Essential human elements in outsourcing for real estate investment management

Introduction  

In an era where operational efficiency has become a lever for value creation, real estate investment managers are increasingly using outsourcing as a transformative strategy to generate efficiency.

Real estate businesses that used to build and manage properties for their own purposes (such as retail, office, or logistics) are new focusing on investment and fund management. They are offering asset management services to third-party investors.  By outsourcing non-core activities, they can focus on other value-added capabilities like asset acquisition, capital acquisition, and investor relations.

Investment managers who manage funds from pensions, insurance premiums, and other sources are also outsourcing to become leaner and more specialized. By leveraging specialized expertise and advanced technology for investment management, risk and performance reporting, outsourcing helps them streamline and scale operations, mitigate risks and optimize costs.

However, the success of outsourcing hinges on more than just selecting the right vendor or technology; it depends on people, which is often overlooked in cost and efficiency analyses.

This article explores key outsourcing trends in the real estate sector and orthodoxies that may hinder successful transformations. By debunking these myths, we highlight the importance of employee engagement and management for smooth transitions.

We discuss how thoughtful strategies can achieve operational excellence and cultivate a more cohesive workforce in real estate asset management.

Outsourcing trends transforming real estate investment management

In today’s challenging real estate investments environment, strategic decisions are crucial for improving efficiency, scalability, profitability, and leverage innovation. The sector has been transforming for years, with changes speeding up due to successive crisis. Players are exploring different ways to optimize their operating models, including rationalizing activities, updating organizations, and revisiting technology or sourcing strategies. We highlight four key outsourcing trends reshaping real estate, along with the benefits and rationale.

1. Outsourcing finance: SPV and property accounting, tax planning and compliance 

Special Purpose Vehicles (SPVs) are essential structures in real estate investments for capital deployment and financing. Outsourcing a corporate secretary, accounting and tax reporting functions provides asset managers with scalability, broad geographical coverage, and solutions to skill shortages. These non-core, low-added value tasks can be efficiently managed by specialized providers, ensuring scale, local compliance, and ensuring timely financial reporting.

2. Outsourcing property and facility management 

Effective property management is key to successful real estate asset management, covering tenant relations, maintenance, and financial performance. By outsourcing property management, maintenance, and facility management, asset managers can focus on strategic asset selection, allocation and growth. Specialized services ensure properties are maintained to market standards.
 

3. Rationalization of service providers

A key trend is the rationalization of service providers. Outsourcing may have led to fragmented operations across different countries, but rationalizing service providers helps streamline processes, reduce redundancy, and enhance coordination. Consolidating services under fewer, more capable providers, managers intend to reap significant benefits including synergies generation, and stronger vendor relationships.

Rationalization boosts operational efficiency, reduces risks and optimizes costs. Service providers are also evolving to improve service quality and extend asset and geographic coverage to meet market demand for more integrated services.
 

4. Harmonizing functions through centres of excellence and shared services centres 

As outsourcing becomes essential for real estate investment management, harmonizing various functions through centres of excellence and shared services centres is a significant trend. This strategy aims to centralize expertise, standardize practices, and ensure consistent management of outsourced activities.

Creating centres of excellence centralize specialized knowledge and resources, serving as hubs for best practices, training, and development, while ensuring high standards and strategic alignment. They usually conduct oversight functions on outsourced services across the organization. In contrast, shared services centres handle operational tasks such as SPV accounting and compliance, often located in regions with lower labor costs or more available skills.

Benefits include improved coordination across geographies, reduced operational fragmentation, and consistent performance metrics. These centers enhance monitoring, issue resolution, and continuous improvement, by sharing insights and innovations across teams. This drives efficiency in managing outsourced services.

Benefits and challenges of revisiting sourcing strategy

Outsourcing to external providers can bring significant benefits, such as cost savings and access to specialized expertise. But there is more, such as:

• External providers offer specialized expertise and familiarity with regulatory frameworks, local practices, and regulations.
• Reduction in overhead and salary costs associated with maintaining an in-house team. Example: Deloitte-led projects for pan-European Real Estate companies forecasted results of a 10% to 35 % decrease in internal operational costs.
• Third-party providers can scale their services to match the dynamic needs of the asset portfolio, ensuring flexibility.
• Allows asset managers to allocate resources towards core business activities, driving investment performance and enhancing ROI.
• External firms possess deep market knowledge and strategic insights, optimizing leasing strategies and enabling better-informed, data-driven decisions.

Outsourcing to external providers can bring significant benefits, such as cost savings and access to specialized expertise. But there is more, such as:

• External providers offer specialized expertise and familiarity with regulatory frameworks, local practices, and regulations.
• Reduction in overhead and salary costs associated with maintaining an in-house team. Example: Deloitte-led projects for pan-European Real Estate companies forecasted results of a 10% to 35 % decrease in internal operational costs.
• Third-party providers can scale their services to match the dynamic needs of the asset portfolio, ensuring flexibility.
• Allows asset managers to allocate resources towards core business activities, driving investment performance and enhancing ROI.
• External firms possess deep market knowledge and strategic insights, optimizing leasing strategies and enabling better-informed, data-driven decisions.

Rethinking human capital: Addressing orthodoxies and debunking them

Despite the tangible benefits of outsourcing, certain deeply held beliefs—or orthodoxies—can undermine its success. Addressing these misconceptions is crucial to ensuring smooth transitions and fostering a resilient workforce.
 

Orthodoxy #1: Employees will always resist change

Employees often resist change, especially during outsourcing transitions when the reasons behind the change are not well understood or accepted. This resistance, along with potential misinformation and rumors, can lead to delays, inefficiencies, and hinder the transition process. Maintaining consistent and effective communication within the company can be challenging in such situations.

To facilitate smoother transitions, organizations should adopt strategic change management and structured communication strategies. Engaging leadership is crucial, with visible support from leaders who regularly communicate the vision, benefits, and progress to keep employees motivated. Establishing open and regular communication channels, such as newsletters, town halls, and feedback sessions, helps keep employees informed and reduces rumors. Deploying a change network of trusted individuals within departments can promote accurate communication and address concerns, acting as ambassadors for the transition.

Orthodoxy #2: Top management should solely make outsourcing decisions, informing employees later

Organizations often exclude employees from the initial stages of outsourcing model definition, assuming that senior management and external consultants should take the lead. This approach can result in resistance and integration challenges when transitioning responsibilities to third-party providers. In property management outsourcing—where asset knowledge is crucial—employee involvement during transformation is vital for smooth transitions and successful outcomes.

To overcome these challenges, early involvement and co-creation are key. Engaging middle management early in the transformation process allows them to contribute insights and fosters ownership. Establishing feedback mechanisms where employees act as a sounding board throughout the process helps identify potential issues and improvements. Practicing transparency by clearly communicating the reasons, expected outcomes, and potential challenges of outsourcing builds trust and reduces speculation.
 

Orthodoxy #3: Outsourcing impacts only the outsourced responsibilities

Organizations often evaluate outsourcing primarily from a financial perspective, focusing on cost savings and efficiency gains. However, this narrow view can overlook the broader impact on individual roles and internal dynamics, such as transitions to third-party providers, redeployments, upskilling, or potential exits. For example, outsourcing leasing can directly affect property management, which in turn influences asset management and marketing strategies. To fully understand these cascading effects, conducting a detailed Change Impact Assessment is essential.

A more comprehensive approach includes conducting an impact analysis to assess the effects of outsourcing at all organizational levels, examining changes to roles, capabilities, and processes. Scenario planning is also crucial, as outsourcing can lead to various outcomes, from increased efficiency to service disruptions. Preparing for both best-case and worst-case scenarios helps organizations navigate the transition effectively. Investing in skill development and exploring redeployment opportunities ensures that employees are equipped for new roles and valuable talent is retained.
 

Orthodoxy #4: Cultural differences impede success

Cultural alignment plays a crucial role in the success of outsourcing. Weak cultural ties can make it difficult for teams to align on values, work ethic, work-life balance, and expectations from tenants and investors, ultimately impacting collaboration and performance. While cultural alignment can be challenging in nearshoring or offshoring contexts, it is possible to overcome these hurdles through effective intercultural collaboration strategies.

Building a shared organizational culture is essential, fostering a sense of unity among employees regardless of location through consistent values and a common mission. Creating meet-up opportunities, such as on-site visits and team-building activities, helps strengthen team cohesion and cultural alignment. Also, investing in cultural training and sensitization programs enhances employees' understanding of diverse cultures, promoting mutual respect and effective communication.

Conclusion

The Future of outsourcing in real estate

The trend of outsourcing operational activities in real estate investment management is set to continue growing. As the industry becomes increasingly competitive and complex, the need for flexibility, scalability, cost efficiency, specialized expertise, and technological innovation will drive further outsourcing.

Transforming demands thoughtful approach that recognizes the potential for innovation, resilience, and growth when employees are genuinely valued and supported. By understanding these insights, organizations can turn challenges into opportunities, creating a more cohesive, motivated, and high-performing workforce. In global real estate outsourcing, prioritizing human elements is a strong driver for transformation success. True transformation is about empowering people to thrive amid change, not just changing processes or implementing new technologies. The outsourcing trend is here to stay, and by leveraging it strategically, real estate firms can ensure sustained competitive advantage.