Real estate has become a waiting game, as everyone pauses to watch for the ultimate impact that Wall Street will have on Main Street. Most industry professionals in the northeastern United States agree that the real estate market is fundamentally sound, and we expect the correction to be a healthy one.

In the meantime, the pressure-packed, competitive environment that defined real estate transactions of all sizes during the past several years is slowing down. Real estate executives and brokers who specialize in client services recognize that this presents an excellent opportunity to take some time to examine just how the industry is changing and to strategize accordingly. Changing times require changing strategies.

A new way of thinking

Workforce mobility is perhaps one of the most significant shifts impacting office space needs today. Professionals are literally doing business any place at any time. From voicemail to fax to email, technology has made it possible for companies to change their ways of operating. As a result, progressive organizations are already incorporating open landscapes and other new concepts, moving toward an enhanced level of occupancy efficiency. Mobility ultimately reduces space needs in some areas and increases requirements in others.

The intrinsic value of real estate, beyond the operational unit, is also part of today’s “new” thinking. In tough times, savvy companies can add to their earnings by reducing occupancy costs. Lower costs per square foot, locational incentives and other “overturned stones” can make an impact on the bottom line.

For corporations that own real estate, alternative means of controlling their assets can help to generate capital for the core business. Sale leasebacks and synthetic leases have become popular financial techniques effectively providing lower costs of capital, as would be typically achieved through traditional channels. The synthetic lease, in particular, has quickly gained steam as an alternative off-balance-sheet mechanism suitable to new acquisitions providing for a cost of funds marginally above a company’s senior debt rating.

An evolving playing field

Beyond the changes in the way companies are using and controlling real estate, the industry is also seeing a shift in the ownership and availability of product. Perhaps most significantly, the universe of real estate players has become progressively smaller in the past decade, largely resulting from the many REIT mergers, both public and private. This has created an increasing amount of standardization, which has both benefits and drawbacks. It can be quite positive when good working relationships exist between the landlord and tenant entities. Continuity across transactions and deeper understanding of corporate cultures could result in more efficient analyses and implementations. Conversely, many landlords now have a confluence of authority in a given area, which could diminish tenant negotiating power.

At the same time, landlords are eager to move forward on new developments, yet financing remains largely dependent on pre-leasing. Today, dozens of projects are ready to move forward once significant commitments have been secured. This provides a wealth of opportunity for users looking to establish or increase their presence in a region, vis-á-vis a new development project requiring an anchor or “hurdle” occupancy.

Capitalizing on change

In this dynamic environment, real estate decision-makers must be cognizant of the changing landscape and effectively marshal the opportunities presented. Many have recognized the evolving role of brokerage professionals and the strategic assistance they are providing. At Cushman & Wakefield, for example, our Corporate Services division has grown significantly during the past few years. Our clients no longer consider us “space finders,” rather they see us as consultants who provide top-to-bottom assessments/implementation of transactional, as well as larger, strategic corporate needs.

During the past ten years, my team has handled East Coast leasing operations for various Fortune 500 companies. This has included negotiating more than 10 million square feet of transactions and providing in-depth market research and consulting. Some relationships are classic outsourcing scenarios. My team works as a seamless adjunct of the company’s internal operations. We are defacto employees, and we have the same level of commitment to the firm, as does the in-house team. We know the organization’s policies, procedures and protocols inside out. We understand their culture and their goals. They benefit from our expertise and a wealth of resources at their disposal.

In other cases, our relationship with clients is not as traditional. In either instance, it is our “best-of-class” work product and professional approach on behalf of our clients that earns us the opportunity to represent their needs on a continuing basis.

Looking forward

Today, Cushman & Wakefield’s Corporate Services division serves more than 300 leading organizations worldwide. The companies that are augmenting their internal real estate departments with outside services like ours include a diverse mix of industries –- shipping, telecommunications, pharmaceutical, auto manufacturing, marketing and advertising, dot coms and more. They use companies like ours across broad geographical territories and all product types. Each uses its strategic partner or partners in its own way. In every case, successful relationships rely on candor, open dialogue and clear expectations.

Today, more than ever, the role of the real estate services provider can play a critical role in helping corporate real estate executives position their firms to capitalize on existing and future trends. Following the unprecedented amount of real estate activity over the past few years, this moment of quiet however short it may ultimately be is the time for thoughtful, forward-thinking analysis. Companies that take advantage of the current market by embracing this opportunity to review what has been done, to eradicate the failures and to model future successes, will be positioned to move forward with confidence when activity picks up again.

Published: June 29, 2001

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