Risk Alert: Top Three Real Estate Pitfalls of Emerging Market Expansion

As more businesses look to emerging markets for revenue, JLL reveals what not to do while expanding internationally

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Dec 02, 2013, 11:57 ET

CHICAGO, Dec. 2, 2013 /PRNewswire/ -- For many companies, the most promising revenue growth opportunities lie in emerging markets. Yet, this potential also carries risks for those on the front lines of expansion, according to Jones Lang LaSalle's (JLL) 2013 Global Corporate Real Estate (GCRES) Trends report. Real estate is a major factor in market growth and companies must identify the associated risks, such as market transparency, team experience and resource availability.

Corporate real estate (CRE) executives are often key members of the team bringing market expansion to reality. "Real estate teams need to educate their business leaders on the realities of expanding into opaque markets," said John Forrest, Global Director and CEO of Jones Lang LaSalle's Corporate Solutions business in Asia Pacific. "The possibility of misguided expectations is high and failure to deliver can damage the company's reputation and the standing of its real estate team."

JLL's report, which surveyed more than 630 CRE executives, found that 46 percent of CRE executives face an increasing demand from the C-suite to deliver platforms for growth in select markets. "There is a real danger that the pursuit of growth and need for competitive advantage in emerging markets will lead to unrealistic demands being placed on CRE teams," said Forrest.

Pitfall #1: Real estate market transparency

As real estate footprints in North America and Europe are being right-sized, many companies are looking to grow their portfolios in some of the world's least transparent real estate markets. In fact, 44 percent of survey respondents anticipate net portfolio growth in China over the next three years; 38 percent in India, 31 percent in Brazil, 20 percent in Russia, 16 percent in Mexico, followed by 8 percent in South Africa.

According to JLL's survey, 19 percent of the respondents see the lack of real estate market transparency as the single greatest threat to expansion in emerging markets, above lack of political (18 percent) and economic (17 percent) transparency (Fig. 1).

"Where mature markets tend to provide access to market information and public records, emerging markets often have cultural and social dynamics that are difficult for non-locals to navigate," said Forrest. "The lack of clarity equates to a slower speed-to-market, greater operational complexity and more barriers to entry. The C-suite may not be aware of these ground-floor obstacles and may not be thinking about real estate concerns."

Pitfall #2: Unequipped teams can delay expansion

Only 28 percent of survey respondents believe their organization is "well equipped" to meet the various tactical and strategic demands now being expected (Fig. 2), and 26 percent cite lack of skills and knowledge as a major constraint in enhancing their corporate real estate department's role. While training and strategic hiring can help teams rise to the challenge, 75 percent of respondents say they are experiencing increasing demand from senior management to reduce direct real estate costs, and more than 70 percent have been asked to improve workplace utilization rates and reduce operating costs.

Pitfall #3: Lack of resources can constrain growth

Even amidst growing C-suite demands for overseas speed-to-market, CRE departments may be underestimating the time and costs involved. "Delivery is a significant and often underestimated drain on the finite resources and skills of the CRE function," said Forrest. "Time and costs can escalate rapidly, while compromises around the quality of the real estate solution are inevitable. The reputation of the CRE department across the wider business is at risk unless proactively managed."

Despite the risks, CRE executives are not advance-managing accordingly. Only 19 percent are likely to spend more than half of their time on delivering in emerging markets (Fig. 3), and 53 percent plan to spend less than 20 percent of their time--or none at all--to emerging market growth.

Wondering where your corporation stands? Find out how your organization measures up to its peers in key areas such as outsourcing plans, workplace strategy and resource capacity. Answer five quick questions via JLL's interactive online tool and receive an instant comparison of your responses with the survey result norms.

To request a full copy of the report, visit www.jll.com/globalCREtrends or download a presentation on JLL's new Slideshare profile. Social media users can also engage in the conversation about the future of corporate real estate on Twitter using #CRETrends.

A leader in the real estate outsourcing field, JLL's 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.

For more news, videos and research resources on Jones Lang LaSalle, please visit the firm's global media center Web page http://bit.ly/18P2tkv.

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 $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 and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management. For further information, visit www.jll.com.

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SOURCE Jones Lang LaSalle