New Grubb & Ellis/Knight Frank Global Real Estate Forecast Warns U.S. Companies to Get Past Recession

Advice Is to Begin Strategizing U.S. and Global Real Estate Asset Positions For Upturn

March 11, 2002

21 min read

NEW YORK and LONDON, March 6 /PRNewswire-FirstCall/ -- U.S. office buildings may be swimming in high vacancy rates and surprising levels of sub- lease space, but the Moscow office market is tightening and Class A office space in many European capitals remains severely under built.

Like South America in the Western hemisphere, Africa is becoming more attractive to expanding multi-national companies in Europe, and the economic reverberations that began in American markets with the September 11 tragedy have now reached across the Pacific to affect business confidence in Melbourne.

Meanwhile armed with a new membership to the World Trade Organization, China's office markets are on the move again.

These are some of the findings contained in a Global Real Estate Forecast released this week by global business advisors Grubb & Ellis and its London- based global initiative partner, Knight Frank. The joint market forecast (available online at http://www.grubb-ellis.com/marketintelligence/GlobalBook.pdf) follows on the heels of a detailed look by all 52 Grubb & Ellis offices and affiliates at the real estate prospects for key American markets.

Although the report warns that rapidly shifting global real estate markets will create tougher decisions for companies looking to expand operations overseas, Grubb & Ellis CEO Barry Barovick is advising all American companies to look past the current down market. "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 Barovick. "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." Barovick added that as one of the top cost centers for any company, real estate strategic planning on a corporate level is finally getting more respect as an issue tackled in many board rooms across the country, and the world.

John Martin, Senior Partner of Knight Frank, the UK-based property consultancy, agrees, adding that the two firms feel this global forecast initiative is an important exercise because "having a global presence is not just an option for many companies, it's a requirement." That need, he says, is also requiring study of more than just rental figures. "We think it's imperative that our clients have more and better market intelligence from a world market perspective."

The new global market intelligence report also tends to look at American markets in the context of world business movements. "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.

Other Grubb & Ellis / Knight Frank findings included: -- New York will enjoy a healthy comeback, if not by the end of this year, in 2003. "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. 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," said Barovick. "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." -- Southern California is likely to witness strong growth fueled by a coming of age of the biotech industry and heavy military spending. The Southeast is likely to be the first to emerge from the current recession, with the Tampa Bay market emerging as a key growth barometer. -- In Africa, countries with improving policy environments, like Botswana and Uganda, are expected to attract more international business. "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. From what we've seen the attraction among Euros to sub- Saharan markets is growing with some consistency," said Knight Frank's Martin. -- European capitals like London, Madrid, Paris, Lisbon and Amsterdam saw a reduction in office space demand last year, while Berlin saw an increase. Unlike U.S. markets, many of these markets also have extremely low vacancy rates.

With European markets likely to remain resilient to the U.S. recession, investment in commercial property is likely to remain vigorous. New office development is actually increasing, especially in markets suffering from scarcity of space options. The report points to Frankfurt, Paris, Lisbon and Barcelona as particularly attractive investment markets.

To download a copy of the 2002 Global Real Estate Forecast, 2002 U.S. local market forecasts, or data on Global Office Occupancy Costs from Grubb & Ellis and Knight Frank, visit http://www.grubb-ellis.com/marketintelligence .

Grubb & Ellis:

Grubb & Ellis (NYSE: GBE) is a business advisory firm with global expertise in real estate. As one of the leading providers of multi-level solutions for businesses and corporations worldwide, Grubb & Ellis delivers strategic planning, property and asset management services, and transaction expertise in both corporate and investment real estate. With the collective resources of more than 8,000 people in over 200 offices in 29 countries, including its affiliates and a strategic initiative with Knight Frank, one of the leading property consulting firms in Europe, Africa and Asia Pacific, Grubb & Ellis provides a single point of contact for clients addressing commercial real estate issues seamlessly. For more information, visit the company's website at www.grubb-ellis.com .

                      GLOBAL OFFICE OCCUPANCY COSTS
                         4th Q 2001 v. 4th Q 2000

  RANK    RANK                        RENT (US$) RENT (US$)    %
4Q 2001  4Q 2000  MARKET       REGION  4Q 2000    4Q 2001    CHANGE

  1        1      London       Europe  $151.55    $149.04     -1.7%
  2        2      Tokyo        Asia    $112.02    $107.20     -4.3%
  3        6      Paris        Europe   $69.50     $69.31     -0.3%
  4        7      Hong Kong    Asia     $69.19     $69.00     -0.3%
  5        5      Zurich       Europe   $70.18     $64.79     -7.7%
  6        9      Moscow       Europe   $61.04     $62.89      3.0%
  7        8      New York     United
                                States  $64.52     $59.16     -8.3%
  8       11      Frankfurt    Europe   $55.60     $57.92      4.2%
  9       13      Geneva       Europe   $52.91     $53.09      0.4%
  10      12      Dublin       Europe   $54.87     $52.18     -4.9%
  11      10      Stockholm    Europe   $60.54     $46.51    -23.2%
  12       3      San Jose     United
                                States  $83.64     $45.31    -45.8%
  13      17      Madrid       Europe   $41.42     $45.23      9.2%
  14      14      Sydney       Asia     $45.11     $41.67     -7.6%
  15      21      Milan        Europe   $34.51     $38.97     12.9%
  16       4      San Francisco United
                                 States $77.50     $37.71    -51.3%
  17      18      Warsaw       Europe   $37.35     $37.35      0.0%
  18      22      Fairfield    United
                   County       States  $34.33     $37.30      8.7%
  19      25      Shanghai     Asia     $32.71     $36.42     11.3%
  20      26      Amsterdam    Europe   $32.37     $35.52      9.8%
  21      15      Boston       United
                                States  $45.00     $34.50    -23.3%
  22      16      Oakland      United
                                States  $43.18     $33.76    -21.8%
  23      20      Berlin       Europe   $35.43     $33.67     -5.0%
  24      23      Washington,  United
                   DC           States  $33.20     $32.47     -2.2%
  25      24      Chicago      United
                                States  $32.94     $32.31     -1.9%
  26      30      Westchester  United
                   County       States  $29.26     $31.54      7.8%
  27      19      Seattle      United
                                States  $36.45     $31.32    -14.1%
  28      28      Los Angeles  United
                                States  $29.72     $30.56      2.8%
  29      29      New Jersey   United
                   No. & Central States $29.72     $30.10      1.3%
  30      32      San Diego    United
                                States  $28.39     $30.00      5.7%
  31      33      Miami-Dade   United
                                States  $28.00     $29.22      4.4%
  32      31      Barcelona    Europe   $28.59     $28.31     -1.0%
  33      37      Long Island  United
                                States  $27.23     $27.00     -0.8%
  34      36      Palm Beach   United
                   County       States  $27.31     $26.86     -1.6%
  35      39      Minneapolis  United
                                States  $26.73     $26.85      0.4%
  36      34      Detroit      United
                                States  $27.76     $26.62     -4.1%
  37      27      Orange County United
                                 States $31.44     $26.52    -15.6%
  38      48      Philadelphia United
                                States  $24.24     $26.51      9.4%
  39      38      Brussels     Europe   $26.97     $25.76     -4.5%
  40      35      Melbourne    Asia     $27.43     $25.39     -7.4%
  41      46      Austin       United
                                States  $24.83     $24.95      0.5%
  42      42      Lisbon       Europe   $25.41     $24.94     -1.8%
  43      53      Houston      United
                                States  $23.46     $24.60      4.9%
  44      41      Vienna       Europe   $25.64     $24.25     -5.4%
  45      51      Cleveland    United
                                States  $23.65     $24.06      1.7%
  46      44      Atlanta      United
                                States  $25.12     $23.92     -4.8%
  47      49      Portland     United
                                States  $23.85     $23.86      0.0%
  48      47      Broward      United
                   County       States  $24.61     $23.76     -3.5%
  49      43      Sacramento   United
                                States  $25.40     $23.71     -6.7%
  50      45      Prague       Europe   $24.95     $23.65     -5.2%
  51      52      Dallas       United
                                States  $23.52     $23.58      0.3%
  52      50      Phoenix      United
                                States  $23.79     $23.20     -2.5%
  53      56      Orlando      United
                                States  $22.27     $22.53      1.2%
  54      40      Denver       United
                                States  $25.72     $22.52    -12.4%
  55      54      Pittsburgh   United
                                States  $22.93     $22.36     -2.5%
  56      59      San Antonio  United
                                States  $20.33     $21.34      5.0%
  57      58      Tampa        United
                                States  $21.56     $21.30     -1.2%
  58      55      Budapest     Europe   $22.82     $20.22    -11.4%
  59      60      Riverside-San United
                   Bern          States $18.49     $19.98      8.1%
  60      57      Kuala Lumpur Asia     $21.71     $19.75     -9.0%
  61      61      Jakarta      Asia     $18.45     $14.82    -19.7%

http://www.grubb-ellis.com/marketintelligence/GlobalOfficeOccupancyCosts.pdf

Source: Grubb & Ellis/Knight Frank