KPMG 2011 Real Estate & Facilities Management Outsourcing Pulse Survey

Introduction

KPMG LLP (US) and KPMG Holdings Limited (UK) are pleased to release the findings from the inaugural 2011 global Real Estate & Facilities Management (REFM) Outsourcing Pulse survey. The REFM Outsourcing Pulse is the newest addition to the KPMG Pulse family of surveys. These Pulse surveys provide insights into trends and projections in end-user organizations usage of shared services, outsourcing and third-party business and IT services. The learnings from the REFM Outsourcing Pulse are gleaned from end-user organizations that are actively exploring or undertaking REFM outsourcing efforts as well as from leading global REFM business and IT service providers. The Pulse survey research program was originally developed by EquaTerra, a leading sourcing advisory consultancy that KPMG* acquired in February 2011. They are now part of a broader family of KPMG Pulse surveys that include the quarterly global sourcing advisory Pulse, similar surveys focused on specific geographies such as China, and studies focused on important market topics such as cloud computing and HR transformation, and broader business market trending. Since their inception in 2004, the Pulse surveys have yielded insightful analyses of current and ongoing market trends in the use, deployment and delivery of business and IT services. They capture changes in demand, usage levels, future adoption plans and related key market indicators. They highlight the changes, and the direction of change, in the business and IT service markets as a whole. The surveys focus on where the market is going and how that direction is changingor notcompared to prior quarters and years.

The global REFM Outsourcing Pulse survey will be conducted on an annual basis. Topics explored in this first edition of the REFM Outsourcing Pulse include: Current REFM outsourcing market trends and conditions Deal drivers, challenges and service delivery models Global REFM sourcing trends REFM outsourcing deal attributes.

Demographics Over 200 respondents were surveyed in this market study. One-third of respondents were from end-user buyer organizations currently utilizing or in the active process of undertaking REFM outsourcing. Two-thirds of respondents were from third-party providers of outsourcing and related REFM services. A small portion of the service provider sample (less than five percent) was comprised of respondents from law firms advising end-user organizations on REFM sourcing efforts. The majority of both buyers and service providers are focused on the U.S. market, with 30 percent each operating globally and the balance operating in the EMEA and Asia Pacific regions. Figure 1 illustrates the geographic distribution of the buyer and service provider respondent base. All major REFM service providers are represented in the results, including CB Richard Ellis Group, Cushman & Wakefield, Johnson Controls and Jones Lang LaSalle.

*KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG International have acquired the business and subsidiaries of advisory firm EquaTerra, Inc.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 2

Survey Respondent Demographics

REFM service providers (2/3 total sample)

53

9%

End-user organizations (1/3 total sample)

Global

Americas

EMEA

AsiaPac

Figure 1

Questions or comments regarding this report and the KPMG Pulse survey program should be directed to Stan Lepeak, Director of KPMG Sourcing Advisory Global Research, at slepeak@kpmg.com or +1 203-458-0677. The KPMG executive sponsors of the REFM Outsourcing Pulse research program are: Ron Walker, Principal, KPMG REFM Sourcing Advisory Practice, at rwalker@kpmg.com or +1 760-703-2076 Doug Burr, Senior Manager, KPMG REFM Sourcing Advisory Practice, at dburr@kpmg.com or +1 925-895-4747 Steve Silen, Senior Manager, KPMG REFM Sourcing Advisory Practice, at ssilen@kpmg.com or +1 949-885-5431

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 3

Management Summary

The business climate in 2011 remains challenging, and enduser organizations are under pressure to reduce real estate and facilities management 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. So managing these costs and driving continuous improvement is essential, particularly in todays environment of economic uncertainty. Thus, outsourcing of REFM services has become a compelling solution for many firms that can potentially reap annual savings of seven percent to 20 percent off of preoutsourcing 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 functions (e.g., REFM, IT, F&A, HR, customer care) globally. The means through which organizations deliver and manage these services have changed significantly over the past 25 years. Leading enterprises 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 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 activities using internal resources. Over time, it has evolved to include: out-tasking, outsourcing (bundling of services), integrated facilities management and global integrated facilities management, an REFM instantiation of the general EGE framework. Outsourcing of REFM services is a journey, and not all end-user organizations are in the same place. Some end-user organizations are considering outsourcing REFM services for the first time while others that have already outsourced are looking for opportunities to outsource more sites and services, to consolidate what has been outsourced under fewer providers or to restructure the pricing of their current contracts to deliver additional savings. Most enduser organizations 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 that enable 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, strategic services (e.g., portfolio strategy planning).

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 4

Evolution of Facilities Management & Real Estate Sourcing

Pre-1980s
Self-perform Most, if not all, activities are performed in-house.

80s to mid-90s
Out-tasking Low-tech services such as cleaning, security, food services and landscaping are individually sourced by different locations to external providers.

Mid-90s to 2000
Outsourcing A combination of low-tech and hightech servicessuch as electrical, mechanical and environmental are outsourced in service bundles.

Early 2000s to mid-2000s

Integrated facilities management Facilities management and real estate services are outsourced to a single service provider, which manages subcontractors.

Mid-2000s and onward

Global integrated business services Facilities management and real estate services are organizationally aligned with other support services such as finance, HR, procurement and IT and outsourced in a global bundle across business units. Bundled business process outsourcing (BPO) across multiple functions is emerging as an option.

Most end-user organizations today, especially larger firms in western markets, have already undertaken some level of REFM outsourcing, even if it has been to outsource a few services (e.g., janitorial, cafeteria and amenities services). Self-performing REFM work remains more common in emerging markets where the capabilities of the marketplace may not be mature enough to outsource or at small offices in all markets where most of the services are provided by the landlord. While many end-user organizations are operating today in the outsourcing model (bundling of services), the most innovative firms are operating under an integrated facilities management model or a global integrated business services model. Although many end-user organizations aspire to operate under a global outsourcing model, most of them operate under a local or regional model because the global provider market isnt mature enough to meet their needs. Similarly, leading practice is to perform governance across the portfolio wherever possible. This drives more consistency, shares leading practices, increases ability to leverage spend and reduces management complexity.

Where an end-user organization should ideally be in its REFM outsourcing continuum requires a careful evaluation of the performance of its current operations, business needs/ challenges, the marketplace capabilities and the benefits and risks of making a change. There is no right answer, but status quo is not prudent. More sophisticated buyers understand how their operating model compares to their peer group and have developed an REFM sourcing strategy to map the way forward and gain a competitive advantage. They have engaged the right players from within and outside their organization to create a credible strategy and have implemented an appropriate change management program to ensure a smooth transition. They have also evaluated their current practices, benchmarked them, implemented process improvements and driven consistency across their portfolio, where appropriate. Bottom line smart buyers are carefully planning their ongoing REFM outsourcing journey and are focused on executing on this strategy.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 5

Here are the key findings from the KPMG 2011 Global REFM Pulse Survey:
Global demand for REFM outsourcing remains strong and continues to grow. Nearly all polled buyers undertaking REFM outsourcing expect to maintain or increase outsourcing usage in the short-to-medium term. REFM service providers cite current growth in their outsourcing business sales pipelines and expect that growth to accelerate in 2012. The greatest growth expectations came from REFM providers operating globally and supporting global outsourcing efforts. The primary focus areas for REFM outsourcing among buyers are workplace services, facilities services, and transaction and brokerage services. Service providers see near term increased growth opportunities in these areas, as well as in facilities management, and even in more strategic areas such as portfolio strategy and planning. From an overall topical REFM perspective, the top themes buyers will focus on over the coming year are energy management, cost reduction efforts, and addressing a sustainability and corporate social responsibility agenda. The key is to determine how, when and where REFM outsourcing can help address these issues. A dominant theme in the REFM outsourcing market today is consolidation. REFM outsourcing buyers are aggregating existing outsourcing efforts spread across multiple service providers, geographies, contracts and functional areas. This plays to the strengths of the larger, more global and diversified service providers. Buyers are striving to bundle together more existing and new REFM deals and, while typically they want to maintain overall management control of these services bundles, they are increasingly open to ceding more of that management control to the providers performing the underlying services. Reducing operating costs is the top driver for organizations undertaking REFM outsourcing, but buyers also seek a variety of other benefits above and beyond cutting costs. These include improved REFM process performance, improved financial flexibility, creating a more variable cost model, and supporting global business growth and expansion agendas, especially into emerging markets. As a result, a key challenge is to balance cost cutting and process improvement and related agendas and needs. Buyers continue to face many challenges to successfully undertake new REFM outsourcing efforts and consolidating efforts already in flight, especially when pursued across multiple functional areas and on a global scale. The top challenges cited include prioritizing the broad range and number of REFM outsourcing opportunities and related change programs, addressing the economic uncertainly that makes short-to-medium term planning difficult, and addressing challenges related to retained organization, relationship management and outsourcing governance issues. The globalization of the REFM service market tends to follow the globalization of buyer organizations geographic footprint that these REFM services support. As buyers expand into emerging markets, for example, the demand for outsourced REFM support services in those markets grows. So while in contrast to most ITO and horizontal BPO efforts, REFM outsourcing is not so much about shipping services back to the west from lower-cost offshore markets. This being said, REFM buyers still need to improve global sourcing skills, especially as they relate to managing multiple efforts across multiple providers and geographies, consolidating efforts to gain economies of scale, and better accounting for and dealing with regulatory, data and intellectual property risks and challenges. The key to buyer success in global sourcing is to define, deploy and optimize the mix of global service delivery models employed as part of the adoption of an extended global enterprise model.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 6

Table of Contents
I. II. III. IV. V. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 1 Survey Respondent Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Management Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 REFM Outsourcing Pulse Highlights: Buyer Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 REFM Outsourcing Pulse Highlights: Third-Party Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Current REFM Outsourcing Usage and Market Demand Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Current and Planned REFM Outsourcing Usage Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 2 Buyers: Current/Planned REFM Outsourcing Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 3 Buyers: Future REFM Usage Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Figure 4 Service Providers: Pipeline Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 5 Service Providers: Demand Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Figure 6 Service Providers: Demand by Process Areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Figure 7 Service Providers: Demand by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Figure 8 Winter 2010 Global Business Outlook: Outsourcing Plans 12 Months Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Top REFM Outsourcing Drivers, Challenges, and Service Delivery Model Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 9 Top REFM Outsourcing Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 10 Top REFM Outsourcing Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Figure 11 Change in Service Delivery Model Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 12 Changes to Buyers Interests/Preferences Relative to Key REFM Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 13 Future Space Utilization Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 14 REFM Reporting Systems Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

VI.

Update on Global Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Buyer Global Sourcing Preferences and Demand Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Figure 15 Buyer Global Sourcing Interests/Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Buyer Global Sourcing Maturity and Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Figure 16 Buyer Global Sourcing Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 17 Management and Governance of Existing Global REFM Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 18 Management and Governance of New Global REFM Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

VII.

Current Market Deal Characteristics: Service Providers Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Pricing Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 19 Service Providers: Pricing Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Contract Profitability and Ability to Increase Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Figure 20 Service Providers: Contract Profitability, New and Existing Deals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Figure 21 Service Providers: Ability to Increase Deal Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

VIII. Where to Learn More about Global Sourcing Market Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 Service Provider Performance and Satisfaction Market Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 IX. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Please note: this PDF also includes embedded bookmarks to help better navigate through the document. For a list of bookmarks, please click on the Bookmarks tab to the left of this PDF.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 7

REFM Outsourcing Pulse Highlights: Buyer Organizations

Top REFM Processes Outsourced
1. 2. 3. 1. 2. 3. 1. 2. 3. 1. 2. 3. Workplace services Facilities services Transaction/brokerage services Next 1 2 quarters: 50% plan to increase outsourcing Next 3 4 quarters: 36% plan to increase outsourcing 12+ months out: 44% plan to increase outsourcing Reduce operating costs Improve process performance Improve financial flexibility Prioritizing opportunities Economic uncertainty Retained organization, transition, and governance challenges Energy management Cost reduction Sustainability

Future REFM Outsourcing Plans

Top REFM Outsourcing Drivers

Top REFM Outsourcing Challenges

Top REFM Focus Areas Next 12 Months

REFM Outsourcing Pulse Highlights: Third-Party Service Providers

Deal Pipeline
Fifty-eight percent of providers cite pipeline growth over last 1 2 quarters; 41 percent cite no change 1. 2. 3. 1. 2. 3. 1. 2. 3. 1. 2. 3. 1. 2. 3. Next 1 2 quarters: 21% cite demand growth Next 3 4 quarters: 52% cite demand growth 12+ months out: 72% cite demand growth Facilities management Portfolio strategy and planning Space management Banking, Financial Services & Insurance (BFSI) Healthcare Pharma/Biotech Reduce operating costs Improve global delivery and operating models Redirect resources to more strategic activities Inadequate change management capabilities Inadequate management support Retained organization, transition, and governance challenges Energy management Cost reduction Improving the workplace to attract/retain talent

Future REFM Outsourcing Demand

Top REFM Process Demand Growth Areas

Top Industries for Demand

Top REFM Outsourcing Drivers

Top REFM Outsourcing Challenges

Top REFM Focus Areas Next 12 Months

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 8

Current REFM Outsourcing Usage and Market Demand Conditions

Current and Planned REFM Outsourcing Usage Trends
KPMG LLP (US) and KPMG Holdings Limited (UK) polled users of REFM outsourcing on what REFM process areas they have already outsourced, plan to outsource or have no plans to outsource in the foreseeable future (see Figure 2). It is important to note that this study surveyed organizations that have already undertaken or are actively planning to undertake REFM outsourcing, so the levels cited below are not representative of the market as a whole, but rather of organizations that are already actively engaged in REFM outsourcing. The most commonly outsourced REFM process area by firms that have undertaken REFM outsourcing was workplace services. This includes activities such as janitorial, cafeteria and amenities services. Sixty percent of respondent organizations have already fully outsourced workplace services, 27 percent have partially outsourced them and just seven percent have no plans to outsource this type of work. The second most frequently outsourced area of REFM services was facilities (e.g., HVAC, electrical, mechanical, building repair). These activities were fully or partially outsourced by 85 percent of survey respondents with just 11 percent having no plans to outsource these activities. REFM portfolio strategy and planning was the area least often outsourced, with just 22 percent of respondents having partially outsourced this more strategic work. Buyers: Current/Planned REFM Outsourcing Levels
Workplace services Facilities services Transactions/brokerage Lease administration Major project management ($20M+/project) Facilities management Project management (<$20M/project) Space management Real estate and facilities IT Portfolio strategy/planning

2% 4% 7% 2% 2% 48% 37% 11% 4% 46% 30% 20% 2% 33% 28% 7% 30% 2% 26% 33% 7% 33% 2% 4% 24% 47% 22% 4% 2% 20% 50% 24% 2% 2% 16% 43% 36% 5% 5% 11% 32% 48% 4% 2% 22% 72% 60% 27%
0% 20% 40% 60% 80% 100%

Currently fully outsource Planning to outsource in next 12 months No plans to outsource

Currently partially outsource Planning to outsource 12+ months out

Figure 2
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 9

Buyers were next asked about their near-term plans for additional usage of REFM outsourcing (see Figure 3). One-half of respondents plan to increase REFM outsourcing levels over the next one to two quarters, with just six percent planning to decrease usage. The number of buyers planning to outsource more REFM services over the next three to four quarters and 12 months out declined somewhat, to 36 and 44 percent, respectively, though overall it is clear the market is in a growth mode. Interestingly, REFM service providers were less bullish on short term market growth but more Q 4 - Buyers: Future RE M Outso rcing Us ge Pla positive on longer-term growth projections (see Figure 5 below). Buyers: Future REFM Usage Plans

12+ months out

7%

48%

44%

Next 3-4 quarters

64%

36%

Next 1-2 quarters

6%

44%

50%

0%

20%

40% No change in usage

60%

80%

100%

Decreased usage

Increased usage

Figure 3

The other dimension of the KPMG REFM Outsourcing Pulse survey is gathering input from the sell-side of REFM services on market demand and deal trends, characteristics and future expectations. To do this, KPMG polled leading global REFM service providers on the current and expected growth levels in their pipelines for services deals. Service providers polled in the inaugural REFM Pulse were bullish regarding new outsourcing deal pipeline growth projections. Fifty-eight percent of service providers cited pipeline growth over the past one to two quarters, while just one percent of service providers polled indicated pipeline growth had contracted (see Figure 4). It is important to note that the Pulse surveys measure change in pipeline growth levels, not absolute pipeline size or revenue levels. REFM service providers were next asked about their projections on buyer demand for REFM outsourcing over the next 12 months (see Figure 5). Just 21 percent of service providers expected demand levels to increase over the next one to two quarters, while an equal number expected demand levels to decrease. This is in contrast to much more aggressive numbers cited above by buyers. Part of the difference is likely due to estimations of when new business will hit the market and go into service provider pipelines (buyer projections) and when that business will actually consummate into new deals (service provider projections). The number of service providers expecting REFM outsourcing demand levels to grow increased for both

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 10

three to four quarters and 12+ months out. Higher longer-term demand projections from service providers were also tied to expectations for an improving economy in 2012 and less economic uncertainty among buyer organizations, a factor cited as slowing deal flow. Market events occurring as we put this document together (including the equity Prov crashes of early August 2011) br h this into question. Q4 - Service market ders: ipeline Grow ng Service Providers: Pipeline Growth

1%
Down relative to last 1-2 quarters

41%
About the same

58%
Up relative to last 1-2 quarters

Figure 4

Service Providers: Demand Projections

12+ months out

12%

16%

72%

Next 3-4 quarters

11%

37%

52%

Next 1-2 quarters

21%

59%

21%

Demand will decrease

Demand will remain the same

Demand will increase

Figure 5

2011 has been a very challenging year for the REFM service providers. While their business continues to grow, the marketplace remains very competitive. Buyers are being more aggressive with their pricing demands. Rather than renewing contracts, satisfied buyers are increasingly going to the market for competitive bids. There is more demand on service providers to reduce their pricing (e.g., management fee)

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 11

and to deliver additional cost savings. Also, some buyers are trying to shift more risk to the service providers, have guaranteed savings or, at a minimum, create more shared risk. Service providers are being increasingly asked to demonstrate more value in the energy management and sustainability arena. Buyers want service providers to have good site data, technology and systems to enhance their ability to monitor performance (cost and service) and make data-driven decisions. Buyers with large portfolios want service providers to have the flexibility, scope and scale to grow or shrink geographically with them when their business needs change. To some degree, buyers are asking their existing service providers to continually demonstrate the value they can add today and tomorrow as opposed to giving them a free pass based on what they have done before. It has been KPMGs experience that service providers with the right talent, combined with strong innovation, leading practices and continuous improvement programs, are the most successful in meeting this need. There are many players in the REFM marketplace and careful consideration of each service providers strengths and weaknesses is essential. A good approach is for buyers to assess their situation, consider the solutions that the market can offer, and then determine what level of integration makes the most sense for their firm. Dont force fit a solution that the marketplace cannot support (e.g., having a provider be responsible for a service that is not a core competency or operate in a region where it does not have an appropriate presence). A formal business process should be established and followed to ensure that the buyers requirements are clearly defined and understood, and the right service provider/s are chosen. Buyers that do this well will achieve the best results. Digging into the service provider expectations for increased REFM outsourcing demand going forward, providers were next polled on what they see are the REFM process areas where the demand for outsourcing is increasing (see Figure 6). Seventy-five percent of service providers cited increased demand for facilities management services (e.g., management of facilities services, workplace services, property management), with no providers expecting demand for these services to decline going forward. In contrast to buyers polled, service providers identified portfolio strategy and planning services as the next largest area of increased demand. While some of the difference is attributable to the different assumption on the degree of outsourcing of these activities (e.g., full, partial, minimal), it is likely that service providers are overstating how much actual outsourcing work is available related to these services, and providers often highlight their movement into these more strategic activities even if the volume of work outsourced is not significant.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 12

 The process area cited with the greatest potential for declines in demand, or at least the slowest growth, was for major project management services, defined as projects over $20 million in service fees. This is not surprising given the slow growth of major REFM projects by buyers in the market today due to current economic conditions and uncertainties. Service Providers: Demand by Process Areas Q5 - Service Pro iders: Deman
Facilities management Portfolio strategy/planning Space management Facilities services 4% Lease administration Project management (<$20M/project) 7% Real estate and facilities IT 7% Transactions/brokerage 8% 2% Workplace services Major project management ($20M+/project) Declining 20% Flat Increasing 39% 41% 42% 42% 51% 45% 57% 52% 51% 50% 47% 36% 25% 3% 31% 2% 33% 35% 75% 66% 65% 65%

Figure 6

Service providers were next polled on demand levels by vertical industry and industry group. Banking, financial services and insurance (BFSI) was clearly the top industry group, cited by 65 percent of service providers (see Figure 7). Healthcare was second, cited by 45 percent of service providers, while pharmaceuticals/biotech ranked third, selected by 39 percent of service providers. Across all geographies represented, BFSI was the strongest market segment, and there were also consistent demand levels cited for pharmaceuticals/biotech. Healthcare ranked higher in the Americas, and manufacturing higher in EMEA. Among buyer organizations participating in this study, BFSI, manufacturing, and pharmaceuticals/biotech were the top three industry groups represented. This distribution is a direction indicator of market demand but less authoritative than the direct service provider demand assessments.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 13

Service Providers: Demand by Industry

BFSI Healthcare Pharma/Biotech Energy/Utilities, Oil & Gas Manufacturing High Tech Products/Svcs Gov't, Education/Non-Profit CPG, Food & Bev., Retail, Wholesale Real Estate Bus Svcs/Consulting, Construction/Eng. Telco Transportation & Logistics Chemicals, Minerals/Nat. Res. Entertainment/Media, Hospitality/Travel Automotive Aerospace/Defense 65% 45% 39% 28% 25% 24% 24% 20% 13% 13% 12% 11% 10% 9% 8% 7%

0%

20%

40%

60%

80%

100%

Figure 7

While overall market demand growth for outsourcing remains positive, trends in REFM outsourcing are somewhat different from those in other areas of outsourcing, such as with ITO or back-office business processes (e.g., HR, F&A). KPMG research and client experience finds that buyers are not as aggressive at pursuing ITO and horizontal BPO deals as in the past, nor has the pace or size of new outsourcing deals picked up as much in 2011 as was predicted by some service providers and market pundits. Growth patterns have not followed the path they did when the global economy was coming out of the last recession in the 20032004 time frame, a period when both BPO and offshore outsourcing growth was significant. Specific to the REFM outsourcing market, buyers continue to add to often already significant outsourcing portfolios, but are also focused on consolidating portfolios that are frequently fragmented geographically, across many providers and many separate contracts. Results from the Winter 2010 edition of the KPMG Global Business Outlook Survey illustrate the trending in overall outsourcing demand. The Global Business Outlook Survey is a broad-based study of key global business indicators and another member of the KPMG Pulse family of market research studies. Figure 8 shows buyer sentiment on outsourcing trending among the 6,000+ survey respondents. Sixty-four percent of respondents indicate that their organizations will be doing the same level of outsourcing 12 months forward as at the time of survey, while 13 percent indicate outsourcing levels will increase. These totals are roughly in line with results from the past four quarters, which indicate that while the market is still growing, the pace is more measured than it has been in the past.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 14

Winter 2010 Global Business Outlook: Outsourcing Plans 12 Months Forward

100% 90% 80% 70% 60% % 7 4 8

50%
40% 30% 20% 10% 0% Oct 09 Feb 10 4

65

% Don't know % Lower % Same % Higher

Jun 10

Oct 10

Feb 11

Figure 8

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 15

Top REFM Outsourcing Drivers, Challenges, and Service Delivery Model Approaches
There are a variety of factors that drive organizations to undertake REFM outsourcing just as there are an increasingly broad array of benefits they seek to gain from their efforts. While outsourcing has always been about reducing costs, this goal is not as monolithic as is often perceived in the market. As outsourcing buyers become more sophisticated, so do the benefits they seek from outsourcing. Reducing costs is a base level goal for buyers and a base prerequisite deliverable for providers competing for the business. But the ultimate benefits from outsourcing and differentiators for service providers are the benefits derived or provided above and beyond cost reduction. The key for buyers defining outsourcing goals is to ensure that their scope and level are practical and achievable given the nature of the outsourcing effort and in the context of buyers own outsourcing skills and capabilities. KPMG polled both buyers and service providers on what they see as the top drivers for REFM outsourcing in the market today. While reducing operating costs is clearly the top driver, results highlight the broad mix of goals organizations have for their REFM outsourcing efforts. Both buyers and service providers identified reduce operating costs as the top driver (see Figure 9). There was consensus among service providers across all major geographies on the prevalence of cost reduction as a driver. The second most common driver cited by buyers (41 percent) was improve the performance of REFM processes. This benefit was identified by a lower number of service providers at 32 percent. The benefit ranked second by service providers (45 percent) was improve global delivery and operating models. Thirty-three percent of buyers cited this goal. There was general consensus on most responses from service providers across geographies, though providers in Asia Pacific were much more likely to cite support business growth and expansion agendas as an REFM outsourcing driver, and those operating in the Americas were more likely to cite gain economies of scale.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 16

Top REFM Outsourcing Drivers

Reduce operating costs (OpEx) Improve process performance Improve financial flexibility/create more variable cost model Support business growth/expansion agendas Improve global delivery & operating models Redirect resources to more strategic activities Reduce future investment costs (CapEx) Gain economies of scale Gain access to external skills/talent/resources No specific reasons/many competing reasons 0%
Service Providers

20%
Buyers

40%

60%

80%

100%

Figure 9

A variety of confluent factors can combine to complicate, slow, and, in some cases, stop an organizations outsourcing efforts. Whether or not it can overcome these challenges depends on a variety of factors including its ability to identify and address them as early in the process as possible. As outsourcing efforts become more complex, far-reaching and global in nature, the challenges to deal consummation grow. The key point is for buyers to identify challenges early, and then work to address and overcome them, if possible, after determining they are legitimate impediments to going forward with a major change effort. KPMG polled buyers and third-party REFM service providers to identify the current most common challenges to successful REFM outsourcing efforts (see Figure 10). There were some differences of opinion between buyers and service providers on these challenges, and no one challenge was viewed as predominant among buyer respondents. Prioritizing opportunities and different change programs and economic uncertainty and inability to plan medium/long term were the top challenges cited equally by 33 percent of buyer organizations. These were followed closely by several other challenges including retained organization, transition and governance challenges (31 percent of buyers) and inadequate change management capabilities (27 percent). Highlighting a general market consensus on the value of REFM outsourcing, fewer than 10 percent of buyers identified inadequate business case as a challenge.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 17

 Service providers exhibited different opinions on the most common challenges to REFM outsourcing. While a similar percentage of providers as buyers indentified prioritizing opportunities as a challenge, the top challenge cited by over 40 percent of providers was inadequate change management capabilities. This was followed by inadequate executive and management support for REFM outsourcing, selected by 38 percent of service providers. Service providers were more likely (20 percent) to cite inadequate business case as a challenge. Service providers operating in Asia Pacific were the most likely to cite retained organization, transition and governance as a challenge, but interestingly, were less likely to cite inadequate change management, while providers operating globally and supporting larger, more global deals were the most likely to identify this challenge. Top REFM Outsourcing Challenges
Prioritizing opportunities & dif. change programs

Econ. uncertainty/inability to plan med /long term

Retained org./transition/gov. challenges Quality/fit of supporting service providers Inadequate change mgmt capabilities Accounting for/managing complexity of change efforts External bus. event (e.g., new management, M&A) Compliance and reg. challenges/restrictions Inadequate executive/mgmt support Costs to do the deal Inadequate business case

0% Service Providers

20% Buyers

40%

60%

Figure 10

Overall, challenges with change management, conducting a successful transition, interfacing with the retained organization and ongoing outsourcing governance are the areas and activities that are often identified as the weak links in outsourcing efforts and the root causes of many outsourcing problems. The 3Q10 EquaTerra Global Pulse survey did a deeper dive into issues and challenges related to outsourcing transitions in particular. In those research findings, there was consensus that a good transition effort is key to the long-term success of an outsourcing engagement. The key to a successful transition is adequate, skilled staff and resources to undertake it. While the need for these resources is typically recognized by outsourcing buyers, getting them into the field can prove difficult, especially in tight economic times. For example, some providers are expressing concerns over an increasing number of buyers reticent to adequately fund and budget for transition, demanding a low-cost approach up-front, but then being disappointed

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 18

with receiving a low-cost deliverable. This is an important challenge that buyers and service providers must reconcile. There are different approaches buyers can use to address the challenges associated with successfully consummating outsourcing efforts. The most important is to identify up-front where they exist, and prioritize working through them. In some cases this involves employing more resources, in a more structured approach, to address a challenge such as outsourcing governance concerns or lack of management support. In other situations it may involve modifying the scope of an outsourcing effort, for example, by scaling back the aggressiveness or timing of an effort to make change management challenges more manageable. Regardless, a rigorous and proactive approach to overcoming these challenges is the key. Often the delivery and governance models employed by a user of REFM outsourcing contribute to the success or lack thereof in achieving the benefits sought from the effort. The models that worked best, or at least worked when organizations outsourcing efforts and ambitions were more modest and regional in nature, for example, will often break down and prove inadequate as outsourcing efforts expand in terms of process and geographic scope. This is especially the case with REFM outsourcing. KPMG polled REFM outsourcing buyers and providers on changes to demand and preferences for a range of outsourcing delivery and management model options. The emphasis was on to what degree were buyers moving toward a more holistic and integrated management model across the totality of their REFM outsourcing efforts. The supposition tested is that as buyers become more sophisticated and their outsourcing efforts more complex, they will move toward a more portfoliobased approach to managing their outsourcing efforts. Respondents ranked changes in service delivery model preference on a one to five scale, where one represents significant decrease in preference or demand and five represents significant increase in preference or demand. (see Figure 11). There was general consensus between buyers and service providers on the direction of change in demand for various REFM sourcing models. Scored highest by buyers at 3.27 on the one to five scale was bundle increasing number of individually contracted services, but retain internal control over high-level management functions of services. Service providers scored this approach even higher at 3.57. Ranked a close second by buyers at 3.23 was bundle and outsource increasing number of individually contracted services, and outsource key management functions of services in a model such as Integrated Facilities Management (IFM), including transfer of personnel to provider. Providers ranked this approach at 3.87. These results support the trend toward more bundling of REFM deals, as well as the growing acceptance among buyers to have service providers perform key management functions over those outsourced activities.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 19

 Ranking on the lower end of the scale were trends of continuing to manage multiple services with individual contracts and reversing REFM outsourcing investments by insourcing services currently provided by service providers. Change in Service Delivery Model Preferences
Bundle individually contracted svcs, but retain high-level mgmt functions of svcs Bundle & outsource increasing number of individually contracted svcs, and outsource key mgmt functions of svcs Bundle individually contracted svcs & outsource key mgmt functions of svcs Insource services currently provided by service providers Continue to manage multiple services with individual contracts 1.00 2.00 3.00 4.00 5.00

1=Significant decrease in preference/demand, 5=Significant increase in preference/demand

Service Providers

Buyers

Figure 11

Additional REFM Market Trending

The Pulse survey assessed market trends in several other areas of the REFM marketplace. The first focus was on how buyers interest levels or preferences toward six dimensions of REFM are expected to change over the coming year (see Figure 12). Responses were given using a one to five scale, where one represents significant decrease in preference or demand and five represents significant increase in preference or demand. The top ranked theme according to buyers scoring a 4.0 on the five point scale was energy management. This topic also received top ranking by REFM service providers. Overall, there was consensus between buyers and service providers across most of the six topical areas. The cost reduction theme came in a close second and the highly visible trend and theme of sustainability and corporate responsibility was ranked third by buyers and fourth by service providers. Overall, there was a close clustering of scores for all themes and topics highlighting the collective importance of all of the topics to REFM services buyers. There were no major differences in scores from providers from different geographies, though providers in Asia Pacific tended to rank all themes a bit higher than peers in other regions.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 20

Changes to Buyers Interests/Preferences Relative to Key REFM Topics Rela ive to Key REFM Topic
Energy management Cost reduction Sustainability and corp. social responsibility Improving the workplace to attract/retain talent Partnering/supporting internal customers Space reduction 1.00 2.00 3.00 4.00 5.00

1=Significant decrease in preference/demand, 5=Significant increase in preference/demand

Service Providers

Buyers

Figure 12

The survey next assessed buyer organizations future plans relative to the use of office space. This topic was addressed straightforwardly by asking respondents if they or their clients increase space utilized over the coming year, decrease space utilized, or make little change to the amount of space utilized. There was a marked difference of opinion between buyers and service providers on expected space usage plans (see Figure 13). Forty-eight percent of buyers surveyed indicated their organizations would increase space utilized over the coming year, compared to just 14 percent of service providers that felt their clients would expand space usage. Thirty-five percent of buyers and 49 percent of service providers expected decreases in space usage. This difference of thought is a good example of the difficulty in projecting future needs in the current business climate. However, one thing is certain: buyers and service providers will need to be able to respond to the unexpected in a timely and responsible manner, whether it results in footprint changes, changes in floor density or changes in service levels.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 21

Future Space Utilization Plans

We will increase space utilized

There will be little change in total space utilized

We will decrease space utilized

Unsure 0% 10% 20% Buyers 30% 40% 50%

Service Providers

Figure 13

The next topic explored was an assessment of what buyer organizations feel are the most critical needs in an REFM reporting system. A well-designed reporting system provides buyers and the service providers with site information, as well as cost and performance information, including service level data. Having accurate, timely, complete and useful information is an important element of a successful REFM outsourcing program. It ensures operational and performance data is appropriately reported and monitored. Buyers data and systems prior to outsourcing REFM have not always been adequate. Thus, service providers have not always inherited good data or well-managed systems. The key needs cited in these systems are in alignment with some of the key priorities identified and with the key drivers and benefits sought from REFM outsourcing (see Figure 14). Cost data was the top cited need identified by over 70 percent of both buyers and service providers polled. Ranked second by both constituencies was performance reporting and service level data and information. Business intelligence, as an extension of both cost and performance data, was explicitly identified as a key need by 40 percent of both buyers and service providers. There was consensus among providers across geographies on the importance of cost data, but providers operating in EMEA were more likely to cite the importance of performance and service levels reporting. Similarly, providers in EMEA and Asia Pacific were more likely to cite the importance of building, asset and real estate information than those in the Americas or supporting global deals.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 22

REFM Reporting Systems Needs

Cost data Performance reporting and service levels Business intelligence Lease administration Building, asset and real estate information Transaction management Project management Space planning

Business process and work-flow management 0% 20% 40% 60% Service Providers 80% 100% Buyers

Figure 14

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 23

Update on Global Sourcing

Buyer Global Sourcing Preferences and Demand Levels
KPMG polled REFM buyers and third-party service providers on various trends related to global sourcing of REFM services. While global or offshore outsourcing is a major dimension and occasionally controversial aspect of ITO and horizontal BPO, it is somewhat less a factor in REFM outsourcing given many REFM services in scope for outsourcing must be performed on-site at client locations. This being said, global sourcing is an important dimension of REFM outsourcing and enabling an EGE service delivery model and framework, even if on a less impactful scale than in other outsourcing categories. Buyers ranked their own preferences and demand levels, and service providers ranked the same for their clients, for six different types of global sourcing models. Demand was ranked on a one-to-five scale, where one represents significant decrease in preference or demand, three represents no change, and five represents significant increase in preference or demand (see Figure 15). Both buyers and service providers polled scored domestic outsourcing the highest at 3.36 and 3.58, respectively. All other models were scored similarly. These results illustrate growth in buyer demand for global sourcing, though preferences and demand levels for all service delivery models are similar with services growth typically following the geographic footprint expansion of its users. Hence, as more western firms set up operations in China, for example, demand for REFM services in that market will grow, but to serve the local Q32 C t B ' i markets.

Buyer Global Sourcing Interests/Preferences

Domestic outsourcing Nearshore captive shared services centers Offshore outsourcing Offshore captive shared services centers Domestic shared services centers Nearshore outsourcing 1.00 2.00 3.00 4.00 5.00

1=Significant decrease in preference/demand 5=Significant decrease in preference/demand

Service Providers

Buyers

Figure 15

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 24

Buyer Global Sourcing Maturity and Sophistication

More critical than where services are sourced from globally is the maturity level of buyer organizations to conduct global sourcing well, regardless of location. Buyers undertaking global REFM sourcing efforts exert much focus on selecting which service provider to employ and from what locations to source services. This assessment process should include a clear and realistic evaluation of a buyers own maturity and sophistication relative to sourcing and managing global sourcing efforts. A common root cause of problematic or underachieving global sourcing efforts is a disconnect between what a buyer is trying to accomplish and the skills, experience and resources it possesses to support these efforts. These skills involve selecting providers and locations, accounting for and managing risk, and governing a growing number of sourcing efforts spread across multiple providers and locations. KPMG polled REFM buyers and service providers to assess buyers self-assessed maturity and sophistication relative to various global sourcing skills and how skilled service providers felt their clients were when it comes to global sourcing. Respondents were asked to rank their perception of buyer skills on a one-to-five scale, where one represents very immature or unsophisticated and five represents very mature or sophisticated (see Figure 16). Results show that overall there is room for improvement across all of these global sourcing capability sets though buyers are more positive on their skill levels than are their service providers. REFM service providers overall did not score buyers above the midpoint on any of the five skill sets assessed. The highest score given was 3.00 for service provider selection and assessing service providers global delivery capabilities and assessing and accounting for data, data privacy, and intellectual property risk. Service providers scored buyers the lowest at assessing/accounting for geopolitical and service provider risk, though the range from the top to bottom scores is small. Buyers also ranked themselves the highest at service provider selection skills as well as managing and governing multiple engagements and service providers across multiple functions, geographies, etc. The positive score on multisourcing and governance is interesting given that it is in this area where KPMG most often sees organizations struggle with global sourcing efforts. Again, the top to bottom range of scores was relatively small.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 25

Buyer Global Sourcing Capabilities

Service provider selection/assessing service provider's global delivery capabilities Managing/governing multiple engagements & providers across multiple functions, geos, etc. Assessing/accounting for data, data privacy & IP risk Assessing/accounting for geopolitical & service provider risk Service delivery geographic location assessment

1.00 Service Providers

2.00 Buyers

3.00

4.00

5.00

1=Very immature/unsophisticated, 5=Very mature/sophisticated

Figure 16

As buyers appetites to source more services globally continue to grow, so too should their capabilities to source and manage these efforts. This is at the heart of the EGE model and maturity framework. Similar to REFM outsourcing deal challenges discussed above, the first step is to recognize the challenge and apply adequate and skilled resources against it. This is a multidisciplinary effort that extends leading practices related to sourcing, selection, transition, outsourcing governance and multiprovider management to account for additional challenges and nuances introduced from increased globalization of service efforts. As the scope and complexity of buyer global sourcing efforts continue to grow, this will remain an ongoing challenge, with the bar for leading practices continually being raised. One means to improve global REFM sourcing capabilities is to take more of a portfolio approach to managing global efforts, similar to taking a portfolio approach and bundling more REFM outsourcing deals overall, as addressed above. This need grows as global sourcing becomes more pervasive and accounts for more of an organizations global services footprint. However, tightly coordinating and managing sourcing efforts globally is still a goal to which most organizations aspire. Buyers were polled on both how they manage existing global REFM sourcing efforts and how they plan to manage new efforts going forward. Among buyers polled that are utilizing global sourcing as part of their REFM outsourcing effort, 23 percent are taking a portfolio approach to managing existing deals in the field (see Figure 17), with 13 percent employing an enterprise sourcing center of excellence (CoE) and 10 percent utilizing a less sophisticated enterprise sourcing council. The majority are managing efforts organized around geography, business unit or functional area.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 26

 Buyers undertaking new REFM outsourcing efforts are much more focused on managing them globally (see Figure 18). Here, 34 percent are taking a global model using either a sourcing CoE or council while 49 percent will continue to manage and organize efforts around geography, business unit or function. Service providers polled cited similar results for how their clients manage both G existing and new REFM outsourcing efforts. Management and Governance of Existing Global REFM Efforts
Most existing efforts are managed & governed independently Most existing efforts are grouped, managed and governed by geo, bus. unit, function, etc. Most existing efforts are managed & governed by an enterprise sourcing council Most existing efforts are managed & governed by an enterprise sourcing CofE

% 0%

Figure 17

Management and Governance of New Global REFM Efforts

%
Most new efforts sourced are handled independently New efforts sourced are coordinated by geo., bus. unit, function, etc. New efforts sourced are coordinated globally

4 %

Figure 18

Many buyers today still view global sourcing as a series of discrete options and capabilities (e.g., internal services, shared services, offshore captives, ITO, BPO) rather than a continuum of integrated service models. This is similar to the legacy perspective of viewing offshore outsourcing as a point-to-point initiative (for example, from the United States to India) instead of an integrated suite of global service delivery capabilities.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 27

The reality today is that organizations should develop a holistic strategy and operational model to support the totality of their businesses and IT services operations. This includes how to source and manage these capabilities, as well as how to continually improve their overall efficiency and effectiveness. While leading organizations have made progress, for example, in governing their outsourcing efforts as a portfolio via a portfolio model as cited in the above Pulse survey responses, often these efforts are disconnected from the management of internal retained operational systems and functions as well as the strategy and execution of sourcing of new investments. In short, buyers capabilities to source and manage a diverse services delivery portfolio have often not kept up with their sourcing ambitions scale and scope.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 28

Current Market Deal Characteristics: Service Providers Perspectives

The final section of the 2011 global REFM outsourcing Pulse survey assessed the characteristics of current REFM outsourcing deals in the market from the perspective of the REFM service providers polled.

Pricing Competitiveness
Increased pricing competitiveness implies the buyer has the upper hand and is getting a better priced REFM outsourcing deal. As pricing is one element of determining profitability, the alternative of less competitive pricing generally is favorable to the service provider. The consensus for the past three years among most types of outsourcing service providers has been that buyers are getting more aggressive with their pricing demands. Fifty-seven percent of REFM service providers polled agreed with this sentiment and indicated that pricing pressure is increasing for new deals in the pipeline, while just three percent felt that pricing pressure was 1 S i eP i er : P i i m et tiv s lessening (see Figure 19). Service Providers: Pricing Competitiveness

3%

More competitive/aggressive

40%

About the same as last quarter

57%
Less competitive/aggressive

Figure 19 While there is a strong desire among buyers today to get more aggressive with pricing, a number of factors ultimately can temper final pricing level demands. More experienced buyers generally recognize that the lowest price may not lead to the best deal. Buyers today also are averse to risky deals and deal failures that could occur from bad pricing levels. Buyers can reduce overall spendthe ultimate goal by lowering consumption levels, but still pay an equitable unit price for services that help ensure they get the providers top resources. The need to access quality skills via third-party providers can also temper low pricing demands if it means limiting access to top provider talent and resources.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 29

Service providers influence pricing competitiveness by the extent of their own aggressiveness in pursuing deals. More service providers in the market today are increasingly selective about the clients and deals they pursue. Service providers are more closely assessing the risk profiles of clients they are pursuing, and adjusting their pricing accordingly. Providers continue to look for ways to reduce operating costs and overhead to meet their current contract commitments, pushing price-competitive policies regardless of the economic downturn. The net result is more aggressive pricing in the market, but not routinely egregious pricing terms, at least for top-tier service providers or less desirable buyers.

Contract Profitability and Ability to Increase Scope

A variety of factors affect service provider profitability, including deal scope, transition costs and time frames, exchange rates, wage inflation and buyer pricing sophistication. Service providers with a higher mix of remote/low-cost resources put pressure on the profitability of competitive peers with fewer lower-cost resources, though this differentiator is not as great in the REFM space as, for example, it is with ITO. The biggest factors impacting contract profitability today are buyer pressure on pricing and aggressive competitiveness between providers, along with some buyer pull-back on more profitable discretionary services and an increased focus on cost-cutting over process improvement work. REFM service providers are generally pessimistic on profitability trending on both new deals they are pursuing and existing deals in flight (see Figure 20). This level of pessimism is greater in the REFM market segment than in the back-office BPO and ITO market as registered in other KPMG Pulse surveys. Just 12 percent of REFM service providers polled indicated that contract profitability is improving in new deals signed, while 44 percent indicated that profitability is declining in new contracts. Nineteen percent of service providers expected to improve contract profitability in existing deals in flight for more than one year, while 22 percent indicated existing deal profitability is declining.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 30

Service Providers: Contract Profitability, New and Existing Deals

12%
Contract profitability is declining

44%
Contract profitability is about the same

44%

Contract profitability is improving

19%

22%
Contract profitability is declining Contract profitability is about the same Contract profitability is improving

59%

Figure 20 Figure 21 illustrates REFM service provider expectations about their ability to increase scope, ideally in a profitable manner, in current accounts. Providers today are focused on growing business in existing accounts not only because pursuit costs are lower than competing for new business but also because it protects their base as buyers rationalize suppliers and cut back on spend levels. Seventy-eight percent of providers polled expected to increase scope in existing deals while just two percent expected contract scope to decline. The positive opinion on the ability to increase scope in existing accounts indicates that while buyer demand for outsourcing remains strong, service providers need to push hard to expand business, particularly at a time when buyers are rationalizing and consolidating their service supplier base. Consolidation trends are tending to benefit larger and more established global REFM service providers.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 31

Service Providers: Ability to Increase Deal Scope

2% 20%
Contract scope will decline Current contract scope will remain about the same

Contract scope will increase

78%

Figure 21

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 32

Where to Learn More about Global Sourcing Market Trends

The legacy EquaTerra website and research library was rebranded after the KPMG* acquisition, and is being maintained as a central hub and resource for data, research and thought leadership on global sourcing trends, issues and leading practices. Information in the research library is organized by function (e.g., REFM), industry, topic and phase of the sourcing lifecycle. The EquaTerra blog, Advice Worth Keeping, is another source of relevant news, research and opinion on the global sourcing market. There is also extensive information available on global sourcing trends, issues and futures available on regional and KPMG member firm websites.

Service Provider Performance and Satisfaction Market Studies

On an ongoing basis, KPMG International and KPMG member firms conduct broadranging market studies on Service Provider Performance and Satisfaction in both ITO and Finance and Accounting Outsourcing (FAO). The ITO studies cover all major European markets, and the FAO program is global in nature. These studies survey and interview buyers actively engaged in outsourcing efforts with a named set of leading market-specific providers. The research unveils direct insights into buyer opinions on service provider performance levels, and also assesses and interprets general outsourcing demand and activity trends in the markets covered. Market coverage and due dates for the next editions of these studies are as follows: U.K. (next release 4Q11) Netherlands (released 2Q11) BeLux (released 2Q11) Nordics (released 2Q11) Germany (next release 4Q11) Pan-European ITO (next release 4Q11) Global FAO (next release 4Q11) Executive summary reports for all of the completed research efforts are available free of charge, and complete results are available for a fee by contacting Stan Lepeak at slepeak@kpmg.com.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 33

Conclusions
We offer the following conclusions from the inaugural global REFM outsourcing Pulse survey: Global demand for REFM outsourcing remains strong and continues to grow. Nearly all polled buyers undertaking REFM outsourcing expect to maintain or increase outsourcing usage in the short-to-medium term. REFM service providers cite current growth in their outsourcing business sales pipelines and expect that growth to accelerate in 2012. The greatest growth expectations came from REFM providers operating globally and supporting global outsourcing efforts. The biggest focus areas for REFM outsourcing among buyers are workplace services, facilities services and transaction and brokerage services. Service providers see near term increased growth opportunities in these areas as well as in facilities management, and even in more strategic areas such as portfolio strategy and planning. From an overall topical REFM perspective, the top themes buyers will focus on over the coming year are energy management, cost reduction efforts and addressing sustainability and a corporate social responsibility agenda. The key is to determine how, when and where REFM outsourcing can help address these issues. A dominant theme in the REFM outsourcing market today is consolidation. REFM outsourcing buyers are aggregating existing outsourcing efforts spread across multiple service providers, geographies, contracts and functional areas. This plays to the strengths of the larger, more global and diversified service providers. Buyers are striving to bundle together more existing and new REFM deals and, while typically they want to maintain overall management control of these services bundles, they are increasingly open to ceding more of that management control to the providers performing the underlying services. Reducing operating costs is the top driver for organizations undertaking REFM outsourcing, but buyers also seek a variety of other benefits above and beyond cutting costs. These include improved REFM process performance, improved financial flexibility, creating a more variable cost model and supporting global business growth and expansion agendas, especially into emerging markets. As a result, a key challenge is to balance cost cutting and process improvement and related agendas and needs. Buyers continue to face many challenges to successfully undertake new REFM outsourcing efforts and consolidate efforts already in flight, especially when pursued across multiple functional areas and on a global scale. The top challenges cited include prioritizing the broad range and number of REFM outsourcing opportunities and related change programs, addressing the economic uncertainly that makes short-to-medium term planning difficult, and addressing challenges related to retained organization, relationship management and outsourcing governance issues.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 34

 The globalization of the REFM service market tends to follow the globalization of buyer organizations geographic footprint that these REFM services support. As buyers expand into emerging markets, for example, the demand for outsourced REFM support services in those markets grows. So while in contrast to most ITO and horizontal BPO efforts, REFM outsourcing is not so much about shipping services back to the west from lower-cost offshore markets. This being said, REFM buyers still need to improve global sourcing skills, especially as they relate to managing multiple efforts across multiple providers and geographies, consolidating efforts to gain economies of scale, and better accounting for and dealing with regulatory, data and intellectual property risks and challenges. The key to buyer success in global sourcing is to define, deploy and optimize the mix of global service delivery models employed as part of the adoption of an extended global enterprise model. Remember, REFM outsourcing is a journey and it needs to be clearly understood and mapped out. What is right for one company may or may not be right for another firm. Buyers should not take the easy path by just copying what another end-user organization is doing. There is much work that needs to be done to be an informed buyer. Before outsourcing, buyers should perform a careful evaluation of their companys business needs, the capabilities of the marketplace, and the solutions available.

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 35

Contact us Americas Houston Tel: 1 713 319 2000 Europe, Middle East and Africa, Asia Pacific London Tel: (020) 7311 1000 For country, industry and servicespecific contacts, please visit: www.kpmg.com/Global/en/Pages/ contactus.aspx For information and research on outsourcing, shared services and internal improvement, visit www.equaterra.com/library

About KPMG KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. About EquaTerra EquaTerra was founded upon the principle of helping clients achieve sustainable value in their IT and business processes through internal transformation, shared services and outsourcing. On February 18, 2011 the business of sourcing advisory firm EquaTerra, Inc. and its subsidiaries was acquired by KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG International.

2011 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG name, logo and cutting through complexity are registered trademarks of KPMG International Cooperative (KPMG International). The EquaTerra name and logo are trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

24656NSS_3165_Sept2011