Week of March 18, 2002
  Snapshot from the Field
Report: Real Estate Planning
Lagging Behind U.S. Recovery
By JACK LYNE, Site Selection Executive Editor of Interactive Publishing

LONDON and NEW YORK — Many corporate real estate strategies are lagging behind the curve in U.S. economic recovery efforts.
        So says the "Global Real Estate Forecast" recently released by Grubb & Ellis and its global partner, Knight Frank.
        That lag, the report noted, is largely attributable to conditions in the U.S. real estate market, which is earmarked by pockets of office glut and high levels of sub-lease space. American companies, however, must look beyond the current down market, it asserted.
John Martin
International real estate strategies are notably behind the planning curve, said John Martin, senior partner at London-based Knight Frank (pictured above).

        "Our research is telling us the same as many resources here in the U.S.: The economy is already showing signs of getting back to normal," said Barry Barovick, CEO of New York-based Grubb & Ellis. "I'm afraid many companies are not forward planning for their real estate needs, and those companies are going to pay a steep price, both here and abroad, as space begins to tighten and investment property prices rise."
        International real estate strategies are particularly lagging, said John Martin, senior partner at London-based Knight Frank.
        "Having a global presence is not just an option for many companies, it's a requirement," Martin noted. "We think it's imperative that our clients have more and better market intelligence from a world market perspective."

World Market Rapidly Shifting

That lack of global perspective comes as the international real estate market is registering rapid shifts, according to "Global Real Estate Forecast." The office market in Moscow, for example, is tightening, while Class A office space is severely underbuilt in many European business centers, the forecast noted.
        And the global knowledge gaps at many U.S. companies extend beyond simply knowing occupancy rates and rental costs, the report asserted. What's missing, it maintained, is contextual knowledge of how world business trends affect both U.S. and international real estate markets. "Many American business people don't understand the national, regional and, in some cases, the local impact of events like the adoption of the euro, or the World Trade Organization's new Chinese membership. That includes people in our own industry as well," said Barovick. Here's a thumbnail look at a few of the major trends reported in the "Global Real Estate Forecast."

New York, Southeast to Rebound

New York will rebound: The forecast sees New York City "enjoying a healthy comeback, if not by the end of this year, in 2003. Said Barovick, "Its stature as an economic epicenter of world financial markets, and its proven resiliency as a stable world business community is obvious to both Americans and the world."
        Space, however, will become increasingly scarce the post-Sept.-11 Big Apple, he added. "With some of the highest barriers to new development of any city nationwide, the New York City market also has the lowest level of new construction," Barovick said. "Many have speculated on the outflow that followed the World Trade Center attack. The truth is space is tight, and it's going to get tighter."
        Southeast first region to recover: The U.S. Southeast region, the report predicted, "is likely to be the first to emerge from the current recession, with the Tampa Bay market emerging as a key growth barometer." The report also predicted "strong growth" in Southern California, "fueled by a coming of age of the biotech industry and heavy military spending."
        Europe's building boom: With scant space and extremely low vacancy in many European markets, new office development "is actually increasing," the forecast reports. Commercial property investment on the continent will "likely . . . remain vigorous . . . with European markets likely to remain resilient to the U.S. recession," said "Global Real Estate Forecast."
        European cities occupied six of the top 10 tops in the report's listing of the 10 most expensive markets (see accompanying chart). Barcelona, Lisbon, Frankfurt and Paris are "particularly attractive investment markets," the study reported.
        Africa's emergence: African nations like Botswana and Uganda, which are improving their business climates, will attract more international location attention, the report predicted. "The similarities between the two Southern Hemispheric continents (Africa and South America) - namely political instability, huge untapped natural resources, and evolving consumer and labor populations - will eventually subside," said Knight Frank's Martin. "From what we've seen, the attraction among Euros to sub-Saharan markets is growing with some consistency."
        More globalization of property management practices? Last year's terrorist attacks may increase international acceptance of "professional property management," the forecast reported. "The devastating attacks of Sept. 11, using real estate as a target to strike at America, may hasten the introduction of this service in urban centers around the globe."

Signs of Recovery?

The report comes as signs of a U.S. economic recovery are surfacing.
        The Commerce Dept., for example, this month released new figures showing an upsurge of 1.6 percent in orders for manufactured goods in January. That 1.6 increase came after December's far less robust 0.7 percent increase in manufactured goods orders.
        The Commerce Dept. report noted particular improvement in manufacturing along the Eastern Seaboard and in auto-producing states like Michigan and Ohio. In the retail sector, sales of home furnishings and appliances are rising in the Midwest, the report said.
        The Commerce report also predicted that the U.S. economy will soon begin to create more jobs than it is losing.
        Given some firms' cutbacks, the Commerce Dept.'s reported rise in manufactured goods orders surprised some observers. Rising employee productivity has enabled downsized companies to still to meet product demand, some analysts asserted. In addition, Web-based management processes have enabled smaller workforces to register strong productivity, they added.

10 Most Expensive World Markets for Prime Office Space
(4th Q 2001 vs. 4th Q 2000)

4Q 2001  4Q 2000          Market Rent        Market Rent       % Change
 Rank	  Rank           (US$) 4Q 2000      (US$) 4Q 2001		
  1        1		London	   $151.55     $149.04	          -1.7%
  2        2		Tokyo	   $112.02     $107.20	          -4.3%
  3        6		Paris	   $ 69.50     $ 69.31	          -0.3%
  4        7		Hong Kong  $ 69.19     $ 69.00	          -0.3%
  5        5		Zurich     $ 70.18     $ 64.79	          -7.7%
  6        9		Moscow     $ 61.04     $ 62.89	           3.0%
  7        8		New York   $ 64.52     $ 59.16	          -8.3%
  8       11		Frankfurt  $ 55.60     $ 57.92	           4.2%
  9       13		Geneva     $ 52.91     $ 53.09	           0.4%
 10       12		Dublin     $ 54.87     $ 52.18	          -4.9%
Source: Grubb & Ellis/Knight Frank "Global Real Estate Forecast," March 2002. Dollar figures include rent plus standard expenses such as taxes and insurance.

sf0318bsf0318b ©2002 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.