It`s not just American developers who are eyeing Europe. Commercial real estate brokers are trying to establish themselves across the Atlantic as well. While developers have been setting up offices and forming joint-venture partnerships with European firms, U.S. real estate brokers have been busy creating international networks with their overseas counterparts to capitalize on the growing global market.
”Most real estate companies already have relationships with corporations that are asking questions about real estate in Europe. You want to be able to answer them,” said Tom Driscoll, president of the Office Network, which represents 28 companies with 108 offices around the world.
”There hasn`t yet been the wave that people expected. But a lot are looking,” said David Allen, chief executive of Edward Erdman, a London real estate firm that is a member of the Office Network.
Burt Fohrman, who heads the worldwide real estate practice for the law firm of Jones, Day, Reavis & Pogue, said that it is American and Japanese corporations that are the most serious in examining the European markets.
One of the priorities for those firms, and one of the things that both developers and brokers can help provide, is office space in ”smart”
buildings with American-style offices and state-of-the-art communication technology, things that are not always easy to find in Europe, Forhman said.
”A lot of people took a lot of convincing about Europe. Now that they realize what`s happening, they are scuttling around like chickens with their heads cut off,” said Michael Corbett, managing partner in the London real estate firm of Grimley JR Eve.
”Your clients are already there, trading in Europe. And that`s where they want you to be,” Corbett told members of the New American Network gathered for a symposium last fall in Chicago. The network, of which Hiffman Shaffer Anderson Inc. is the Chicago affiliate, represents 250 brokers in 85 cities around the world.
With the coming of Europe 1992, which will create a single European economic market, and the democratization of Eastern Europe, a growing demand is predicted for all types of real estate products and services.
”When the (economic) barriers come down, companies that have seven warehouses in seven countries are going to want to consolidate,” said Robert Rosen, president of Frain Camins & Swartchild, the Chicago representative to the Office Network.
”If you are making ball bearings in France and Germany and storing them in two 20,000-square-foot warehouses, you`re going to find that one 30,000-square-foot facility will be more efficient,” Rosen said. ”That will generate real estate activity even without any further expansion of the markets.”
That kind of maneuvering is happening already, said Heinrich VIII. Prinz Reuss, partner with Mueller International Property Agents in Frankfurt, Germany.
”Companies are relocating already or logistically rethinking their positions,” he said.
American companies, used to working through real estate brokers in the United States, will find that many of those same brokerage firms will be able to handle their international leasing and consulting needs through any of a number of cooperative ventures that have been formed. For example:
– Cushman & Wakefield in New York has teamed with Healey & Baker in London to provide services such as industrial brokerage, consulting and real estate investment banking to clients in each company`s domain.
Cushman & Wakefield will provide real estate services to Healey & Baker`s clients in the U.S. and Canada, while Healey & Baker will do the same for Cushman & Wakefield clients in Europe.
”Together we can capitalize on (each company`s) relationships and provide our clients more local market coverage. It`s the combination our clients need on the eve of the European economic union in 1992,” said Arthur J. Mirante II, president of New York-based Cushman.
With 53 offices, Cushman & Wakefield Inc. is one of the largest U.S. commercial real estate services firms. Healey & Baker, one of the largest commercial real estate firms of its kind in Europe, employs 670 professionals at its head office in London and other offices in Glasgow, Brussels, Amsterdam, Stockholm, Milan, Dusseldorf, Hamburg, Paris, Madrid, Jersey
(Channel Islands) and New York.
– Bennett & Kahnweiler Inc. in Chicago is an owner and member of Collier International Property Consultants, an organization of 32 independent real estate firms with 102 offices in Europe, Asia and North America. The venture has expanded rapidly in Europe, adding 18 offices earlier this year.
”Our growth is strategic and selective,” said Henry Mawicke, a principal with Bennett & Kahnweiler. ”We target key markets . . . so our clients can work with a service firm that knows them best for their international needs.”
– Coldwell Banker Commercial/Torto Wheaton Services, the research arm of Coldwell Banker Commercial Real Estate Services, has teamed up with Property Market Analysis in London to provide real estate research to U.S. clients seeking opportunities in Great Britain and the rest of Europe.
– Grubb & Ellis has established a European network consisting of itself and real estate firms in England, France, Germany, the Netherlands and Italy. Nearly two years ago, representatives of the firms began holding symposiums on the European market in various cities around the U.S.
– Century 21, one of the largest U.S. franchised real estate operations, recently added Italy to its European markets and expects to begin opening offices in northern Italy in the spring. Century 21 has 275 independently owned and operated offices in France and 41 in the United Kingdom.
And real estate firms are not the only ones in European ventures.
– Rudnick & Wolfe, with a large real estate practice, has joined with two other law firms to form East Europe Law, an association that will provide services to clients seeking to do business in Eastern Europe.
– Jones, Day, Reavis & Pogue, a Cleveland-based law firm, represents 15 of the largest general contractors in the world and three large developers eyeing Eastern Europe, according to James Hagy, a real estate attorney in the firm`s Chicago office.
– Chicago-based architectural firm Skidmore, Owings & Merrill has a London office and has been active in designing European projects, including its latest, the Exchange House in London.
At a time when real estate employment is shrinking in the U.S., the growth of these international networks will provide new career opportunities for those in this country who possess linguistic or cultural knowledge that American real estate firms would find useful, Rosen said.
”Real estate is suddenly a worldwide industry and it is never going to be just a local business anymore,” said Gerald Finn, president of the New America Network. ”We`re going to need talent beyond what we have had before.”
But as many in the real estate industry have learned when they strayed outside their own back yards, there is no substitute for knowing the market. That is part of the reason for the growth in the cooperative networks.
”You have to tap the local expertise. That`s the only way to go into any market,” said Allen, with Edward Erdman in London.
Especially when dealing in Europe, cultural differences can trip up the unwary, Hagy said. He cited the time when a closing in London in which a Jones Day attorney was representing an American investor had to be abruptly adjourned because the opposing counsel had a morning polo match.
And London is a property market that is fairly well understood by Americans. As a traditional financial center, it has become the prime point of entry for most Americans seeking to do real estate business in Europe, according to a study commissioned by Cushman & Wakefield and Healey & Baker.
In the survey, European executives chose Paris as the second best European business city and Frankfurt third. Following London, U.S. executives selected Brussels, Frankfurt, Paris and Amsterdam as the preferred European city to locate office facilities.
London also was the choice of American executives for the most attractive city to locate manufacturing facilities, followed by Frankfurt, Brussels, Amsterdam and Madrid. American CEOs also rated Dublin as the most attractive of the second-tier European cities in which to locate manufacturing plants.
”The UK real estate market should be more attractive to overseas investors (with the currency stability in Europe). The demand for space from occupiers remains strong,” said Laurence McCabe, chief executive officer of Dublin-based Goddard & Smith.
One of the biggest attractions of the European market is that office vacancies are low in most major cities, around 3 percent in many areas and as low as 1 percent in some markets. Consequently, office rents have been rising and most experts predict they will continue to go up as demand increases.
Office rents for prime space in London are $143 per square foot in the central city and $137 per square foot in the West End, according to Richard Ellis` World Rental levels.
London has an average demand of about 8.8 million square feet of office space a year with only 13.7 million square feet currently vacant in the city, said McCabe. Two major developments, Canary Wharf and Broadgate, will add to London`s office base over the next few years.
In Ireland, real estate prices have stabilized after about 18 months of growth, McCabe said. But those 18 months followed six years in which the real estate market was essentially stagnant, he said.
”The pent-up demand for property in Ireland has been released and the slowdown in the office market will continue,” he said.
About 1.5 million square feet of office space is scheduled to come on line in Ireland in the next six months, most of it in Dublin. A 1 million-square-foot dockside development has been proposed for Dublin that would cater to export and international service firms.
Outside the United Kingdom, Paris is a top draw for Americans
because of its high office demand and limited supply. Rents in Paris average $80 per square foot and are expected to go higher.
In Frankfurt, rents average $48 per square foot. Madrid, which is gaining importance as a European office center, has seen office lease rates of about $58 per foot. Brussels and Amsterdam are comparative bargains with office rental rates of $27 and $20 per square foot, respectively.
”We expected Copenhagen to attract a lot of American investment before the Iron Curtain fell. Now with the new (political) structures in all of the eastern countries, northern Europe can become a huge market because we are so close,” said Kurt Albaek, principal with Sadolin & Albaek in Copenhagen.
”Danish developers are not so strong as to be able to do it all themselves. It offers a good opportunity for foreigners to set up joint-venture partnerships,” Albaek said.
Albaek said that Copenhagen has been making the transition to an office service economy for the last 10 years. The harbor area has become a choice spot for development, yet even with the growth, office vacancies remain at about 2 percent.
Real estate experts also cite property markets in Madrid, Barcelona, Berlin, Milan and Zurich as attractive locations for companies expanding into Europe.
