Shifting tides on how companies in Asia, Europe, and the US adapt to offshoring

The Corporate Real Estate Sentiment Index, a quarterly report canvassing around 100 corporate real estate leaders, has revealed in its latest survey, regional contrasts in sentiment across three key dynamics: growth outlook, portfolio strategies, and workplace priorities.

Comparing Knight Frank's results with Cresa's North American responses, we draw insights with a more in-depth analysis on the contrasting offshoring and sustainability sentiments between the US and other regions.

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As observed in our latest report, offshoring is again gaining prominence in the strategies of companies from Asia and Europe. The positive sentiment towards offshoring has been steadily increasing for the past three quarters, indicating a shift in the way businesses are approaching their operations.

Companies in Europe and Asia are exploring the relocation of not only traditional back and middle office functions but also advanced technology-driven business functions. This strategic move is driven by the desire to optimise operational efficiency, tap into talent pools, and access new growth opportunities in lower-cost locations

As digital platforms and technology continue to play an increasingly integral role in business operations, the offshoring of such functions has become more viable and attractive. Companies are recognising the potential benefits of offshoring their digital and tech-related operations, including reduced costs, increased agility, and enhanced scalability.

In exploring the trends in offshoring and nearshoring, it is evident that the dynamics differ between regions. In Asia and Europe, there is a growing positive sentiment towards offshoring, with a focus on relocating advanced technology-driven business functions. This shift is driven by companies seeking operational efficiency and access to skilled talent pools in lower-cost locations.

However, in North America, the trend leans more towards onshoring or nearshoring, as organisations aim to simplify their operations and mitigate the complexities that come with offshoring. The recent protectionist and nationalistic views in the region have also contributed to this shift. This trend is also partly driven by the supply chain disruptions experienced during the COVID-19 pandemic, which impacted decision-making around locating back-office functions.

The distinction between office functionality being offshored and production or distribution functions being nearshored or reshored is an important one. While office functions may be relocated to access talent and achieve efficiency, production and distribution are often kept closer to the main operations for better control and to minimise supply chain disruptions.

In contrast, the sentiment data suggests that Asian and European occupiers are increasingly exploring offshoring opportunities. There is a growing positive sentiment towards relocating advanced digital and technology functions to offshore locations such as India, Malaysia, and Central and Eastern Europe.

The rationale behind this trend is two-fold: first, it serves as an efficiency play and labour arbitrage strategy, and second, it provides access to talent pools that may be limited or highly competitive in more established markets.

Divergent priorities: sustainability takes a backseat in US occupier mindset compared with Europe and Asia

As businesses reevaluate their workspaces, a global shift towards flexible, sustainable, and amenity-rich office spaces has emerged. While these trends are evident in Europe and Asia, the US appears to be trailing in prioritising sustainability in the short term. This is not due to a lack of importance, but rather a reflection of differing needs. One possible reason is the country's current focus on immediate concerns, such as rightsizing office spaces, in response to changing work dynamics. In the short term, sustainability might not be given as much weight as it is in other parts of the world.

The broader context of ESG

Sustainability goes beyond buildings with certifications or accreditations; it encompasses various environmental, social, and governance (ESG) aspects. Organisations in the US and other regions may be actively engaged in numerous operational activities related to ESG, even if they are not immediately prioritising certified green buildings.

Limited availability of certified sustainable buildings

Europe and Asia face a different challenge: a limited supply of certified sustainable buildings. This shortage may hinder companies' ability to adopt green spaces, even if capital expenditure constraints improve. Consequently, the extent to which occupiers can transition to sustainable spaces will be affected by the current state of real estate markets.

As the global landscape continues to evolve, understanding the differences in priorities and challenges is crucial. While sustainability is a significant factor in commercial real estate decisions, the US seems to place less emphasis on it in the short term compared with Europe and Asia. Companies must adapt to changing priorities while remaining committed to sustainable practices in their long-term strategies. By staying agile and addressing unique challenges in their respective markets, businesses can contribute to a greener future for commercial real estate.

Download the full report here.