US Companies Remain Cautious in Overseas Office Market Recovery

Strategic Insights -

US companies are slowly emerging from the economic downturn but are still hesitant to expand their office presence overseas, defying expectations of a swift recovery in the global real estate market. Alistair Elliott, head of offices at Knight Frank, notes that only two out of the three typical signs of recovery have appeared: companies growing and hiring more people, and mergers and acquisitions resulting in new space requirements. However, there is yet to be a meaningful upturn in established companies' (office space) requirements. This has left many markets with vacant offices, including the Thames Valley west of London, where Exxon and Procter & Gamble are reportedly looking to consolidate their space, but not necessarily take on more.

Key Takeaways:

  • Alistair Elliott, head of offices at Knight Frank, states that only two signs of recovery have appeared: companies growing and hiring more people, and mergers and acquisitions, but not a meaningful upturn in established companies' (office space) requirements.
  • The lack of demand for office space from US companies has led to an oversupply of vacant offices in markets such as the UK and Europe.
  • Exxon and Procter & Gamble are reportedly looking to consolidate their space in the Thames Valley area, but not necessarily take on more.
  • Merger activity has not yet created extra space demands, and may even lead to a reduction in required space as combined companies reduce costs and staff.
  • Daniel Malachuk, senior managing director at CB Richard Ellis Consulting, expects private equity acquisitions to account for 10 to 20% of the US M&A market, up from about 5% today.
  • US company appetite for space in Europe is expected to remain low due to outsourcing to inexpensive, English-speaking job markets, such as India's.
  • French and European companies dominated the French office market, with domestic French companies accounting for 90% of transactions greater than 5,000 sq metres.

Statistics:

  • 10-20%: Expected share of private equity acquisitions in the US M&A market, up from about 5% today (Source: Daniel Malachuk, CB Richard Ellis Consulting).
  • 90%: Share of transactions greater than 5,000 sq metres in France accounted for by domestic French companies (Source: Yann Miolini, CB Richard Ellis France).
  • 10%: Share of transactions greater than 5,000 sq metres in France accounted for by Italian and British companies (Source: Yann Miolini, CB Richard Ellis France).
  • 5%: Current share of private equity acquisitions in the US M&A market (Source: Daniel Malachuk, CB Richard Ellis Consulting).
  • $[unknown]: Value of Comcast's hostile bid for Disney (Source: [unknown]).
  • $[unknown]: Value of Oracle's unsolicited offer for Peoplesoft (Source: [unknown]).

Sources:

  • "We are in recovery mode, but we still have an oversupply of offices throughout the UK and Europe." - Alistair Elliott, head of offices at Knight Frank.
  • "I have not witnessed any meaningful upturn in established companies' (office space) requirements." - Alistair Elliott, head of offices at Knight Frank.
  • "Private equity acquisitions are expected to account for 10 to 20 per cent of the US M&A market, up from about 5 per cent today." - Daniel Malachuk, senior managing director at CB Richard Ellis Consulting.
  • Domestic French companies accounted for 90% of transactions greater than 5,000 sq meters in France, with Italian and British companies taking up 10% of large spaces. - Yann Miolini, CB Richard Ellis France.