index, Jones Lang LaSalle, 2012 Not covered Low Transparency Opaque Semi-Transparent Transparent Highly Transparent QUESTION: Over the next three years, how will your portfolio evolve in each of the following regions? Note: Net portfolio growth percentages in this map are obtained by deducting responses anticipating portfolios to decrease from responses anticipating portfolios to increase. Other possible responses (remain the same, do not know and not applicable) were left out. Net Negeative Growth 41%-50% Net Portfolio Growth* Rest of region 31%-40% Net Portfolio Growth 21%-30% Net Portfolio Growth 11%-20% Net Portfolio Growth 0%-10% Net Portfolio Growth Country 11. 12 Japan Corporate Real Estate Trends 2013 Natural hazards are a consideration that cannot be overlooked, particularly in emerging markets where risk management and prevention is not a best practice Over the past few years, Asia Pacific has weathered a sequence of devastating natural disasters, from earthquakes to tsunamis to massive flooding. They caused innumerable fatalities and countless houses, plants and communication infrastructures have been destroyed in the events. In response to the 9.0 magnitude 2011 Tohoku earthquake, 18% of those surveyed in Japan report that their portfolios were damaged to a great extent and 64% to a certain extent (Fig. 4). The immense losses have resulted in renewed interest in business continuity and risk management, with many organizations undertaking recovery works and implementing plans to mitigate risk of any future natural disasters. In particular, 54% of respondents from our survey indicate that their companies are either planning to adjust or have adjusted their respective supply chains. However, only a minority (15%) state that their organizations have already moved into new headquarters or offices as a response to the 2011 Tohoku earthquake, or are planning to do so. Figure 4: Aftermath of 2011 Japanese Earthquake and Tsunami QUESTION: To what extent did your portfolio suffer as a result of the 2011 Japanese earthquake/ tsunami? 40% 30% 20% 10% 11% 4% 29% 36% 25% Planning new HQ or offices Moved into new HQ or offices Planning adjustments to supply chain OthersAdjusted supply chain 18% 64% 18% 0% 80% 60% 40% 20% Not at all To a great extent EntirelyTo a certain extent QUESTION: Which of the following changes have occurred as a result of the 2011 Japanese earthquake/tsunami? 12. Jones Lang LaSalle 13 Mismatch Between Demand and Capacity Results in Underperformance Risks CRE teams are being challenged to impact a wider range of agenda items than ever before. Meeting these heightened expectations is challenging given that investment in up-skilling existing, or hiring new in-house CRE talent, has not always been adequate. Absence of strategic skills and an underlying lack of capacity are constraining attempts to imagine and implement the step change needed. What is striking about responses from Japan is that uncertainty characterizes the conditions under which CRE operates and could be the first challenge to tackle. Indeed, many CRE professionals feel that they are not in control or do not have a clear CRE mandate, as depicted by the significantly higher proportion of dont know answers to a large number of survey questions as compared to global responses. As an example, for workplace development, 25% and 18% of those surveyed in Japan do not know how portfolio quantity and density will transform in the next three years respectively, while only 5% of global respondents are unaware of similar developments. 2 report that the global head of CRE has hard-line reporting to senior leadership, while globally 58% report to senior leadership, also known as the C-suite Only 26% think senior leadership willwant more alignment of CREwith the business driversand functional areas such asHR, IT and finance 32%0% of respondents regard themselves as adequately equipped to meet all tactical and strategic demands now being placed upon them as opposed to the global average of 28% consider the ability to provide data and insights as the most important future attributes of CRE as opposed to only 35% at the global level. At the same time, 50% see their current lack of effective data and analytics to measure and articulate value as a major limitation 75% regard the current skill setand knowledge base ofinternal CRE teams as aconstraint hindering CREfrom demonstrating addedvalue to the business. 50%recognize the fragmented ordecentralized nature of CREas an additional restriction 36% 13. 14 Japan Corporate Real Estate Trends 2013 No CRE leader in Japan feels well-equipped to meet all demands being placed upon them The broad range of demands now being placed on CRE professionals is proving uncomfortable. In stark contrast with global respondents of which 28% indicate they feel well-equipped to address these demands, none of the Japan respondents believe that they are (Fig. 5). Although the modesty of Japan respondents and a degree of understatement can partly explain these answers, they reveal the extent to which CRE teams suffer from their lack of empowerment. Survey responses such as capacity, reporting line, planning horizons and alignment with the business shed some light on why CRE teams in Japan feel so ill-equipped to meet demands of senior leadership. Figure 5: Do CRE Executives in Japan Feel Well-equipped to Address Senior Leadership Demands? QUESTION: How well-equipped do you feel to meet the demands of the senior leadership? Japan Asia Global Well equipped to meet all demands 0% 16% 28% Can meet most demands 57% 70% 65% Ill equipped to meet the demands 43% 14% 7% 14. Jones Lang LaSalle 15 QUESTION: Within what department does the global head of CRE reside? Many Japanese companies still lack a dedicated CRE function When combined with hard-line reporting into senior leadership, a dedicated CRE function creates a powerful and helpful alignment between CRE and wider business strategies, as well as a clear mandate. However, in Japan, a majority of respondents state that the global CRE head is situated within the corporate office or general management, and less than a third (32%) have a dedicated CRE department in which the global head of CRE resides (Fig. 6). On the contrary, the bulk of respondents globally (39%) have a dedicated CRE department in which the global head of CRE resides. It is also interesting to note that 18% of surveyed companies have no global head of CRE, a finding in line with the often decentralized and fragmented structure of CRE in Japan. Figure 6: Where Does the Global CRE Head Reside? Global Asia Japan 4%1%2%Procurement 0%2%1%Supply chain and logistics 36%25%15%Corporate office/general management 0%7%8%Administration/shared services 39% 32%41%Dedicated CRE department 7%10%10%Finance 4%5%7%Others 18%9%14%No global head of CRE 0%0%2%Human resources 0%0%1%Information technology 15. 16 Japan Corporate Real Estate Trends 2013 Less elevated reporting lines shield CRE from more pressure and scrutiny, but dilute strategic alignment In only 26% of companies surveyed in Japan does the global head of CRE report directly to senior leadership, as opposed to 58% of global respondents. In Japan, a majority have hard- line reporting to the executive level within their organization (Fig. 7). Remoteness from top leadership can result in a misalignment between corporate strategy and CRE strategy. Indeed, only a minority of respondents (4%) describe corporate and CRE strategies as being entirely aligned today, although 18% think that the situation will start correcting within the next three years. While only 11% of respondents in Japan acknowledge that they dont know the time horizon applied to their companies business strategy, a strikingly high proportion (39%) do not know CRE strategys time horizon. Among those who know, 18% report a planning horizon of three years and above for CRE strategy and 32% for business strategies in Japan. Significant in Japan, the discrepancy between the planning horizons of CRE and business strategies is minor (only 1%) in global responses. Change is expected to be gradualonly 32% of respondents think the senior leadership will want CRE to align more with overall corporate business drivers in the coming years. This creates a huge challenge for CRE teams looking to retain or develop relevance within their organizations. Unlike other regions where the global financial crisis has brought more senior leadership attention to real estate matters, executive-level reporting in Japan has kept CRE teams off the radar and shielded the function from higher expectationsa missed opportunity. Because of this, CRE teams have few occasions to flag real estate issues or opportunities to senior decision-makers early enough in strategy development. Senior leadership risks having limited CRE knowledge and moderate expectations because CRE professionals are not in a position to convey ideas or problems. This may then translate into unclear CRE mandates and unachievable demands. Further, this lowers the pressure and scrutiny over the costs, structure and, latterly, the utilization of the real estate portfolio, depriving the CRE function of a chance to deliver value. Figure 7: Reporting Lines for the Global Head of CRE QUESTION: To what level of the organization does the global head of CRE currently report? Global Asia Japan C-suite (i.e., CEO, CFO, CIO, COO, . . .) 26%59%58% Managerial level (i.e., president, VP, manager) 13%23%26% Executive level (i.e., officer, executive level, supervisory level) 43%13%14% Operational level (i.e., administrator, PA, clerk) 13%3%1% Other 4%1%1% 16. Jones Lang LaSalle 17 Structural constraints present a significant risk to addressing leadership demands Data analytics capabilities is a crucial factor when looking to meet mounting demands Figure 8: Types of Constraints Undermining the Strategic Position of CRE QUESTION: In your opinion, what are the top two constraints that are hindering CRE from enhancing itself as a strategic value-add to your organization? The remarkably high proportion of respondents that feel ill-equipped for the challenges ahead suggests that new capacity and skills will be required if CRE is to deliver its agenda. Among the other hurdles pinpointed by survey respondents in Japan, CRE teams are smaller and half of respondents recognize that broader strategic agendas cannot be fully met without a more centralized CRE team (Fig. 8). Without accurate, up-to-date and relevant data, CRE teams find that it is not easy to execute strategic decisions and meet the varying demands being placed upon their teams. However, half of the respondents in Japan report that the lack of effective data and analytics is a key constraint that hinders CRE from enhancing itself as a strategic value-add (Fig.8). Correspondingly, around 60% of those surveyed agree that they presently have limited capability to extract real estate metrics, in spite of an improvement since 2010, which was mainly driven by better data collection. Most agreed that providing data and insightsan industry-wide concernis one of the future qualities most required from CRE teams. 36%32%26%Internal skill sets/knowledge 43%32%32%Lack of sustained/consistent C-suite commitment 7%7%6%Poor vendor relationships 50%34%27%Fragmented or decentralized team 4%29%48%Financial constraints 7%19%19%Others 50%40%34%Lack of effective data and analytics to measure value 4%7%8%Lack of technology Global Asia Japan 17. 18 Japan Corporate Real Estate Trends 2013 Forward-looking CRE Teams Stake on Winning Partnerships To mitigate the risk of being perceived as underperforming, CRE teams are entering more and more elaborate partnerships to gain augmented capacities and diversified skills. Externally, open models are being borrowed from countries where outsourcing is more deeply rooted, while new models are being created to suit specific circumstances. Internally, cross-functional collaboration is coming of age, prompted by companywide productivity agendas. As a prerequisite, CRE leaders above all need to start the conversation with senior leadership to engage its members as sponsors of the CRE transformation. 3 Despite CRE outsourcing gaining momentum, Japan is still lagging behind global peers Amplified by CREs broader and more strategic agenda, the pressure created by in-house capacity caps and skills gaps is fuelling growth in the CRE outsourcing market, causing CRE sourcing to gain traction across more geographies, industry sectors and corporations. Companies with some experience of CRE outsourcing continue seeking innovative delivery models that harness greater strategic contributions and best practice from the market. Today, they are joined by another generation of companies, new to outsourcing, which are taking varied and sometimes innovative paths toward strategic outsourcing. While some are starting out with tactical out-tasking, others are progressing quickly by following the paths taken by the pioneers. The latter is particularly evident in Japan. are retaining portfolio strategy work in-house and none are delivering this service via a fully outsourced model 64% of companies choose within preferred suppliers instead of sending request for proposals (RFPs) to all suppliers, as done by only 4% of them, compared to46% globally 57% are retaining project management, build-out and design in-house, and just 13% have fully outsourced this service 17% are currently not outsourcing any CRE function as opposed to only 8% globally. When they do outsource, only 17% perceive CRE outsourcing as a strategic relationship while 21% view it as a purely tactical transaction 18% Over the next three years, property management and lease administration are predicted to see the highest increase in full outsourcing, with a 4% and 8% increase respectively When involved, procurement is assessed as lacking CRE knowledge by of respondents 73% 18. Jones Lang LaSalle 19 Tactical out-tasking versus strategic partnerships Overall, a growing number of companies worldwide and in Japan are looking beyond simple tactical out-tasking and instead are seeking to capitalize on the greater value and synergy that comes from deeper, strategic partnerships with service providers. In line with global trend (Fig. 9), among Japan companies that already outsource, a majority (55%) lean toward the notion that outsourcing represents a strategic relationship where partnership value is assessed over the long term. However, in contrast with global responses where only a fringe (15%) see outsourcing as a tactical transaction mainly with the lowest cost supplier, it is 34% in Japan. Divergence of attitudes toward CRE outsourcing is sizable in Japan, and many remain indecisive. As many as 18% of respondents in Japan indicate that they are not outsourcing any CRE service. When adding those who do not outsource and those who outsource in a tactical manner, Japan companies appear to be very polarized in comparison to global responses, which are significantly more amassed toward the strategic end of the spectrum. QUESTION: Please rate your current attitudes toward outsourcing on a scale of 1 to 5, where 1 means that outsourcing represents a tactical transaction, mainly with the lowest cost supplier, and 5 means that outsourcing represents a strategic relationship. Figure 9: Attitudes toward CRE Outsourcing 8% 18% 29% Outsourcing represents a tactical transaction, mainly with the lowest-cost supplier 8% Outsourcing represents a strategic relationship, where I assess longer-term value add with a partner 38%Asia 38%13% 13%21% Outsourcing represents a tactical transaction, mainly with the lowest-cost supplier Outsourcing represents a strategic relationship, where I assess longer-term value add with a partner 17%Japan 9% 21% 33% Outsourcing represents a tactical transaction, mainly with the lowest-cost supplier 6% Outsourcing represents a strategic relationship, where I assess longer-term value add with a partner 30%Global 19. 20 Japan Corporate Real Estate Trends 2013 Figure 10: Delivery of Major CRE Services Globally as well as in Japan, the balance of services delivered in-house or through outsourced models is changing (Fig. 10). Specialist and resource-intensive services such as project management are more willingly outsourced, while the majority of respondents prefer to retain sensitive elements such as portfolio strategy within the organization. Over the next three years, further advancement along the outsourcing continuum will be seen as CRE teams seek more support from the market in delivering both tactical and strategic real estate activities. Lease administration and portfolio strategy are the services most likely to be outsourced. Unexpectedly, outsourcing of portfolio and facilities management, services typically easier to delegate, will progress far less than for portfolio strategy, a function that CRE teams are more prone to keep in-house. Arguably, an interpretation could be that in Japan the outsourcing of portfolio and facilities management may be perceived as associated with the termination of in-house positions, with CRE teams not taking the risk to convey a wrong corporate image to the public. A broader range of solutions are being sought, creating new models, new interrelationships and new points of engagement QUESTION: How would you best describe the delivery of the following CRE services, today and three years from now? (Fully outsourced being 5 and fully in-house being 1) Note: The mean score is calculated as the sum of the multiplication of each score with their respective number of respondents, divided by the total sum of respondents. Global Transaction Services Portfolio and Facilities Management PProject Management/Design and Build-out/Fit-out Asia Japan Global Asia Japan Global Asia Japan Global Fully in-house Fully in-house Three years from now Now 22% 16% 25% 12% 9% 17% 25% 13% 23% 52% 2 15% 16% 38% 18% 19% 42% 17% 20% 59% 22% 27% 24% 21% 30% 26% 17% 25% 26% 14% 15%3 21% 22% 13% 22% 15% 13% 19% 23% 5% 8%4 15% 22% 4% 18% 31% 13% 13% 18% 0% 3%Fully outsourced 18% 14% 25% 11% 5% 8% 21% 13% 26% 44% 2 14% 13% 29% 14% 16% 33% 14% 16% 43% 19% 22% 17% 21% 26% 21% 29% 22% 16% 26% 20%3 23% 26% 25% 28% 29% 17% 21% 27% 4% 11%4 23% 31% 0% 22% 30% 13% 22% 28% 0% 5%Fully outsourced 20. Jones Lang LaSalle 21 In Japan, 39% of those surveyed describe procurement as being actively involved in CRE, whether on a permanent or an ad hoc basis. But there are signs that this marriage can be an unhappy one. For 73% of respondents with involved procurement teams, feel procurement has too limited knowledge of CRE and of the nature and complexity of the services being procured. There is a responsibility for CRE teams, and indeed service partners, to more effectively educate procurement and articulate the added value that effective CRE management can deliver. The risk of not doing so is that outsourced models will become price-oriented rather than value-driven, and desired capacity expansion and innovation will not be realized. This will further limit abilities to meet the broader CRE agenda. Current procurement practices may also hinder Japans quest to close in with global peers. The type of process used to select outsourcing partners has a direct impact on the market, with openness usually translating into more intense competition, which in turn accelerates the maturing of the CRE outsourcing industry. Over half of those surveyed in Japan acknowledge that their organizations choose among preferred supplier rather than sending a RFP to all suppliers, with the latter adopted by only 4% of respondents. This stands in stark contrast to processes in place in most countries, with nearly half of global respondents favoring a RFP sent to all suppliers when choosing outsourced partners. Furthermore, over three times as many prefer to select suppliers within their company group in Japan, a practice uncommon elsewhere and possibly related to the large number of conglomerates in the country. When uninformed, procurement involvement in CRE outsourcing decision- making creates risks of undervaluing partnership and failure to deliver step change Portfolio Strategy Asia Japan Global Property Management Lease AdministrationEnergy and Sustainability Services Asia Japan Global Asia Japan Global Asia Japan 58%35%42%48%22% 28% 27%48% 64% 34% 12% 21%14%12%22%39% 19% 20%17% 27% 15% 20% 8%16%14%22%13% 24% 23%16% 0% 18% 21% 13%16%13%9%26% 17% 16%10% 9% 16% 26% 0%19%19%0%0% 11% 15%8% 0% 18% 22% 33%25%31%29%13% 17% 15%28% 22% 26% 8% 17%9%11%21%54% 13% 13%21% 48% 12% 19% 13%10%12%38%8% 29% 27%26% 17% 20% 14% 29%25%19%13%21% 23% 24%16% 13% 19% 28% 8%30%28%0%4% 18% 20%9% 0% 23% 31% 21. 22 Japan Corporate Real Estate Trends 2013 Internally, the increasing focus on workplace transformation also calls for a cultural shift within the CRE team. It urges teams away from being entirely absorbed by tactical, transactional task delivery and positions them as change agents and change managers across the entire business. In complex corporations, effective change can only be delivered via collaboration. Survey responses clearly show that collaboration between CRE, HR, IT and finance teams is already occurring with significant and surprising intensity on an ad hoc, project basis. In the future, continual collaborationpossibly driven by changes in organizational structureswill be a necessity if the game changing qualities of workplace transformation are to be realized. Cross-functional collaboration is presenting CRE an opportunity to deliver faster, better services while uplifting its relevance and recognition 32% of global CRE heads reside within a dedicated CRE department, which is less than the 36% residing within a corporate office and general management are collaborating with IT on an ad hoc or project basis, with 14% already reporting a more formalized form of collaboration or a shared services type of integration 25% identify shared services integration as the prevalent model when working with HR and finance 36% claim that their CRE and business strategies are entirely aligned today, a majority (73%) pointing to moderate or minimal alignment Only 4% 22. Jones Lang LaSalle 23 As senior business leaders demand a more strategic CRE agenda, notably around workplace productivity (Fig. 1), CRE teams are being required to exert influence over a broader range of corporate functions. The workplace transformation that CRE teams is mandated to undertake has an impact on everyone within the organization, all of the time. Collaboration with other support functions will become just as necessary as a strong relationship with leadership if transformation is to be achieved. This will be most required with those support functions that have a vested interest or valuable contribution to make to the productivity agendanotably HR, IT and finance. At present, CRE teams in Japan are working most closely with finance, while having considerably fewer interactions with HR and IT. Despite being a standalone function, CRE has a track record of collaboration, although most of the time this is on an ad hoc and project basis. Concerted action with the various support functions is already in evidence in the pursuit of current CRE strategies in Japan (Fig. 11), occurring in most cases between the heads of each of these support functions and without the practice being necessarily cascaded downon average, across the three support functions, 19% of respondents identify collaboration at the functional head level. Compared to global peers, Japanese companies are substantially lagging behind in terms of cross-functional collaboration today and they are not expected to close up the gap over the next three years. This is a variance worth being scrutinized as companies globally seem to consider a more formally structured collaboration with support services, which is seen as a new elevation opportunity for CRE. Rather than perceiving collaboration as a threat to CREs influence or specialization, CRE teams should embrace these formal collaboration structures as vehicles for delivering positive change across their organizations. We believe CRE teams should be taking a strong leadership role in these structures to establish creative and productive workplaces. In adopting a position as a companywide change agentrather than a tactical specialist CRE will extend its relevance and mitigate any risk of becoming marginalized. Beyond cross-functional collaboration, closer relationships between CRE and corporate senior executives are critical. Once senior leadership recognises the importance of CRE to the entire organization and understands the benefits from supporting and investing in CRE, the function will have reached an optimal position to buoy companywide performance and productivity. Workplace transformation demands greater collaboration with other corporate service functions Figure 11: Extent of Cross-functional Collaboration QUESTION: Today, how would you describe the collaboration of CRE with the following business functions?Today and in three years time Global HR FinanceIT Asia Japan Global Asia Japan Global Asia Japan Three years from now Now 16% 14% 32% 12% 17% 43% 4% 9% 14% 17% 27% 21% 13% 19% 7% 14% 20% 29% 41% 38% 36% 45% 34% 36% 31% 33% 39% No/hardly any interactions Only between functional heads Ad hoc/project basis Shared services integration 26% 21% 11% 31% 30% 14% 51% 38% 18% No/hardly any interactions Only between functional heads Ad hoc/project basis Shared services integration 11% 9% 21% 8% 11% 29% 3% 4% 0% 15% 23% 25% 13% 20% 14% 12% 21% 21% 30% 32% 29% 34% 32% 36% 26% 31% 54% 44% 36% 25% 46% 37% 21% 60% 44% 25% 23. 24 Japan Corporate Real Estate Trends 2013 Jones lang LaSalles Global Corporate Real Estate Survey is a biennial global initiative. Concluded in December 2012, the survey collected a total of 636 responses across 39 countries. Thirty one of these respondents work for Japanese companies. For the purpose of this report, we analyzed the responses from the 28 Japanese companies located in Japan. A broad range of industries are represented in our Japan sample base (Fig. 12). While over a third of respondents belong to the manufacturing and industrial sector, banking and financial services constitute the second largest sample. In terms of company size, more than half are organizations with 10,000 to 50,000 employees, the rest of the sample offering a variety of other sizes (Fig. 13). About the Survey Figure 12: Respondents by Industry Figure 13: Respondents by Company Size Note: Respondents working for conglomerates had the possibility to indicate multiple activities. Global Asia Japan 1,000-5,000 5,001-10,000 10,001-50,000 50,001-100,000 More than 100,000 18% 10% 31% 16% 25% 13% 9% 36% 18% 24% 11% 14% 61% 7% 7% Global Asia Japan Banking and financial services 32%29%24% Professional services 4%6%12% Consumer products 4%9%8% Technology, media and telecommunications 21%31%28% Government 0%1%8% 39%Manufacturing and industrial 20%17% Others 18%22%33% Energy (includes oil, gas, petrochemicals, energy utilities) 0%4%8% 24. Jones Lang LaSalle 25 Annex What productivity outcomes is your organization expecting the CRE function to deliver? Global Asia Japan Asset No expectation 10% 7% 8% Moderate expectation 43% 41% 50% High expectation 47% 52% 42% Workplace No expectation 4% 3% 11% Moderate expectation 24% 31% 57% High expectation 72% 66% 32% Business No expectation 8% 3% 4% Moderate expectation 35% 43% 68% High expectation 57% 54% 28% People No expectation 6% 2% 8% Moderate expectation 33% 38% 63% High expectation 61% 60% 29% How has your global corporate workplace transformed over the last 3 years? Global Asia Japan Portfolio Quantity It has increased 48% 58% 32% It has declined 31% 15% 16% It has remained the same 21% 27% 52% Design Quality It has increased 67% 67% 44% It has declined 6% 5% 8% It has remained the same 27% 28% 48% Utilization Rate It has increased 68% 65% 64% It has declined 12% 8% 0% It has remained the same 20% 27% 36% Density It has increased 62% 53% 48% It has declined 15% 17% 12% It has remained the same 24% 29% 40% To what extent will your corporate workplace transform over the next 3 years? Global Asia Japan Portfolio Quantity It has increased 42% 59% 33% It has declined 36% 17% 19% It has remained the same 22% 24% 48% Design Quality It has increased 73% 76% 48% It has declined 4% 5% 4% It has remained the same 23% 19% 48% Utilization Rate It has increased 79% 78% 71% It has declined 7% 9% 4% It has remained the same 15% 13% 25% Density It has increased 72% 70% 61% It has declined 9% 9% 4% It has remained the same 20% 22% 35% Compared to 2010, how would you rate your business attitude toward risk (appetite for growth vs. operational risk)? Global Asia Japan No change 21% 22% 15% Much more risk averse 18% 27% 30% Slightly more risk averse 34% 30% 44% Slightly less risk averse 20% 16% 7% A lot less risk averse 8% 5% 4% To what extent did your portfolio suffer as a result of the 2011 Japanese earthquake/ tsunami? Japan Not at all 18% To a certain extent 64% To a great extent 18% Entirely 0% Note: because of rounding, totals may not equal to 100 25. 26 Japan Corporate Real Estate Trends 2013 Within what department does the global head of CRE reside? Global Asia Japan Dedicated CRE department 39% 41% 32% Administration / Shared services 8% 7% 0% Procurement 2% 1% 4% Supply chain and logistics 1% 2% 0% Corporate office / General management 15% 25% 36% Information Technology 1% 0% 0% Human resources 2% 0% 0% Finance 10% 10% 7% Others 7% 5% 4% No global head of CRE 14% 9% 18% To what level of the organization does the global head of CRE currently report? Global Asia Japan C-Suite (i.e. CEO, CFO, CIO, COO ) 58% 59% 26% Managerial level (i.e. President, VP, Manager) 26% 23% 13% Executive level (i.e. Officer, Executive level, Supervisory level) 14% 13% 43% Operational level (i.e. Administrator, PA, Clerk) 1% 3% 13% Others 1% 1% 4% In your opinion, what are the top two constraints that are hindering CRE from enhancing itself as a strategic value-add to your organization? Global Asia Japan Financial constraints 48% 29% 4% Fragmented or decentralized team 27% 34% 50% Internal skill sets/knowledge 26% 32% 36% Lack of sustained/ consistent C-suite commitment 32% 32% 43% Poor vendor relationships 6% 7% 7% Lack of technology 8% 7% 4% Lack of effective data and analytics to measure value 34% 40% 50% Others 19% 19% 7% Please rate your current attitudes toward outsourcing on a scale of 1 to 5, where 1 means that outsourcing represents a tactical transaction, mainly with the lowest cost supplier, and 5 means that outsourcing represents a strategic relationship. Global Asia Japan Outsourcing represents a tactical transaction, mainly with the lowest cost supplier 6% 8% 21% 2 9% 8% 13% 3 21% 18% 13% 4 33% 29% 38% Outsourcing represents a strategic relationship where I assess longer term value add with a partner 30% 38% 17% Organisations that do not currently outsource any functions 8% 8% 18% Which of the following changes have occurred as a result of the 2011 Japanese earthquake/tsunami? Japan Planning new HQ or offices 11% Moved into new HQ or offices 4% Planning adjustments to supply chain 25% Adjusted supply chain 29% Others 36% How well equipped do you feel to meet the demands of the C-suites? Global Asia Japan Well-equipped to meet all demands 28% 16% 0% Can meet most demands 65% 70% 57% Ill-equipped to meet the demands 7% 14% 43% 26. Jones Lang LaSalle 27 How would you best describe the current delivery of the following CRE services? Global Asia Japan Transaction Services Fully in-house 22% 16% 25% 2 15% 16% 38% 3 27% 24% 21% 4 21% 22% 13% Fully outsourced 15% 22% 4% Project Management / Design and Build-out/Fit-out Fully in-house 12% 9% 17% 2 18% 19% 42% 3 30% 26% 17% 4 22% 15% 13% Fully outsourced 18% 31% 13% Portfolio and Facilities Management Fully in-house 25% 13% 23% 2 17% 20% 59% 3 25% 26% 14% 4 19% 23% 5% Fully outsourced 13% 18% 0% Portfolio Strategy Fully in-house 52% 48% 64% 2 22% 17% 27% 3 15% 16% 0% 4 8% 10% 9% Fully outsourced 3% 8% 0% Property Management Fully in-house 34% 12% 22% 2 15% 20% 39% 3 18% 21% 13% 4 16% 26% 26% Fully outsourced 18% 22% 0% Energy and Sustainability Services Fully in-house 28% 27% 48% 2 19% 20% 22% 3 24% 23% 22% 4 17% 16% 9% Fully outsourced 11% 15% 0% Lease Administration Fully in-house 42% 35% 58% 2 12% 14% 21% 3 14% 16% 8% 4 13% 16% 13% Fully outsourced 19% 19% 0% How would you best describe what you expect the delivery structure of the following CRE service to be in three years? Global Asia Japan Transaction Services Fully in-house 18% 14% 25% 2 14% 13% 29% 3 22% 17% 21% 4 23% 26% 25% Fully outsourced 23% 31% 0% Project Management / Design and Build-out/Fit-out Fully in-house 11% 5% 8% 2 14% 16% 33% 3 26% 21% 29% 4 28% 29% 17% Fully outsourced 22% 30% 13% Portfolio and Facilities Management Fully in-house 21% 13% 26% 2 14% 16% 43% 3 22% 16% 26% 4 21% 27% 4% Fully outsourced 22% 28% 0% Portfolio Strategy Fully in-house 44% 28% 22% 2 19% 21% 48% 3 20% 26% 17% 4 11% 16% 13% Fully outsourced 5% 9% 0% Property Management Fully in-house 26% 8% 13% 2 12% 19% 54% 3 20% 14% 8% 4 19% 28% 21% Fully outsourced 23% 31% 4% Energy and Sustainability Services Fully in-house 17% 15% 29% 2 13% 13% 21% 3 29% 27% 38% 4 23% 24% 13% Fully outsourced 18% 20% 0% Lease Administration Fully in-house 31% 25% 33% 2 11% 9% 17% 3 12% 10% 13% 4 19% 25% 29% Fully outsourced 28% 30% 8% 27. 28 Japan Corporate Real Estate Trends 2013 Today, how would you describe the collaboration of CRE with the following business functions? - Currently Global Asia Japan HR No/hardly any interactions 16% 14% 32% Only between functional heads 17% 27% 21% Ad-hoc/project basis 41% 38% 36% Shared services integration 26% 21% 11% IT No/hardly any interactions 12% 17% 43% Only between functional heads 13% 19% 7% Ad-hoc/project basis 45% 34% 36% Shared services integration 31% 30% 14% Finance No/hardly any interactions 4% 9% 14% Only between functional heads 14% 20% 29% Ad-hoc/project basis 31% 33% 39% Shared services integration 51% 38% 18% Today, how would you describe the collaboration of CRE with the following business functions? - In three years time Global Asia Japan HR No/hardly any interactions 11% 9% 21% Only between functional heads 15% 23% 25% Ad-hoc/project basis 30% 32% 29% Shared services integration 44% 36 25% IT No/hardly any interactions 8% 11% 29% Only between functional heads 13% 20% 14% Ad-hoc/project basis 34% 32% 36% Shared services integration 46% 37% 21% Finance No/hardly any interactions 3% 4% 0% Only between functional heads 12% 21% 21% Ad-hoc/project basis 26% 31% 54% Shared services integration 60% 44% 25% 28. Jones Lang LaSalle 29 About Jones Lang LaSalle Jones Lang LaSalle (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. With annual revenue of USD 3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has USD 47.0 billion of real estate assets under management. About Jones Lang LaSalle Corporate Solutions A leader in the real estate outsourcing field, Jones Lang LaSalles 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 Jones Lang LaSalle 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 insightteam@jll.com. Visit www.jll.com/globalCREtrends to explore the global trends in more detail. See how CRE executives based in your region responded and compare your answers with the global survey results. Additional reports for specific countries and industry sectors will be posted to this site as they are released throughout the year. Toshiro Sato Head of Strategic Portfolio Services Jones Lang LaSalle, Japan toshiro.sato@ap.jll.com Neil Hitchen Head of Markets Jones Lang LaSalle, Japan neil.hitchen@ap.jll.com Jun Miyamoto Head of Project and Development Services Jones Lang LaSalle, Japan jun.miyamoto@ap.jll.com Yoshitomo Tajima Head of Integrated Facilities Management Jones Lang LaSalle, Japan yoshitomo.tajima@ap.jll.com Research for this Index was conducted by Anne Thoraval and Henry Liao from Jones Lang LaSalles Corporate Research team in Asia Pacific. 29. 30 Japan Corporate Real Estate Trends 2013 30. Jones Lang LaSalle 31 31. www.joneslanglasalle.co.jp