The cost for businesses to maintain overseas office space in Bangkok, Thailand is projected to increase by 6% in 2003, and by 5% in Adelaide, Australia and Shanghai, China. By comparison, the cost for office space in New York is forecasted to drop about 2.6%, and by as much as 6.1 % in Seattle, Washington, according to the 2003 Global Real Estate Forecast to be released by real estate services firms Grubb & Ellis Company and Knight Frank.
The largest change in U.S. office space costs in 2003, according to the report, will be a continued reduction in key west coast markets with Seattle leading the way (6.1% drop) followed by Silicon Valley capital San Jose with a 5.8% reduction and Oakland with a 4.5% drop. In contrast, two Florida cities are expected to become more expensive (Ft. Lauderdale by 3.3% and West Palm Beach by 2.8%).
In fact, according to the projections on 44 key global business markets and 48 key U.S. business markets, there is very little evidence to indicate that the so-called 'globalization of business' has really changed tradition: real estate remains a local business everywhere in the world.
New York remains the most expensive market for office space in the U.S., although costs for Class A office space are expected to contract from an average of $51.57 per square foot in 2002 to about $50.22 per square foot in 2003. Comparatively, in Bangkok, whose office market has the highest projected rise in cost globally for 2003, the cost of space was $8.79 per square foot in 2002 and will only be about $9.32 per square foot in 2003.
'One of the key reasons we plan on conducting this study for years to come is that the real estate cost -- which for most companies is the second highest cost of doing business behind human capital expenses -- is moving out of the classification ´necessary evil´ and into the boardroom as a significant planning consideration for global expansion,' said Bob Bach, Grubb & Ellis´ National Director of Market Analysis and head of its global market intelligence group.
In addition to looking at business space costs, the two firms also keep clients updated on other 'cost of market presence' issues, including relocation considerations, expanded space consolidations and opportunities like public-private joint venturing. Steve Mallen, Partner & Head of Global Research at Knight Frank, said the annual joint study draws input from among its collective resources of more than 8,000 people in over 200 offices in 30 countries around the world, and includes a local look at all of the real estate sectors -- primarily office, retail, industrial -- in fast-growing markets that can accommodate the firm´s diverse multinational clientele around the world.
The office sector in the U.S. is unlikely to return to equilibrium before 2007, says the report, but secondary markets in Europe -- like Glasgow, Edinburgh, Leeds and Manchester in the UK -- are expected to attract more enthusiasm among investors than traditional business capitals like London, even though that city will obviously continue its global leadership role. Business space costs in London are the second highest in the world behind Tokyo.
Industrial Rents Flat in U.S.
Both Knight Frank economist Mallen and Grubb & Ellis´ Bach agree that the industrial real estate sector appears to be the most 'bulletproof' globally. 'One tradition that seems to hold up in the face of globalization is that the on-the-ground costs for non-office space business uses are the most stable among real estate related costs of doing business, anywhere on the globe,' said Mallen.
This is certainly true in the United States, where stability has been the name of the game for industrial real estate. Not surprisingly, given the continuing layoffs in the high tech and software industries, the biggest decline in rental rates for industrial facilities is forecasted to be in San Jose, CA. Grubb & Ellis projects a 10% decline in rental rates in 2003. Nevert