Week of January 7, 2002
Snapshot from the Field
Common Currency Enjoys Smooth Launch, but Questions RemainBy JACK LYNE, Site Selection Executive Editor of Interactive Publishing
THE EURO ZONE -- I'm OK, euro OK?
Real Estate Impact Preceded Jan. 1The euro's impact on real estate location strategies, however, was already evident before Jan. 1. With the scenario for the future fairly well defined, some site decisions were made in the three-year run-up to the common currency's becoming a physical reality.
Some firms, for example, with reduced concerns over currency and political differences, cost-effectively centralized European logistical operations within the euro zone. Other facilities picked euro zone sites to avail themselves of advantages like simplification of accounting and finances.
Meanwhile, some firms with operations located in nations that passed on phase I of the euro have voiced concerns as Jan. 1 approached.
Toyota, for example, decided several years ago to site a $1.6 billion, 2,000-job plant within the euro zone - in Valenciennes in northern France - after it decided that the UK would likely sit out phase I of euro implementation. (The UK did just that, keeping its strong pound outside the European Monetary Union (EMU). Two other members of the European Union (europa.eu.int), Denmark and Sweden, haven't yet joined the EMU.)
Real Estate Pricing Not Yet TransparentSignificant questions remain after Jan. 1, however, vis-à-vis the euro's impact on real estate. One of those questions revolves around the much-praised pricing transparency that the common currency is bringing to the euro zone.
In some areas, the impact of that transparency is clear. With exchange rates practically eliminated, European retail operations, for example, have had to adjust to the realities of cross-border comparison shopping.
Comparison shopping for baby buggies, however, remains a more transparent process than comparison pricing European properties. Real estate prices are quoted in different fashion in different euro zone nations. Some countries, for example, quote end user costs in euros per square meter per month. Other nations quote those costs in euros per square meter per year.
Many in the real estate industry are pushing for a pricing standard that will eliminate that haziness. Once true transparency arrives, real estate expenditures will become a smaller percentage of overall costs, they predict.
Another real estate question revolves around how current rental rates will be converted from national currencies to the euro. In many cases, perfect conversions don't compute. And that is leaving landlords to their own discretion in rounding figures up or down.
Rounding up could, in one fell swoop, appreciably up occupancy costs. On the other hand, weak markets in many parts of the euro zone will pressure many landlords to round down rent conversions. Jones Lang LaSalle, for example, is predicting that the overall impact of converting rents to euros will decrease rents within the euro zone by an average of 0.9 percent.
Some Glitches SurfaceIt remains to be seen how those real estate issues will shake out in the new euro era. On the other hand, the early glitches in the euro's introduction look like the minor type that will likely be rapidly smoothed over.
Among those glitches was a shutdown of Austria's automatic teller machine (ATM) network on Jan. 1.
Some 80 percent of the euro zone's 200,000 ATMs were successfully dispensing euros on Jan. 1, according to Pedro Solbes, EU commissioner for Monetary Affairs. Those ATMs did a landslide business on Jan. 1, beginning shortly after midnight. Heavy ATM withdrawal volume, however, overwhelmed an Austrian central computer, knocking out the nation's system from about 4:15 p.m. to 6:00 p.m. The Austrian ATM system has since functioned normally.
The euro launch was also marked by several strikes, though they had little impact. Seeking better benefits, postal and bank unions in France and Italy planned strikes for Jan. 1. Their efforts, however, largely fizzled. The strike by French bank workers, considered the most serious potential disruption, "was not at all followed," said Laurent Fabius, French Minister for Economy, Finances and Industry. "Everyone has problems, but one cannot take the euro hostage."
All the euro zone strikes were rapidly abandoned. The labor actions' lack of support was reflected in the French strike call at post offices, which also provide banking services. The initiative drew the support of only 5 percent of postal workers.
Dual Currencies Create Long Lines
Long lines also materialized at many tollbooths and retail outlets. That was not altogether surprising, since all of the national currencies that will be abandoned won't expire until Feb. 28.
Editor's note: For a look at how the euro and other issues are affecting European location patterns, see Site Selection's annual wrap-up of European corporate location activity in the July 2002 issue. For a look at our 2000 review, see "UK Remains No. 1 with Foreign Investors" in the July 2001 issue.
©2002 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.