From Ping An’s US$388 million purchase of the Lloyd’s building in the City of London to Dalian Wanda’s US$2.6 billion deal for the AMC movie theater chain in the US, Chinese companies have been spreading their wings through big-ticket deals.
On top of this a number of smaller scale purchases and expansions are pushing once-cloistered domestic companies on to the global stage. As a result, these Chinese corporates must manage increasingly sprawling operations and, in terms of real estate, this translates into millions of dollars in costs.
One company facing this challenge is electronics giant Huawei, based in Shenzhen in southern China. Thanks to rapid expansion, it is one of the foremost examples of an “internationalized” mainland company. A Fortune 500 company, its reach spans the four corners of the globe with a workforce of 170,000, almost half of them based outside of China.
That has left the company with a complex network of leases and direct property holdings. Ahead of many of its mainland peers, Huawei recognized that it needed to call in specialized expertise to help manage them all.
“Huawei realized that they needed to get the right systems in place to manage their vast property portfolio,” explains Julien Zhang, the head of the China global desk at JLL. “They realized there are probably very simple tools to manage those leases and contracts and that’s when JLL got involved.”
After a six-month review process, the company implemented a formal real estate management system to address those needs. As a result, Huawei recognized JLL with its ‘Professional Contribution Reward’, making JLL the first real estate services company to win such a designation.
“They wanted a strategy that was innovative and globally appropriate,” Jeremy Sheldon, JLL’s managing director for markets, Asia Pacific, recalls. “They realized that real estate can be devolved, but there needs to be greater control, some measure of checks and balances as they go forward and grow their footprint around the world.”
Dedicated real estate expertise
Most Chinese companies do not have dedicated real estate teams in house. Instead, they often delegate responsibility to city operations teams, human resources departments, or the local finance manager, meaning that real estate decisions can slip down the list of priorities.
“You don’t want to be reactive, and suddenly find out you have a lease expiring in Brazil in one month’s time,” Zhang says. “When the lease comes up, you can only accept the deal on the table. And that’s not to mention that you probably need another 5,000 square meters.
“It’s not just a hassle. It’s a costly and an inefficient way to manage real estate,” Zhang adds.
Real estate is typically the third-largest expense for a multinational, behind wages and technology. It is vital for Chinese companies to deal with that line item in an efficient way, particularly as China enters into a “new normal” of slower growth.
In Huawei’s case, JLL helped them take a step back and consider the ‘big picture’ of their real-estate needs. This went beyond introducing data-management systems that help companies track and manage their property portfolio. In the first instance, says Zhang, it is important for a company to decide how it wants to position itself.
“If you only grow your revenue and you don’t look after your bottom line, it’s difficult if you’re going into a more competitive environment such as that overseas,” Zhang says. “It’s not about only the tools that they use. It’s about the mindset and structure they should take.”
China corporates on the global stage
Chinese companies are now running up against multinational competitors who may be further along the corporate real estate journey, for example many have already opted to divest owner-occupier property and devote that capital to their core competency.
So developing a standardized way of storing and analyzing lease holdings and self-owned properties allows management to make smart decisions about how to manage them. Ideally, the system must span multiple jurisdictions with multiple currencies and multiple measurement standards and produce cohesive results.
Should a company renew its lease? Relocate? Expand? Buy a building rather than lease it? Or sell it and lease it back?
“You need to translate in an abstract way what is relevant and important so management can see key data without having to read through a 300-page document,” Zhang says. “Then they can think smarter about today’s and tomorrow’s market.”
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global corporate real estate trends 2015