By Theresa Avagliano

About 22 years ago, the management at Toyota Motor Co. decided to outsource the facilities management (FM) function of its San Ramon (CA) facility to Roy Jorgensen Associates Inc. (RJA), a Washington (D.C.) area-based contractor.

More than two decades later, Toyota's FM outsourcing deal with RJA comprises over 100 U.S. buildings, accounting for 10 million square feet of property.

According to The Sixth Annual Outsourcing Index, Toyota is not alone in their drive to outsource real estate and facilities management (RE/FM). The 2003 Index concludes that the fastest growing outsourcing category over the last year has been RE/FM, which jumped six percentage points — from 11% in 2002 to 17% in 2003.

Other categories, including IT and human resources, either remained the same or lost momentum this year. Most of the RE/FM growth was fueled by an increase in outsourcing contracts from mid-size and large businesses. Ben Scaff, business development manager at Roy Jorgensen, suggests that tightening regulatory rules, a greater focus on customer demand, and climbing costs of FM technology, are the primary reasons building owners are increasingly handing over RE/FM to vendors.

In addition, as management aims to refocus on the core business, vendors are offering clients more outsourcing opportunities, says Steven Ford, senior managing director at Cushman & Wakefield. He contends that RE/FM providers are aggregating the corporate real estate spend by offering typical FM duties — security, mailroom, copy shop, cafeteria, and conference center services — to their menus. These add-ons complement the standard fare, such as negotiating building purchases or leases, heating / ventilation/air conditioning, and elevator services.

What's more, says Ford, clients are keen on sending more services to a single contractor, primarily because the collective spend gives buyers more leveraged buying power. In addition, the management reporting for RE/FM is more consistent when a client uses only one vendor, plus costs are typically reduced if grouped under one vendor's infrastructure because overhead fees for separate providers are eliminated.

An increase in outsourcing of non-traditional FM jobs also contributed to the category's popularity. For instance, San Francisco-based residential real estate investment trust BRE Properties Inc. signed a deal with outsourcing vendor MessagePro Inc., to connect its apartment dwellers with a maintenance hotline. BRE's 23,000 residents, who live in complexes throughout California and other Western states, use a central toll-free number and call center technology to route maintenance alerts to an automated work order system. Emergency calls are routed to BRE associates.

Multi-family complexes are under increasing pressure to trim costs, as low mortgage rates make it feasible for renters to move out and buy homes, says Ron Cohen, MessagePro's president and CEO. Maintenance calls for BRE properties average about 6,000 per month, and Tyler Kemmer, BRE's vice president of Ancillary Services, says the outsourcing deal has helped maintenance with the work order process and increase its efficiency.

Interestingly, Kemmer points out that the outsourcing deal includes a whistleblower hotline, as required by the new Sarbanes-Oxley Act. Sarbox, passed by Congress last year to curb corporate corruption, mandates that all publicly traded companies provide a hotline that circumvents management and sends complaints about accounting misdeeds directly to the company's board of directors.