Facilities Specialists Scoop Real Estate Management Contracts

Copyright: David Lawson - published Property Week April 2006

Home Page

When Johnson Controls took over US real estate manager USI last summer, little interest registered on this side of the Atlantic. Yet this faraway deal could signpost a revolution in the UK property industry.   The significance of the merger became clearer last month when Agilent Technologies, a spin-off from electronics giant Hewlett Packard, handed Johnson full responsibility for 12m sq ft of space in 30 countries.  In one step, a facilities manager had made massive inroads into the realm of property management.

  The two strands have been imperceptibly merging for some time as consultants from both sides edge into each other’s territory.  But skirmishing is turning into open warfare.A major battle broke out closer to home late last year when some leading UK names pitched for control of Barclays’ properties and came away licking their wounds. Mowlem, a support services group, won the day.  The five-year contract integrates project management, facilities and estates management across a 7m sq ft (650,316 sq m) portfolio, including the new 1m sq ft (92,902 sq m) global headquarters in Canary Wharf. It will include property management such as lease renewals, rent reviews, acquisitions and disposals.

  This probably won’t be the last victory.  Carillon has provided extra firepower by taking over Mowlem to create one of the UK’s largest support services and construction companies with a combined order book of around £9bn and over 40,000 employees.Could this be a killer blow for property managers already struggling to make a living in the face of fierce fee-cutting?

  Not everything has gone the way of facilities managers. CB Richard Ellis won a similar deal last year from Computer Sciences Corporation, one of the world’s biggest computer support groups, to look after its portfolio of more than 17m sq ft. And Jones Lang LaSalle, which ran a close second to CBRE, has taken on a global contract covering 13m sq ft for Sun Microsystems. Big names have been preparing for this war for some time. While most major property consultants employ facilities managers, mergers have added extra weight from partners in the US, where FM is more integrated into real estate management. DTZ steered its own path, moving early into corporate real estate advice, which has expanded into FM, and is bidding for major deals.   

  But there may be still some way to go for property consultants to create a comprehensive service which can compete with giant support services rivals.  CSC, for instance, may have handed FM to CBRE in the US and Asia, but Johnson Controls has kept a hold on Europe. Barclays is also using Atkins Asset Management for its 2,000-strong retail branch network. This move to single contracts reflects changing attitudes by businesses becoming increasingly global as they move operations to low-cost countries, says Dom Cherry, a vice president at Johnson Controls. They want a single point of contact which will control all these far-flung responsibilities.

Occupiers rarely draw boundaries between FM and areas such as lease management in the same way as property professionals, so they see no problem in merging all the services.  Accounting changes which demand detailed information on property liabilities are also forcing convergence. Facilities managers have a vital advantage as they have close, everyday contact with clients, so they are beginning to take wider responsibilities. Johnson has just won a commission from a top name to appraise its global portfolio, looking not just at how services are run but real estate issues such as leases and potential disposals.

  Cherry believes this trend will continue as facilities managers become more involved in strategic decision making. Property gores through a lifecycle of buying, fitting out, management and disposal. ‘In the past we have been involved only in the middle section,’ he says. ‘Yet we are better qualified to decide on things like buying and selling because we know what businesses need.’  A property manager would choose a new building based on financial criteria such as rent, although the facilities manager knows it is wrong for the occupier’s business. Disposals are often based on similar judgements about which building is easiest to market rather than which is least necessary for an efficient business operation.

  Ironically, this idea of integrated property management originated in the UK but has been largely ignored with the shining exception of Land Securities, which bought facilities manager Trillium to create a unified service.   Property consultants will now need to consider widening their approach or face a huge threat to their traditional territory. Facilities managers have had a taste of extra business and will not be slow in seeking more. Property managers are up against some hefty opposition from established giants in the battle to break into facilities management. The top ten alone have an annual turnover of more than an £8bn. But Land Securities has shown the potential, rising to second place in the list since taking over Trillium.

Top 10 UK Facilities Services Companies by Turnover

[Source: www.i-fm.net]

  1. Serco Group £1661.7m
  2. Land Securities Trillium £1054.5m
  3. MITIE Group £949.3m
  4. Sodexho UK & Ireland £931m
  5. Rentokil Initial £912.4m
  6. Morrison Support Services £576.6m
  7. Mowlem Support Services* £564m
  8. ISS UK £505.1m
  9. OCS Group £486.8m
  10. Interserve Facilities Services £444.2m

* Carillion’s  purchase of Mowlem could push the enlarged group to number 4