Easy like Sunday morning

February 3rd, 2012
Lee ElliottPosted by: Lee Elliott
National Director
Jones Lang LaSalle EMEA Research

So after a short-hop north in what must be the thinnest aircraft ever to take to the skies, here I am in a rainy Portland, Oregon.  It will take a bit more than persistent precipitation to dampen my mood.  The reason is simple.  After four years of long-distance (and on my part woefully inadequate) correspondence, I am finally sitting in the same room as one of my very best friends from university and his family, including my godson Jack.  In just a few hours I have discovered that Jack is, as they say in these parts, one cool dude (in contrast to his godfather).  So today is all about one thing.  Chill-axing, catching up, reflecting on the past, outlining plans for the future and making up for lost time.
But its Sunday and Sunday wouldn’t be the same without a quick review of the papers.  For this week only, The Sunday Times has been replaced by its New York equivalent.  I am curious about how global a view this paper takes.  Over the last few days my media exposure has been limited to USA Today and CNBC both of whom had their European gaze fixed firmly on the tragedy of the Costa Concordia and how rich Russians had allegedly bought their way onto lifeboats.
How does the New York Times (NYT) measure up?  Well in some senses, not much better.  The Eurozone debt crisis is far from headline grabbing, maybe reflecting the somewhat closed nature of the US economy.  It is an issue that is wrapped up within a wider treatment of economic conditions rather than taking centre stage itself.   And the tone is altogether more positive and optimistic. Indeed the news is focused intently on the encouraging signals emerging from the US economy which one commentator suggests point to an economy waiting to take-off.   Labour markets, relatively strong GDP projections and improving productivity from US manufacturers all secure column inches.
It is in relation to the latter that my attention is most closely drawn.  The NYT tells the story of when the late Steve Jobs attended a White House function last year.  Jobs was asked directly by President Obama what it would take to start manufacturing the modish iPhone within US borders.  Jobs’ response was typically forthright.  He told the President ‘It’ won’t ever happen’.  When pressed on why, Jobs’ was quick to dispel labour costs as the principal driver of his company’s off-shoring of production.  For Apple there were broader issues at work – namely the operational flexibility and agility that are often associated with less regulated emerging markets.
What is interesting about this debate is that Apple, in some senses and not unusually, bucks the trend.  Since I have been Stateside the on-shoring or in-sourcing of manufacturing has been a growing theme and it would seem not just because there are elections looming. US manufacturers are, in increasing numbers, falling back in the love with the homeland and bringing jobs home.  Indeed a survey of US manufacturing companies undertaken just under a year ago by Accenture, found that 61% of respondents were considering moving back some of their manufacturing back to the home market.
It is an issue that is now beyond statistics and stated intent. In recent months General Electric have announced the production of energy efficient water heaters will relocate from China to Kentucky.  Sleek Audio, who manufacture high-end ear-phones are similarly leaving China for the warmer climes of Florida, while Peerless Industries is moving production of audio-visual mounting systems again from China to Illinois.  Of course three swallows do not make a summer.  Far greater volumes of in-sourcing will be required if the effects of a decade of off-shoring are to be negated.  But it is clear that a new dynamic is at work in location decision making which will over time bring employment growth to the mainland US market but also to markets closer to the US borders, notably Mexico and Central America.
So as I settle down for another Double Tall Latte here in The Rose City, I ponder on what this morning’s reading might mean for Europe.  I think there are five points:
1. The decision on where to produce, or source from, involves a total cost trade-off, and for many products where the market is Europe the cheaper manufacturing costs derived from off-shoring may be offset by higher transportation and inventory costs and the longer lead times, and risks, this involves.
2. Manufacturing is becoming increasingly mobile and parts of Europe – and not just those that offer cheap labour – have the opportunity to win through.
3. The drivers of this newfound mobility are not just the simple maths around wage rate arbitrage (as labour costs often account for no more than 10 per cent of total costs) but instead a more sophisticated equation which also takes in operational ease, trading conditions, market size and penetration and production quality, amongst others.
4. Changes to production and sourcing strategies will also lead to changes in logistics and supply change management and impact on the demand for logistics facilities.
5. As ever there will be clear winners and losers across Europe and new clusters of industrial activity will emerge.
The key question on this last point of course is where will these new European Manufacturing clusters emerge?  Look out for a forthcoming paper on that very issue soon.  For now, I am off to shoot some hoops with my dude of a godson.

Posted in Occupier Research | Comments Closed

Walking a tightrope over the streets of San Francisco

January 27th, 2012

Lee ElliottPosted by: Lee Elliott
National Director
Jones Lang LaSalle EMEA Research

Today is a key day in my US road trip.  I am presenting to members of the Northern California CoreNet Chapter and the Urban Land Institute at the PG&E Auditorium in the beautiful city of San Francisco.  My task is to provide an outlook for the EMEA office market from the standpoint of a corporate occupier. Fellow speakers from all the major service providers are doing so for other regions of the globe.  But there is no doubt that there is an intense focus on Europe given the ongoing debt crisis (although interestingly in the introverted mainstream press here in the US the crisis is somewhat absent).

In thinking about my presentation, it struck me that the city of San Francisco presents a perfect metaphor for Europe.  It does so in perhaps three ways.
First, San Francisco is of course a city that suffers from more than its fair share of fog.  In Europe over the last year we have had a substantial fog of our own.  It is an analytical fog brought on by a myriad of often contradictory economic indicators or studies.  It has therefore proved somewhat difficult to fully quantify the magnitude of the problems facing European economies; the precise direction that those economies are heading; or indeed the pace at which these economies are proceeding.  The fog has become a real pea-souper given the political rhetoric and positioning that is so often associated with these metrics and interpretations.  As I have said consistently since arriving here, the political economy of Europe is far more of an issue (and of greater interest) than the pure economics.
Second, it is clear that Europe since the global financial crisis in 2009 has been on a long and winding path to recovery.  It’s a path that makes navigating San Francisco’s famously winding Lombard Street look pretty straightforward.   Indeed all streets of San Francisco, offering as they do inclines at every turn, point to what is ahead for Europe – a long, gradual and challenging climb back to prosperity.
Finally, despite the aforementioned fog, it is abundantly clear that Europe has a sizeable debt problem.  Dealing with this whilst maintaining some degree of economic growth, makes escaping from San Francisco’s notorious off-shore penitentiary, Alcatraz, seem like a bit of a cake-walk.
So as I take to the stage with my peers, I aim to tell it exactly as I see it.    It pays to be straight but bold in these situations.   I believe that Europe, and the Eurozone more particularly, continues to walk uneasily along a tightrope.  On one side of the rope is a return of corporate and consumer confidence amid a political resolution of the crisis and a mild but sustained upturn in fortunes built on the back of the private sector investing some of the cash pile it has built up over recent years of repair. There is about a 1 in 5 probability that Europe, when it falls from the tightrope, falls in this direction.
On the other side of the rope is a much darker place where the crisis deepens, a bank, banks, country or countries fail leading to a full or partial break-down of the Eurozone and a deep and sustained recession that reverberates globally emerges.   The probabilities are stronger – about 30% and rising – that Europe slips from the tightrope into this darker place.  The bets are strongest that Greece will be the one to fail – particularly if a deal cannot be struck with private creditors.  This Greek Tragedy might be, if one takes a longer term and broader perspective, the very stimulus required for politicians to bring an end to the muddling through mentality that afflicted the year of summits in 2011 and provide a real leap forward.  The risks of not doing so will mean that the fog becomes thicker, the path evermore steeper and twisting and escape even more unlikely.
The ramifications of this are significant for everyone in the auditorium today. Although only 12% of US exports are to the Eurozone and the US is a relatively closed economy with total exports only representing around 10% of GDP; the much-repaired US banks will be exposed to the Eurozone periphery to some extent.  A breakdown of the Eurozone – either partial or full – could serve to dramatically alter the current US GDP growth forecast of 2.5% for 2012 and leave a pre-election US economy walking a tightrope of its own.

Posted in Occupier Research | Comments Closed

Protect your assets with green investments and avoid the risk of value erosion

January 26th, 2012

Bill PagePosted by: Bill Page
National Director
Jones Lang LaSalle EMEA Research

With the ever growing emphasis on sustainability, green investments will become a focus point over the next decade as a means to avoid value erosion. It is clear that green investments are the best way forward. Otherwise, occupiers who look to chase costs through lower rental values will be hit by higher operational costs of non-sustainable buildings.

Sustainable buildings are well on the way to becoming the benchmark of quality buildings – and this line of thought will be followed by the economics of rents, yields and valuation. It can’t be denied that current economic conditions are far from favourable and will probably cause a delay in green investments, however, the industry must continue to drive change to remain at the forefront of the game. After all, by 2020 sustainability variables such as carbon emissions taxes and rising insurance premiums will become reflected in valuations. There is no running away from the fact that more informed occupiers will become better educated about their sustainability requirements and will ensure that their needs are addressed.

The time has come and it is clear, no pain, no gain.

For further details, contact Bill Page on +44 (0)20 3147 1212 to book a workshop; check out Offices 2020 for more information. A great place to keep up to date is our LinkedIn page  for  regular discussions and informal idea sharing.

Posted in Investor Research, Occupier Research, Sustainability | Comments Closed

Legislation – Invest in sustainability and secure your future

January 26th, 2012

Karen WilliamsonPosted by: Karen Williamson
Senior Researcher
Jones Lang LaSalle EMEA Research

Sustainability – one of the most important issue for European offices now – will remain so for the next decade; 83% of real estate professionals identify it as the key strategic issue facing decision makers in the real estate industry. Sustainability, driven by strict legislation (e.g. 2011 Energy Act in the UK, Grenelle in France etc etc), will become the key to industry success. 

Although happening at different speeds, the emphasis on sustainability cannot be denied. France, Germany and the UK are driving the development of best practice, whereas in Greece, Italy and Spain the midst of economic struggles, will most likely cause delays. Subsequently, new legislative requirements, such as the requirement by the EU that all new buildings must be “nearly zero energy” by 2020, are causing growing gaps between countries.  The UK has set an earlier deadline of 2019 but other countries  risk falling behind over the next decade.

Nonetheless, sustainable real estate and social sustainability will increase in importance and drive performance. Sustainable buildings will come to mean quality buildings. Already it is clear that the pricing gap between sustainable and non-sustainable buildings will widen significantly. Simultaneously, the success of social sustainability will continue to be defined by productivity and employee satisfaction as they become further intrinsically linked.  Greater emphasis will be placed on the social value of sustainability.

For further details, contact Bill Page on +44 (0)20 3147 1212 to book a workshop; check out Offices 2020 for more information. A great place to keep up to date is our LinkedIn page  for  regular discussions and informal idea sharing.

Posted in Offices Research, Sustainability | Comments Closed

Movin’ On Up

January 24th, 2012

Lee ElliottPosted by: Lee Elliott
National Director
Jones Lang LaSalle EMEA Research

British politician Norman (now Lord) Tebbit, aside from bearing the brunt of an IRA bomb plot, is perhaps most famous for imploring the British unemployed at the height of Thatcherism to ‘get on their bikes’ in order to find work.  It was a statement that served to promote an ideology centred on the principle of social mobility. This was the 1980s – the age of the upwardly mobile yuppie; of enterprise culture; of free market economics; and an unstinting belief that workers could, should and would migrate across the British Isles in order to access opportunity and generate personal wealth.

More than 30 years on, and in a country with a workforce 5 times greater than that of the UK, mobility is very much back on the agenda.  In fact, it has been the single most recurring discussion point with corporate real estate executives so far.

The mobility debate is three-sided.  It encompasses

1. Worker mobility in sourcing jobs (the Tebbit position).
2. The mobility afforded to workers in undertaking their day jobs and the impacts on productivity.
3. Corporate mobility as a means of getting the job done quickly and cost effectively.

Lets deal with this first aspect of mobility today and leave the others for a raining day (I’m off to Portland tonight, so that day wont be far behind readers!)

For the household names of tech situated in Silicon Valley, the stellar growth trajectory described in my last blog is renewing (or perhaps more accurately intensifying) a war for talent.  It’s making those responsible for keeping operations sustained and scalable– notably but not exclusively CRE teams – think again about where talent is located and what the various preferences of that talent are.  It is raising new concerns and interest in labour market demographics both now, in the future and across the globe.  It is somewhat ironic that ten years ago, my first major piece of research at Jones Lang LaSalle (which coincidentally followed a trip to the west coast) was the development of UK focused labour market model capable of identifying hot-spots or concentrations of certain worker or talent types.  It may be time to go retro people!

Of course finding accurate and consistent labour market data on a global scale is the researchers equivalent of finding Lord Lucan.  But it’s a challenge we might all face.  Two tech companies in the last 3 hours have quizzed me on the demographics of London.  They have been interested to understand where concentrations of certain skill types can be found and, critically, how open creative and engineering talent in London is to mobilising across the city in order to secure opportunities with their companies.

But there is also a belief within these discussions that the sheer status of these tech sector brands when combined with an understanding of the work styles and value systems of the talent they are trying to secure, might support a ‘build it and they will come’ strategy.  Here brands act as talent magnets sucking in workers that, whilst having no desire to be long-term mono-company workers, do actively seek opportunities that rapidly advance skills-sets and bring different cultural experiences. In this sense it’s not a debate just about talent and transportation in mature markets such as London.  It is as much about markets like Krakow, Budapest, Tallin, Warsaw, Stockholm and how through a fusion of company and city culture, a new tech sector Diaspora can be created.  Fascinating stuff.

Conversation over, I returned to my car and driver Jose (remember him?) On the journey back down Highway 101 towards the glistening skyline of San Francisco, we discuss in broad terms this very issue of mobility.  I enquired as to how widely he had travelled in the US.  His response was that he had only ever been out of California once and that was to attend a bachelor party in Vegas.  It just goes to show that whilst mobility is increasingly central to highly technical employees and employers in the fast moving and fast growing sectors, its not a pressure or indeed option for all – something Mr Tebbit might have neglected to consider back in the 1980s.

Posted in Occupier Research, Uncategorized | Comments Closed

Do you know the way to San Jose, Jose?

January 23rd, 2012

Lee ElliottPosted by: Lee Elliott
National Director
Jones Lang LaSalle EMEA Research

OK, I’m sorry.  But I did warn you, didn’t I?  (And lets be clear. No, I do not have Dionne Warwick on my ipad).

My driver Jose (no joke) certainly knows his way to San Jose (although it must be said that he has a GPS device as a discreet but clear back-up).  He guides me down Highway 101 into the very heart of the US, neigh global, tech sector.  So often imitated but rarely rivalled, this stretch of highway and its associated settlements, is home to the most powerful tech companies in the world.  

And from a distance they look in rude health.  There is no longer any real or sustained evidence of office vacancy and to the contrary there are numerous billboards proudly announced the new HQ of perhaps the next big names in technology.  The line in the song is ‘Do you know the way to San Jose? They’ve got a lot of space.  There’ll be a place where I can stay’.  I’m not convinced that’s altogether accurate for office occupiers as the growth spurt in tech gains increasing momentum.

Relative to the rest of the US, this market is on fire, and it shows.  In fact, GDP growth in the Valley was 13% in 2011 – that’s emerging market performance.  Yet this market emerged a long time ago (1971 was in fact when the term Silicon Valley was first coined) and although its fortunes waned when the tech bubble burst, a new wave of innovation and an insatiable consumer and corporate appetite for the fruits of that innovation, has brought renewed optimism that a new growth spurt is upon us.  It is an optimism that is well founded. More than 75% of occupier demand is being generated by tech firms involved in search, social media, mobile and cloud computing whilst financial services, legal and the public sector are still contracting their footprints.

Accordingly, both Silicon Valley and its adjacent City, San Francisco, are at the very head of the Q4 US Office Property Clock.

But of course for the technology companies themselves – as occupiers of real estate – this generates an environ of rising real estate and operational costs and the pressures of accommodating growth.  Rental growth in tech heavy submarkets (Silicon Valley and San Francisco) has skyrocketed by 30-40% in 2011 as firms compete for limited prime space opportunities.  In speaking to the real estate teams of two major technology firms it is clearly a pressure that is front and centre in their thinking.   

Given the growth trajectory of tech, there is a real concern about how to accommodate growth – not just here in the valley but also across global markets that also have a paucity of good quality supply.  A move to secondary space and a commitment to retrofit the space is one strategy that is gaining ground given that the supply of secondary stock across markets is more plentiful and the costs attractive.

The tech companies are also way ahead on the workplace productivity agenda item too.  Perhaps you would expect no less of companies responsible for the production of key productivity enablers.  Nonetheless, it is fascinating to see how these companies are embracing technology to work the space harder in terms of occupational densities; create more flexible but fully connected workspaces that promote collaboration and creativity; and indeed using technology to make the experience of the office users more efficient.  Its impressive and it enables a more efficient approach to accommodating growth.

My final observation from a day of fascinating meetings is that whilst these technology occupiers are in many ways at the vanguard of best practice – they are not slowing in their resolve to think and act differently.   Currently occupying their minds is the issue of worker mobility – both the classic chicken and egg scenario of taking the work to workers or seeing the workers go to the work but also how to use technology to create truly mobile but totally connected workforces.  More on that next time.

Posted in Occupier Research | Comments Closed

A Letter from America

January 18th, 2012

Lee ElliottPosted by: Lee Elliott
National Director
Jones Lang LaSalle EMEA Research

I write this through bleary eyes whilst trying desperately to stifle another severe attack of yawning  (Readers – it is my fervent hope that you do not suffer a similar reaction upon reading what follows).  The cause?  A long and most restless night fuelled with panic, nerves, excitement and an unnerving sense that something was missing.  (No – my beloved Charlton Athletic FC were not playing!).  In truth, it is always the same on the eve of an overseas trip.  My worries were varied.  How would my three little ones cope without me for nine days?  How would my dear wife cope?  (Not without me you understand but with the aforementioned children!) Then there were more mundane or surreal panics about not being able to find my passport; the boarding pass being eaten by a dog I don’t even have; the visa being refused at the point of entry; and getting stuck on the M25 for hours and missing my flight.  You get the picture.   Irrational? Yes  (well excepting the M25).  Irritating? Certainly.  It wasn’t a great night.  And now I am paying for it. 

But do you know what panicked me the most?  The fear that by the time I complete my transatlantic flight, the PowerPoint based storyboard that is my sole companion on this journey will be out of date. The pace of change we are experiencing; the release of yet more economic data and even more headline grabbing political rhetoric; and the ensuing fog of analysis, will all combine to greatly heighten the risk of this and make the task of calling the market harder than it has been at any time in the decade I have been trying to do so.

Still for now it’s out of my control.  So I sit here, tired, aboard flight BAxxx bound for San Francisco.   We are ten minutes into a near ten-hour journey.  The guy in front of me has catapulted himself backwards to within a matter of inches of my nose and in so doing has made me even more attached to my MacBook Pro than I already was (ah the delights of economy!).  The incessant screaming of babies shows no signs of abating (though I have a deep sympathy with the parents, having the t-shirt and all) and the stench of ‘lunch’ slowly cooking in foil containers has already permeated the cabin (but I know that intrigue will see me devour the kaleidoscope of foodstuffs that will shortly appear before me).  Yet, despite this auspicious start, I am excited about what awaits.

Because what awaits is an amazing opportunity to gauge the temperature of Corporate America.   Over the next nine days I will be presenting to more than 300 corporate real estate professionals via direct client engagements and a speaking slot at CoreNet’s Annual Global Property Review.   What better way to feel the pulse of a corporate audience that has been at the very forefront of real estate outsourcing and innovation?   What better way to get some sense of direction for our industry; a sense of the strategies that people are adopting in these difficulty times; and a sense of where the opportunities exist – because they always exist, just not necessarily in the places or practices of the past. 

I expect to learn a lot.  I expect to be surprised.  Moreover, I fully expect to be in the spotlight.  Europe right now presents more questions than answers.  It’s only right that clients look to people like me for direction and insight if not fully baked answers.  I can’t wait to get started.  I will be sure to share my findings and my thoughts with you via further blog entries. You will know by now that I have a penchant for using song titles for my blogs (Yes I couldn’t break the habit here and yes I admit I do have that short but perfectly joyous album that is The Proclaimers Greatest Hits).  With that in mind, I thought it only right to let you know that tomorrow will see me making my way to San Jose to explore what’s preoccupying the tech sector. You know what’s coming … don’t say I didn’t warn you!

Posted in Occupier Research | Comments Closed

Seismic shift for the landlord-tenant relationship:

November 15th, 2011

Is partnership the new model?

Lee ElliottPosted by: Dr Lee Elliott
EMEA Corporate Research
Jones Lang LaSalle EMEA Research

Traditionally, investors have had the upper hand in office development. Secure the site, planning, funding, press the button and hope the timing is right on delivery. However, our research shows that this is changing: occupier power is forecast to rise over the next decade, ahead of cyclical factors. As property has risen up the corporate agenda, investors/developers have become constrained in bringing new spaces to markets. Developers need high-quality occupiers. Occupiers need high-quality developments.  High-quality spaces will directly impact staff recruitment, retention and performance. They will be critical to worker productivity and, ultimately, corporate profitability, but access to ready-made, high quality solutions is becoming more limited.

Right now, occupiers have a tremendous negotiating position in the market. Now is the time that they can really influence what gets built. Their brief can become much more detailed − from location, capacity, density, sustainability, security and air conditioning right down to the sprinklers. Furthermore, flexible, long-term partnerships with developers will lead to better outcomes for both parties, especially in the absence of debt funding. Add to this a legislative element – the inevitable extra scrutiny of leases emanating from lease accounting – and you have a potent mix for change.

Share your opinions on Offices 2020, give us your feedback to our emails, regular blogs and Twitter posts. Be part of our Offices 2020 LinkedIn group

 *[Offices 2020 is an ongoing thought-leadership initiative from Jones Lang LaSalle looking at the next 10 years of the office real estate industry across Europe, the Middle East and Africa]

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Occupier power, how to deal with it

November 9th, 2011

Jones Lang LaSalle Real Estate Occupier ResearchPosted by: Alexander Colpaert
EMEA Office Research
Jones Lang LaSalle EMEA Research

Put a handful of landlords in a room together with some occupiers and watch what happens. The outcome is likely to be a surprising amount of cordiality and good will. But dig deeper and cracks become apparent on both sides. Landlords complain that occupiers don’t know what they want. Occupiers retort they are not happy with their fit-outs. Is this disconnect down to poor communication? The physical and costly nature of real estate and the time between decision and completion? Or does it reflect the competitive nature of landlord-tenant relationships?

Our Offices 2020* study shows that the pendulum is firmly swinging towards occupiers over the next few years. A straw poll at one of our events indicated 80% of clients expected occupiers to become more powerful – ahead of cyclical factors such as the economy. Property is becoming more important for occupiers, who increasingly see it as a key strategic part of their business − some occupiers are already employing real estate executives in very senior positions and property is being recognised as a tool for recruitment and retention, and branding.

What can landlords do to address this rising negotiating power? The answer lies in focusing on ongoing partnerships. Funding for office development is unlikely to return to pre-2007 volumes of debt, so inventive collaborations with corporate clients will be required to fill the gap. Occupiers will control a greater degree of the development pipeline going forward.

However, being a good relationship manager is not enough. To succeed, developers have to become more flexible within their portfolios and pass this onto their clients. They should know what’s core and what’s secondary to their clients’ businesses and geographies. They also need to adapt their business strategy and prepare for the changes coming over the next 10 years.

Share your opinions on Offices 2020, give us your feedback to our emails, regular blogs and Twitter posts. Be part of our Offices 2020 LinkedIn group

 *[Offices 2020 is an ongoing thought-leadership initiative from Jones Lang LaSalle looking at the next 10 years of the office real estate industry across Europe, the Middle East and Africa]

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Dubai gets a $1 billion boost 

October 28th, 2011

Posted by: Craig Plumb
Head of Research – MENA
Jones Lang LaSalle EMEA Research

While a number of global real estate funds have looked closely at opportunities in the Dubai market over the past two years, no suitable deals have been sourced and they have all left town empty handed.  Today’s announcement that Brookfield Asset Management has teemed up with the Dubai Governments ICD (Investment Corporation of Dubai) to establish a new fund of up to $1 billion, entirely focussed on assets in Dubai is therefore a welcome shot in the arm for the market.  Sentiment is a major driver of the Dubai market and this announcement represents a welcome indication of the re-emergence of local as well as international institutional investor appetite, which has been largely absent since the on-set of the credit crisis in 2008. Although challenges in Dubai remain, with the right strategy, this fund could sweep up some interesting opportunities and begin to establish some consistent pricing & yield benchmarks which have hitherto been missing due to the limited transactional activity.

Posted in Investor Research, Occupier Research | Comments Closed

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