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Operating in a
Market
CoreNet Global Mid-Atlantic Chapter
January 25, 2012
Global
1
Introductions
Moderator: Eric Thorpe, Managing Partner, Terra Novo LLC
Panelists: Barry Beswick, Regional Director, Capital One
Pierce DeGross, Vice President, Global Workplace Services, Hilton Worldwide
Thierry Delvaux, Managing Director – International Desk, Jones Lang LaSalle
Jo Ann Lane, Global Real Estate Leader, Genworth
Pete Stanford, Managing Director, Principal, Cassidy Turley
2
Global Trends Impacting CRE
Demographic Drivers – China, Europe, Japan, Russia – Africa, Brazil, India, Indonesia, US
Cultural and political evolution – India, Middle East, Latin America
Economic Challenges – Business continuity, debt, education,
natural resources, trade
Service provider industry – Present structure is a North American
and West European model
3
Global Demographic and Debt Data
United States 2.06 4.18 8.38 0.96 68.9%
Brazil 2.18 -0.09 6.36 1.13 57.5%
Canada 1.58 5.65 7.98 0.79 82.0%
China 1.54 -0.33 7.03 0.49 17.4%
India 2.62 -0.05 7.48 1.34 55.2%
Indonesia 2.25 -1.15 6.26 1.07 25.6%
Japan 1.21 0 10.09 -0.28 200.5%
Russia 1.42 0.29 16.04 -0.47 9.0%
South Korea 1.23 0 6.26 0.23 23.6%
Sources: CIA World Fact Book, 2011 Estimates; The Economist, Global Debt Clock, 2011 Estimates. 1Note: Debt figures are derived from national definitions and therefore may vary from country to country.
4
Overview
Operating in a Global Market – A General Perspective Case Studies – CRE projects from around the globe – Shanghai, China – Tokyo, Japan – Glasgow, Scotland – Shannon, Ireland – Mexico City, Mexico – Bangalore, India
Key Lessons Learned Question and Answer Session
5
Americas Asia Pacific EMEA
Key International Markets
6
% of occupied stock
Offices – Net Absorption, Year to Q3 2011
Source: Jones Lang LaSalle, October 2011. Covers all office sub-markets in each city. Tokyo - CBD-3 kus
Americas EMEA
Asia Pacific
7
Completions as % of existing stock
Source: Jones Lang LaSalle, October 2011. Covers all office sub-markets in each city. Tokyo - CBD-3 kus
Office Supply Pipeline - Major Markets, 2012 - 2013
2012
2013
8
% change q-o-q
Global Office Index – Prime Rents
Based on rents for Grade A space. In local currency. Source: Jones Lang LaSalle, October 2011.
Global Top 10 Performers in Q3 2011
Americas EMEA
Asia Pacific
9
Global Office Index – Prime Rents Global Top 10 Performers in Q3 2011
Based on rents for Grade A space. In local currency. Source: Jones Lang LaSalle, October 2011.
Americas EMEA Asia Pacific
% change q-o-q
10
Q3 2011
Rental Value
growth slowing
Rental Value growth
accelerating
Rental Values bottoming out
Rental Values falling
Based on rents for Grade A space in CBD or equivalent. In local currency. As of Q3 2011
Paris, Stockholm Mumbai, Sydney, Tokyo
Hong Kong
London, Shanghai
Milan, Johannesburg
Chicago Madrid, Seoul
Rental Value growth slowing
Rental Values falling
Rental Value
growth accelerati
ng
Rental Values bottoming out
Detroit Los Angeles
Amsterdam
San Francisco Berlin
Moscow
Q3 2010
Mexico City
Singapore New York, Brussels, Frankfurt
Atlanta, Dallas, Toronto, Rome Dubai
Washington DC
Sao Paulo Beijing
Detroit Dubai, Seoul
San Francisco
New York
Washington DC, Toronto Milan
Dallas, Mumbai Atlanta, Frankfurt
Johannesburg
Chicago Rome Tokyo
Los Angeles Amsterdam Brussels
Madrid Berlin, Sydney
Stockholm
Sao Paulo Paris
Beijing
London
Moscow
Mexico City
Hong Kong
Singapore
Shanghai
Americas EMEA Asia Pacific
Prime Offices – Rental Clock, Q3 ‘10 vs Q3 ‘11
11
Case Study – Shanghai, CHINA Project Objective
– Determine if existing 12,500 RSF office should be expanded or relocated to accommodate a rapidly growing China business
Challenges – Market dynamics: high vacancy moving to low in 1 year – Speed of decision making required balancing business risks – New internal role for CRE in location where decisions were
localized – Instituting new workplace design
Value Delivered – Negotiated a smart expansion in adjacent space on floor with growth capability – Leveraged internal Hotel Design/Const. team along with JLL PM to design new workplace – Engaged Regional leaders to assist in socializing new workplace design with leaders in
Shanghai – Leveraged regional outside legal counsel to help manage through interesting market led legal
discussions Key Lessons Learned
– Seek pre-approval for any Asia project given market dynamics (multiple country experience) – Over communicate with key stakeholders in China given distance and lack of face time – Increase accountability/ownership of decisions
12
Case Study – Tokyo, JAPAN Project Objective
– Relocate existing 15K RSF Tokyo office to larger space in newer building Challenges
– Occupy space in 5 suites on 4 floors in 1950’s building – Rapidly growing business with no good expansion capability – Earthquake concerns paramount given March 2011 quake – Old IT infrastructure supporting multiple locations
Value Delivered – Relocated to new larger 16K RSF space at same rental cost – Ability to get entire operation on one floor with expansion
capability – Instituted new workplace design and enhanced IT infrastructure to better support the
business – Located two blocks away from our current hotel property – Achieved sustainability goals given very advanced building systems (HVAC, lighting, etc.)
Key Lessons Learned – Spend time gaining trust of local decision makers while aligning with regional leaders to
ensure success – Go to market as one-team with clear goals/objectives and understanding of who is leading
transaction – Take the time to understand the local business custom
13
Case Study – Glasgow, SCOTLAND Project Objective
– Determine what to do with existing 37K RSF office with upcoming lease expiration and changing business objectives (multi. Stakeholders)
Challenges – Legacy global back-office space with changing role – Dynamic headcount situation and some business
uncertainty – IT challenges with location supporting operations in
other countries – Tired facility with non-conventional owner/landlord
Value Delivered – Aided business leaders in understanding headcount
dynamics and solidifying “end-state” population – Achieved lease flexibility - able to terminate the new
on 35% of space in 2 years with improved lease economics on a 5-year lease – Obtained internal capital to do a much needed upgrade
while getting landlord to improve the exterior Key Lessons Learned
– Get to know your Landlord and local business custom up front – Don’t let the past drive the future – Sometimes projects take longer than normal and build that into your plan
14
Case Study – Shannon, IRELAND Project Objective
– Upgrade/Modernize EU Ops/AP Center and manage long-term business growth and productivity
Challenges – EU Debt Crisis impact on cost approval / funding by government & LL – Government Incentives – Options: Build-to-Suit vs. new 1st gen vacant building vs. 30Y old facility
Value Delivered – Comprehensive review of current site capital maintenance
program – Negotiation leverage of competing options – Due diligence/Structural survey for new 1st gen vacant building – Lease vs. Purchase proforma financial analysis
Key Lessons Learned – Irish government bureaucratic process – GNW business relationships with LL/local government officials – Free Zone tax and business benefits
15
Case Study – Mexico City, MEXICO Project Objective
– Manage immediate business growth, improve long-term secured office environment /release HQ guaranty
Challenges – Existing premises cannot house immediate growth in contiguous space – Create negotiation leverage with current LL for renewal vs. relocation – Cost implications of upgrading office environment
Value Delivered – New 1st Gen full floor office with improved space
efficiency – Lowered the effective occupancy cost vs. renewal
turn-key build-out & no dilapidations – Improved office environment - life safety systems, – client service and employee amenities – Safety/security upgrades – adjoining hotel and
transportation access to airport Key Lessons Learned
– Importance of safety/security for both local business and visiting HQ leadership – Culture impact on LL negotiations/competitive process – Space efficiency and effective occupancy cost to gain project approval
16
Case Study – Bangalore, INDIA Project Objective
– Relocate employees from 2 existing locations into new 60K SF office
Challenges – International-quality space inside Special Economic Zone – Employees of recently acquired entity had to move on
specific date – Significant facility/communications upgrades over
previous site – Incredibly dense bureaucratic processes, especially
SEZ rules Value Delivered
– New environment to accommodate doubled size of staff in India – Brought many “corporate standards” into design & fit-up – Introduced new employees into culture during move process – New space/location became recruiting tool for further growth
Key Lessons Learned – Remote project management difficult under best circumstances – get used to ‘0-Dark:30’
conf. calls – Value presence/knowledge of local management – Inclusiveness is critical – win over the locals to become part of the solution
17
Key Lessons Learned
Synergy of Corporate HQ & Service Provider is critical to success
Respect the local culture Precise communication and discipline process is
magnified Landscape of competent service providers is
constantly changing – “best-in-class” partners endure regardless of brand or business card
Multiple local service providers may be necessary in certain countries
18
Most Importantly… Expect the Unexpected!
19
Operating in a Global Market
Question and Answer Session
20
Thank you to our Sponsors!
21
PINNACLE SPONSORS:
GOLD SPONSORS:
Thank you to our Sponsors!
22
SILVER SPONSORS:
BRONZE SPONSORS:
23
Appendix
Key Business Term Differences
24
US/Canada Process International Custom
Process Lead Time 6-7 Months 9 Months +
Rentable Area of Premises 12-15% Add-On Factor Efficiency Ratio of 50-100% =
Up to 200% Add-On Factor
Lease Term 5 Year with 3 Year/Break Option Varies by Country
1-20 Years, Statutory Law
Currency US/Canadian $ Varies by Country – Local Currency Inflation Risk
Tenant Improvements Landlord Completes “Turnkey” No LL Contribution to Costs, Process Managed by Tenant
Security Deposit Negotiated – Typically None 1-6 Months Required (or Bank Guarantee)
Legal Review of Lease Completed Internally Outside Counsel Necessary
Taxes Typically None VAT/IVA/GST – 5% to 22%
End of Lease Term Remove Wiring, or None “Dilapidations” or “Make Good”
Process Challenges
25
Independent Client Business Units, weak ties to Corporate alignment
Limited HQ understanding of local customs and practices Variety of Language, Customs & Culture, Time Zones Markets with Very Low Vacancy, Non-Transparent processes Business Development – fluid business requirements in new
countries Role of Local Broker in Process can vary by country Legal conflicts (outside/local counsel vs. Corporate legal
policies) EHS/Life Safety conflicts (new country security vs. Corporate
policies)
26
United States 500 487 502
Brazil 412 386 405
Canada 524 527 529
China (Shanghai) 556 600 575
India1 337/317 351/338 348/325
Indonesia 402 371 383
Japan 520 529 539
Russia 459 468 478
South Korea 539 546 538
OECD Average 493 496 501
Source: OECD Programme for International Student Assessment (PISA) 2009 Plus Results. 1Note: Data is not consistent with that from other countries. Includes Tami-Nadu and Himachal Pradesh only.
Global Education Data
Office Vacancy Rates - Major Markets, Q3 2011
Europe 10.2% Asia Pacific 10.2%
Regional vacancy rates based on 46 markets in the Americas, 24 markets in Europe and 24 markets in Asia Pacific. Covers all office sub-markets in each city. All grades except Asia and Latin America (Grade A only). Tokyo relates to CBD only. Source: Jones Lang LaSalle, October 2011
Americas 16.9% %
27
Global Office Market Conditions Matrix*, 2011-13
* Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above. Source: Jones Lang LaSalle, October 2011
Market MARKET Chicago Brussels Beijing
Los Angeles Frankfurt Hong Kong
New York London Mumbai
San Francisco Madrid Shanghai
Toronto Moscow Singapore
Washington DC Paris Sydney
Mexico City Stockholm
Sao Paulo Dubai
2011 2012 2013 Market 2011 2012 2013 Market 2011 2012 2013
Tenant Favourable Neutral Market Landlord Favourable
Tokyo
28
Global Office Index – Prime Rents, 2008-2011 R
enta
l Cha
nge
(% Q
oQ)
Asia Pacific – stock weighted average of 27 markets; Americas – stock weighted average of 30 markets: Europe – stock weighted average of 24 markets Global Index based on GDP weighted average of the three regional indices Source: Jones Lang LaSalle, October 2011
29
% change
Prime Offices – Rental Change, Q3 ‘10 – Q3 ‘11
Based on rents for Grade A space in CBD or equivalent. In local currency. Source: Jones Lang LaSalle, October 2011.
Americas EMEA
Asia Pacific
30
GDP Change, % pa
Demand Drivers – GDP Change, 2012-2013
Source: IHS Global Insight, Experian, Jones Lang LaSalle, Conference Board of Canada, Deloitte Access Economics, October 2011.
Americas EMEA
Asia Pacific
31
