Corporate Real Estate Outlook: Cautiously Optimistic

A survey issued by Jones Lang LaSalle reveals that corporate real estate executives (CRE executives) are cautiously optimistic about the economy, but are still struggling to deal with a substantial inventory of excess space. Furthermore, new accounting rules regarding the impairment of excess space have created additional hurdles for CRE executives.

Almost half (49 percent) state that they are either "highly optimistic" or "somewhat optimistic," while 20 percent are neutral in their outlook. Less than a third (30 percent) are pessimistic. Perhaps out of familiarity or corporate loyalty, respondents are far more optimistic regarding their own company's prospects over the next 12 months. Two out of three (66 percent) believe their company's prospects will dramatically or somewhat improve over the next year.

Even with these optimistic economic projections, CRE executives report that excess space remains a problem. More than a third (35 percent) of CRE executives report that their excess capacity is more than 15 percent of their current portfolio, while 60 percent claim levels above 10 percent. Based on consensus economic growth expectations, this could represent two to three years of supply.

Relatively high levels of excess space may be causing CRE executives to be somewhat cautious in projecting when they will finally return to the market for additional space. When asked in what time frame they foresaw a need for net additional space in their portfolio, respondents offered a mixed outlook.

CRE executives – like the rest of Corporate America – continually are faced with the need to cut costs. One in three (38 percent) expect to have to deliver cost-cutting in the 0-10 percent rangeover the next 18 months, while roughly half expect to be asked to reduce real estate costs in the 10-15 percent range.

"Eliminating surplus space" and "Consolidating/co-locating space" were cited as the strategies with the most potential for cost cutting by 44 percent and 23 percent of respondents, respectively. Manufacturing space was named the most challenging for disposition, while headquarters and general office space were cited as offering the biggest opportunities for savings.

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