Economic Update – Corporate RE Plays New Role in Tough Times

It’s a whole new world for corporate real estate owners, according to the 2009 State of the Industry Report by CoreNet Global, which was released Monday. The report distilled the views and opinions of more than 60 corporate real estate executives from around the world, along with information gleaned from various corporate real estate case studies. In some ways, the report noted, the economic squeeze has caused companies to turn to corporate real estate departments and third-party real estate service providers even more than previously to help contain costs. For example, companies are still interested in greening their real estate holdings, but now they want lower-cost sustainable solutions that offer more immediate payback, especially energy management. Also, alternate workplace strategies, which were previously considered an experiment in reducing the cost of office space through flexible work practices, is no longer so experimental any more, but pretty much mainstream. “We still have the recognized problem of unemployment, and how it affects occupancy, and conditions are approaching those of the early 1990s, which has been called a real estate depression,” said Richard Kadzis, director of special projects for CoreNet Global, during a teleconference on Monday discussing the findings of the report, in which CPN participated. “But now corporate real estate plays a kind of dual role, one of value creation in a company’s long-term strategy, another of value protection by addressing immediate cost-cutting measures.” What’s next? “The environment we’re in poses the risk of being short-sighted,” Kadzis warned. It might be hard to imagine right now, but “when the economy turns, companies will need more space because their head counts are going to increase.” Though the equity indices have been going up for some time now, Monday showed that Wall Street hasn’t lost its capacity for herd-mentality selling based on scary news. The scare, of course, was swine flu, and while there were no reports of it breaking out on the New York Stock Exchange floor, the thought of it sent shares in travel-oriented companies especially downward.For example, shares in Host Hotels & Resorts Inc., the largest hotel-owning real estate investment trust in the United States, lost nearly 15 percent of their value. Marriott International Inc., the largest U.S. hotel chain, lost 5.1 percent, and airline and cruise companies also lost ground. Overall, Wall Street was down on Monday, but not nearly as much as the narrowly focused travel-oriented companies. The Dow Jones Industrial Average dropped 51.29 points, or 0.64 percent, while the S&P 500 lost 1.01 percent and the Nasdaq was down 0.88 percent.