The Leader - January/February 2009 - (Page 58)

appLIEd RESEaR Ch C EnTER by Richard Kadzis The Economy’s Impact on Corporate Real Estate: SuRvEy ShOwS MIx Of COnCERn and OpTIMISM The state of the industry is very much revolving around the state of the economy. The sentiment among a strong majority of CoreNet Global members is clearly that the economy in general and the financial performance of their companies now dominate the near- and mid-term focus of corporate asset management. With it, risk management and cost cutting are becoming even more pronounced. In turn, the corporate real estate (CRE) industry dialogue has shifted to managing in challenging times, as results of a survey of nearly 200 demand- and supply-side executives taken 10 November 2008 at the CoreNet Global Summit in Orlando show. Key findings include:  The downturn now extends across a wide range of sectors (with a few exceptions)  It’s now become a deep downturn, instead of the shallow one that appeared evident only weeks earlier  Its impact is worldwide  It’s also going to be long downturn, possibly lasting into Q4 of 2010 Previous downturns in the 1980s, 1990s and 2001 show CRE’s tendency to be able to balance value creation with value protection. For example, IBM has been consolidating space since the 1980s, when their business focus and model changed. Following the DotCom crash, even more corporations joined in sustained portfolio consolidation practices that yield efficiencies like cost reduction with effective outcomes like higher productivity and more agility. How the CRE tactical-strategic balance is being struck can be seen in another way: average space per person is approaching 150 sq. ft. (14 sq. m.) compared to 250 sq. ft. (23 sq. m.) or more before. The mainstreaming of flexible work styles and environments underlies this metric – connoting both efficiency (leaner portfolios) and effectiveness (higher employee satisfaction levels). Whether or not the balance will remain in equilibrium considering the uncertain nature of this current downturn bears watching. The current outlook framing this question starts with how senior leaders in CRE view the future performance of the economy and their companies, as the Orlando survey reflects. The survey included a strong financial services industry sample (21 percent). On the question of how much revenue will or will not grow in 2009 compared to 2008, there’s a similar air of optimism – on both the demand and supply sides (see Figure 1). Not surprisingly, there’s an expectation for another round of cost cutting, too. As mentioned, many corporations were already engaged in aggressive space- and costcutting initiatives well before the downturn evolved from the CMBS-driven residential sub-prime level to the global investment banking and credit crises. How much more is left to cut? Certainly, massive layoffs (averaging 200,000 per month in the U.S. economy as of November 2008, for example) will place more pressure on CRE to reduce disposition cycle time. But it becomes a ‘Catch-22’ with the lethargic state of transactions and new investment on the property markets worldwide. Other Key Issues for CRE The Summit questionnaire also probed delegates on how long the downturn might last. How long will the recession impact your business? Nearly half (46 percent) of end users and service providers (48 percent) foresee the recession impacting their businesses through the year 2010, which supports a projection by Moody’s showing Q4 of 2010 as a likely point of recovery; albeit, against a highly uncertain set of developments and dimensions. The survey also asked what actions CRE people are taking to cut their own costs and are focused yet again on more reorganization and outsourcing as part of the mix (see Figure 3). Other CRE cost-cutting areas include bonuses, base pay, merit freezes, travel freezes, IT project deferral, and reduced training. Related information: See the Orlando Global Summit Daily Report and Presentation from the Tuesday, 11 November 2008, Mega-Session, ‘Economic Downturn: Crisis or Opportunity for CRE? at www.corenetglobal.org. 2 0 0 9 ThE LE adE R 58 januaRy/fEbRuaRy http://www.corenetglobal.org

Table of Contents Feed for the Digital Edition of The Leader - January/February 2009

The Leader - January/February 2009 Contents Leadership Message from the CEO Real Estate in the News Mergers and Aquisitions Assessing Green Building Performance Measuring Space You Actually Use Global Trends in Sustainable Real Estate Whirlpool’s Lee Utke Northmarq’s Kevin Farrell Plastics: Hoping for Resiliency in Resins Regional Profile: Heartland Holding Strong Industry Profile: Ascendas Brings New Age Business Space to Asia-Pac Industry Tracker From the Applied Research Center Discovery Forum Findings Capital Corner Career Development Young Leader Economic Development in the News Learning Spotlight Connect With CoreNet Global Index of Advertisers A Look Ahead In our Next Issue Calendar of Seminars

The Leader - January/February 2009

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