Global Offshoring and Its Effects on United States Office Space Demand   By: Jeffrey S. Weil, MCR.h, CCIM, SIOR, Senior Vice President COLLIERS INTERNATIONAL 1850 Mt. Diablo Blvd. Suite 200, Walnut Creek, CA 94596 Phone: 925.279.5590  Fax: 925.279.0450 jweil@colliersparrish.com     www.officetimes.com

 

Global Offshoring is the movement of job functions to lower cost centers.  This has been going on since the 1960’s and 1970’s in the manufacturing sectors, but only recently with the advent of high-speed internet transmission of data has this had a dramatic impact on United States office sectors.  There has been an avalanche of media illustrating both major corporate offshoring successes as well as shortfalls.  As I write this article legislatures at both State and National levels are working on raising barriers to various forms of global offshoring.

 

What is the reality of Global Offshoring in terms of actual corporate cost savings and it’s current impact on the usage of US office space? Is this a long-term restructuring of the way corporations will conduct business in the future?  If so, what will be the long-term impact on US office space demand?

 

It is my premise that Global Offshoring will have a larger long-range impact on the way we do business than most people realize.  The agricultural and manufacturing revolutions changed the way we farmed and produced goods, allowing fewer workers to produce more at much higher efficiency levels.  Today’s farmers number only a fraction of the number that existed back in the 1920’s and 1930’s, yet produce many, many times the output.  The combination of specialized farm equipment, the usage of technology and science in growing and harvesting has allowed tens of millions of jobs to be transformed into the burgeoning manufacturing and service sectors.  The same holds true for manufacturing, and accelerating this change was the relocation of manufacturing facilities in many industries from the United States to Mexico, Asia, Eastern Europe and elsewhere where labor and costs were significantly less than those experienced in the United States.  There was resistance in past years when a textile facility was closed in Northern Carolina or other Southern States and a new facility was constructed in Guam, or when a parts factory shut down in the Iron Belt and these functions were relocated to Taiwan.  This also held true when our own, non-exportable services were eliminated due to technology.   As one specific example, back in the 1940’s and 1950’s it was common for office building elevators to have an elevator operator in each cab who would safely guide you to the appropriate floor, but through technology these jobs have all but disappeared.  As recently as the 1970’s it was a human operator who helped place your long-distance calls and a human assistance representative who looked up a telephone number for you.  These jobs are now reduced to only a fraction of what once was.

 

It’s been a recent “hobby” of mine to track media articles on “Offshoring” as well as interview clients who have sent jobs overseas.  Has it worked, is it really as cost-effective as is claimed, and what bodes for offshoring in the future?  There have been a number of laid-off employee demonstrations against this trend recently, citing United States job loss and diminution of United States financial strength.  Before I begin citing articles and experts, let’s take a few steps back and look at what offshoring of former United States industries has created.  Go into most department stores, toy stores, big box retailers and even many specialty stores, and begin examining where much of what we buy is actually produced.  Much of our clothing, toys, appliances, consumer electronics, etc., etc., and etc. are manufactured overseas.  Can you imagine if some of these industries were forced to remain in the United States?  I can just envision $250 for a non-designer pair of jeans, and 200 to 500 percent higher prices for much of what we take for granted.  Compare the United States to most of the world and what we have to bear for living in this great country.  Just the permits and fees in many locales exceed the cost to build a house in a third-world country.  I’ve traveled in Asia, Africa, Central and South America, Europe and the Middle East, and our country’s office buildings are safer and more accessible than most; our workers have more benefits, safer work environments, and more protective laws than most; our housing is more regulated, and of higher quality than most parts of the world; our police and military are better trained, better educated and better equipped than most of the world; and it should come as no surprise that the cost to live and work here in the United States is higher than most parts of the world.  Our worker’s compensation insurance, employee medical plans, benefits, paid vacations, the safety of our buildings in regard to elevator, seismic, fire, disability access, our mandatory mass transit rules (how many “less-fortunate” countries run bus service when the bus is 95 percent empty most of the time?), our labor laws, the sheer amount of government rules, paperwork, our legal system, our “not in my backyard” mentality that seems to go hand-in-hand with living in America – no wonder it is so much cheaper to produce products overseas, and now, to provide IT, engineering, accounting, call center and countless other aspects once retained solely in the United States.  An engineer in the United States, including overhead and management, might cost $80,000  to $120,000, whereas someone equally as skilled in India might cost $15,000 to $20,000.  Thus, for a company to competitively bid on a job in today’s global environment, offshoring is not an option but a necessity for business survival.  San Ramon Valley Herald (9/10/03), “A $50,000 to $60,000 software developer job in the Bay Area might pay about $6,000 a year in India.  In addition, a large percentage of students taking computer science and engineering in American universities are foreign nationals who are the very people United States tech companies are hiring overseas.” … “ChevronTexaco Corp. plans to move about 200 accounting jobs from the United States to the Philippines and eliminate another 175,” CC Times (9/9/03) … “One in 10 technology jobs at companies that specialize in information technology, or IT, services – and one in 20 at ordinary firms – will be sent to low-cost overseas companies by 2004, predicted technology advisory firm Gartner in a report released Tuesday.  The trend is unstoppable and permanent, in Gartner’s view.  Less than 40 percent of United States workers whose jobs are taken over by lower-paid overseas counterparts will find other roles at their companies, the study predicts.  The rest will be thrown in the already hard-knock job market, San Francisco Chronicle (8/25/03).  “Cadence Design Systems plans to move more of its Silicon Valley jobs to China and India as it cuts costs amid stiff competition and an industry downturn,” SF Chronicle (8/25/03) … “The Boston Globe revealed the reason why tens of thousands of IT jobs have been outsourced overseas in the last couple of years, and why major American banks, brokerage houses and insurance companies plan to shift 50,000 more jobs overseas in the next five years.  MBA graduates of the Indian Institute of Technology can be hired for $12,000, compared to the average starting salary of Harvard Business School graduates of $102,330.  A study by Forrester Research of Cambridge, Massachusetts estimates that the rush to export United States jobs will accelerate and corporations will send 3.3 million American jobs overseas by 2015.  India is expected to get 70 percent, because many Indians speak English. The future is now.  United States companies are already using Indian employees to do research and development, prepare tax returns, evaluate health insurance claims, transcribe doctor’s medical notes, analyze financial data, call on overdue bills, read CAT scans, create presentations for investment banks and more,” The Valley Citizen (September 2003) … 3.3 million jobs @ 200 sf per employee equates to 660 million sf of office space that would otherwise be needed in the U.S. … “Although India controls 83 percent of the outsourcing market, it isn’t the only player, and may not be the best-positioned to serve large companies in the future.  With a population of 1.3 billion and an 82 percent literacy rate, no country can match China’s number of highly educated workers.  What many don’t know is China provides a long-term cost savings model that is 40 percent lower than India and other locations.  For example, the average cost of a software developer per project in China is $4,000, compared with $7,000 in India,” Silicon Valley Biz Ink (August 8-14, 2003).  So, corporate real estate directors envisioning the return to ever-growing domestic real estate portfolios, major spec office developers who can’t wait to blow the dust off new project designs now sitting in storage, and the rest of our industry are hoping and dreaming for significant growth in overall office inventories.  While there may be a real need for new space-planners, janitors and leasing brokers, I’m worried the need will be in Canton, China and not Canton, Ohio …

 

“Cost cutting and improved technology have led more and more U.S. companies to send skilled work like computer programming overseas.” San Francisco Chronicle (6/2/03).  “Those who are fighting outsourcing warn that as opportunities for computer professionals wane, American students will have no incentive to enter the field.  They predict a lack of American know-how, and fear that rampant U.S. job losses will decimate the tax base and damage the economy.  Most experts don’t share that doomsday view.  Some even say getting IT work done cheaply overseas will benefit the U.S. economy by allowing companies to become more competitive … One company that has shifted to offshore outsourcing says the trend is beyond its control.”  “We’re being forced, in some cases painfully, as happened in ships and shoes and sealing wax,” says Raymond Bingham, CEO of Cadence Design Systems, a San Jose company that makes software for designing semiconductors, “We know how this movie ends,” the executive said during an interview in the company’s U.S. headquarters in Mountain View.  “If a decade ago we discovered that manufacturing can be done anywhere, in this decade we are learning that knowledge can be learned anywhere.”  In the East Bay Business Times (6/27/03), “Bay Area companies outsourcing offshore include Hewlett-Packard, which shifted 1,200 Compaq customer service jobs from Florida to the existing H-P center in India, and Oracle Corp., which moved more than 2,000 development jobs to India and was also expected to move accounting, payroll and some customer service positions offshore.  Others, including Charles Schwab, Bank of America and PeopleSoft, have moved work to countries such as Russia, India, Israel, the Philippines and Singapore.  But it’s not just the big companies that are outsourcing offshore.  Christopher Kenton, president of the San Rafael-based marketing firm Cymbic Inc., said many small businesses like his benefit from outsourcing work overseas.  Cymbic couldn’t afford to pay software developers in the United States thousands of dollars to develop the software he needed, but he found a programmer in Argentina who would do the job for less than $200.”  Well, at least for now,  U.S. office leasing brokers don’t have to worry about someone listing a California sublease with a lower-priced broker in Chile … but who knows, one of these days, the investment property analysis, packaging and Internet-marketing might be done elsewhere for larger real estate investment sales …

 

Sending office work to foreign countries is a trend that will continue to increase in corporate popularity.  According to San Francisco Business Times (3/7/03), “Charles Schwab Corp. is jumping on the corporate bandwagon of outsourcing tech work to India to cut costs and boost efficiency.  Using workers in India allows software code to be written around the clock as Indians work on projects while their counterparts sleep.  And the cost savings are significant, with tech workers in America easily earning five times the salary and benefits paid to a tech worker in India.”  Silicon Valley Biz Ink (2/21/03), “Oracle to farm out software jobs to India … Despite the large number of unemployed technology workers in Silicon Valley, Oracle Corp., the world’s largest enterprise software company, plans to hire about 2,000 lower paid software developers in India during the next couple of years; Oracle’s growing employee base in India and China is part of an accelerating trend creating technology jobs outside the United States to save money.  Forester Research, Inc. estimates $136 billion in U.S. wages – or about 3.3 million jobs in software, product development, back-office accounting and call center support – will move offshore to India, Malaysia, China, Russia and the Philippines in the next 15 years.”  Let’s see, at 200 sf per employee, that works out to 660,000,000 square feet of office space we won’t be needing in the good ‘ole United States … Reported in the Contra Costa Times (1/26/03), “From health claims to credit-card applications, American’s personal data are increasingly traveling the globe through a vast, little-seen network of people and computers.  Thanks to telecommunications and computer networks, companies such as Dallas-based ACS can handle routine paperwork for American businesses far outside U.S. borders – slashing their costs and fueling the growth of a young industry known as business process outsourcing.”  Countries mentioned in this article include the Philippines, India, Spain, Czech Republic, Mexico, Ireland, South Africa, Guatemala and Ghana.

 

In the San Francisco Chronicle (4/30/04) “Economists are hopeful that recent improvements in the labor market will be built in the coming months.  The economy, after months of sluggish payroll gains, added 308,000 jobs in March, the most in four years.  Still, analysts said it will take time for the economy to recap the net 1.84 million jobs lost since Bush took office.”  In a simplistic view of what 1.84 million jobs represent, (acknowledging that these jobs are not all office sector categories), if they were all office sector jobs, based on 200 square feet per person, this represents 368,000,000 square feet of vacant office space.

 

Companies in the United States sell personal computers, servers, software and other technology products to India, China, Philippines and almost all other parts of the world.  These products are designed to increase the efficiency of businesses.  We sell these nations our latest communication technology and infrastructure.  Why are we then surprised that this technology is used to attract new business?  Why do we expect a one-way business flow, where we can export goods and services, but heaven forbid India is allowed to expect job function capability?

 

It is a fact that doing business in the United States can be comparatively more expensive than in other less-developed nations.  Without getting caught up in moral issues about mandated health benefits, labor laws, retirement benefits, OSHA, IRS, and hundreds of other national, state, and local agencies that all set regulations, taxation, fees and penalties on how American Business is conducted, if in a third-world where an average monthly wage is $100 for a 50 or 60 hour work-week, wouldn’t this wage-earners standard of living increase if the wage were increased to $400 or $800 per month?  If an offshore worker, without healthcare or retirement benefits and working in a non-ADA compliant building (by U.S. standards), made 400% to 800% higher wages than what they previously earned, aren’t they still much better off?

 

Is it not a company’s responsibility to its shareholders to produce goods and services at the lowest possible costs as long as it abides by legal and moral codes of conduct?  If this premise holds true, when a company can procure a laptop produced in China but sold by a U.S. company such as Dell at a much lower price than if it bought a 100% made-in-USA laptop, is this not in the company and shareholders best interest?  Does this not also hold true for providing call center services, where a US employee might cost $30-40,000 per year including overhead and benefits while the same caliber worker might cost the company $10-15,000 per year in India?  If profit margins increase, productivity gains are at a sustained high rate, and this is done without incurring the increased expense of hiring new employees, is this not a good way to run a business?

 

Government on all levels is generally felt to be less efficient than private business in the way it handles goods and services delivery.  This is due to many factors, including of course political complications in job hiring, job firing, benefits, the critical role of government in sometimes providing goods and services not necessarily utilized efficiently (i.e. in a number of suburban regions, many buses seem to be 80% empty in most regions I’ve visited – a business model would conflict with a social model).  Regarding global offshoring, there have been recent mandates on federal and various state levels prohibiting governmental offshoring job functions, which will further increase the efficiency gap.  It is the same as mandating you can only use a uniform manufactured in the U.S. versus China even though the cost might be 500% more.

 

January 23, 2004:  “Alameda County eyes layoffs,” “Oakland faces cuts, Brown says,” “Kodak forced to cut positions, cutting up to 15,000 jobs.”  This brings to mind, what if government was as nimble and unfettered by cumbersome union, seniority, political and social service restrictions?  Not necessarily a good thing, but when business starts to bleed, it begins employee layoffs and cost-reduction programs, which may continue well after profits return, while government, knowing it faces deficits and declining revenues, often has its hands tied so tightly they are unable to proactively, or even reactively, reduce expenses in a timely fashion.  Private companies seeking lower-cost operations may send a portion of operations offshore, but could you imagine the uproar if your state call centers were in India?  Then again, if going partially offshore allowed you to keep more social programs in place versus cutting needed services, why would this be an unwise move?

 

Global Offshoring:  Those of you who faithfully read my OfficeTimes newsletter know that for many years I have been bringing Global Offshoring to your attention, and the fact that U.S. companies have been doing this for decades, but it has been the technological advances in the speed and quantity of information transfer via the Internet that has dramatically accelerated sending tens of thousands of U.S. jobs offshore to India, China and other much lower-cost regions.  This is having, and will continue to have, a direct impact on the larger blocks of U.S. office space.  “Companies will shed almost 50 million square feet of office space annually for the next 15 years as they shift jobs overseas,” according to Dale Anne Reiss, Ernst & Young’s global director of real estate, hospitality and construction.  “This could have a long-term impact on secondary and tertiary office markets, especially those relying on back-office tenants,” Commercial Investment Real Estate (November/December 2003).  CoreNet Global has a Summit Conference titled, “Enabling Work in an Integrated World” to be held March 22-24, 2004.  Where?  In Mumbai, India, of course!

 

One of the Bay Area’s local architects has used overseas (Russia and Philippines) CAD help to get work done quickly and cost effectively.  “These consultants can even create a 3-D rendering from simple elevations and plans for us for less than $1,500 typically.  In-house this would probably cost $4,000 easily … To further cut costs and streamline processing, E-Loan is now in the final planning stages of setting up a small pilot operation with a partner in India performing certain back-office operations overnight … a Java programmer in India makes roughly $3.50 per hour, compared with $25 per hour in the United States … of Oracle’s 42,000 global employees, 4,000 will be based in India by the end of the year … Rafiq Dussani, a professor at UC Davis, published a 52-page research report on August 6 titled, “Went for Cost, Stayed for Quality: Moving the Back Office to India” … General Electric Co., for example, employs 9,000 BP workers in India, saving the company $340 million per year.  It’s little wonder why GE anticipates employing 20,000 workers in India by next year … There are a few negative articles regarding Global Offshoring, but I have stacks and stacks of positive reports which in my opinion indicates this might just be the beginning of a very major shift in how we do business.

 

It was recently announced that INFOSYS Technologies, India’s second-largest software maker, said it will be creating 500 consulting jobs in the United States.  According to the Tri-Valley Herald (4/9/03) “The company’s American employees would advise U.S. corporations on improving their efficiency by embracing outsourcing and moving work to India.”  What if what we have seen to date in Global Offshoring is only the tip of the iceberg?  Offshored job functions in earlier years included engineering and call centers, but now encompass back-office accounting, and other business functions.  What if we are able to take almost any job function that relies on digital information and offshore all or a portion in the future?  What if offshoring benefits heretofore available only in larger scales used by Fortune 1000 were available and easy to implement by medium and even smaller businesses?  What business processes do we do today that through different software, hardware, or a different mindset could be done significantly cheaper and faster by digitally sending this work offshore?  As an example, in a number of companies someone handwrites a letter or report (yes, many do their own word-processing but many still rely on assistants and staff), puts this in a slot on their PC which faxes the documents to an offshore worker, who within minutes formats and professionally prepares the document, e-mails it back for review and then automatically prints it out at your desk, again in a fraction of the time and expense if you had hand-carried it to your assistant and added it to his or her pile of work?

 

From OfficeTimes.com (4/1/04): Global offshoring continues unabated … Siemens will move most of its 15,000 software programming jobs from offices in the United States and Western Europe to India, China and Eastern Europe … Five years ago, Wipro was a consulting firm in India with just 3,000 people.  Now, the company has 27,000 employees and its annual revenue has increased almost tenfold as U.S. companies send more work overseas.  The capacity of fiber-optic lines connecting telephone systems into India has increased sevenfold from 2001 to 2002, and is expected to more than double again by the end of this year … “For internal IBM accounting purposes, a programmer in China with three to five years experience would cost about $12.50 per hour, including salary and benefits.  That’s less than one-fourth of the $56 per hour cost of a comparable U.S. employee, which also includes salary and benefits” … “Future projections are all over the map.  One predicts 3.3 million service-sector jobs will go overseas in the next 15 years, while a UC Berkeley report estimated 14 million U.S. service jobs are at risk” … “Tax experts say Indian chartered accountants will prepare 150,000 to 200,000 returns this year, up from about 20,000 in 2003 and only 1,000 in 2002” … Outsourcing appraisal reviews to an offshore contractor allows Citigroup to both save money by using lower-paid overseas workers and to expedite the loan process by taking advantage of the more than 13-hour time difference between California and India.  The Appraisal Institute’s Joe Napoliello (spokesman) said the most likely upshot of CitiGroup’s actions is that other major lenders will now end up outsourcing as well … “Customers using online lender E-Loan now have a choice about who will process their application.  They can let the company make use of their workers in India, or they can request to have their loan processed domestically by U.S. workers – and wait as many as two days longer.  Since the company started offering  the option four weeks ago, roughly 86 percent of its customers for home equity loans have chosen the India route.  To offer the faster service, E-Loan contracts with a unit of Wipro, a big Indian outsourcing company that is growing so rapidly it is expanding its workforce by 3,000 each quarter” … “E&Y does its tax return in Bangalore, India and says that they’re seeing reports stating that 50 million sf of corporate real estate will be offshored each year in the future.  Long-term, offshoring will affect corporate real estate more than anything else” … “The Chicago consulting firm Diamond Cluster International found that among companies that already outsource some technology work to countries with lower labor costs, 86 percent plan to send more in the next 12 months.  Of companies that have tried offshore outsourcing, 79 percent are satisfied with the experience.”

 

Imagine a potential corporate executive mindset.  Business is finally growing after several years of financial downturn.  Profits are again creeping upward.  Should you hire new workers to handle future business growth?  You flash back on the late 1990’s and 2000/2001, when it was difficult to hire good employees, and then you remember in 2001-2003 how painful and costly it was to let go of all the employees your company shed when revenues did not cover expenses.  You remember severance packages, paying employees two, four, six or more months of salary just to terminate their employment.  You remember the effect on company morale, the employee shock and negative energy when hundreds or thousands of workers were let go.  You remember meeting with analysts and reviewing retirement benefits that or some former employees were still an on-going financial cost for your company, and the earlier rounds of “early-retirement” inducements offering lifetime health and other benefits that will remain a cost item for years or decades to come.  You remember having to deal with hundreds of thousands of square feet of vacant office space no longer needed, and trying to sublet in a depressed office market where almost non-existent sublease prospects meant significant write-downs and leasehold obligations.  You painfully remember selling almost new office furniture and equipment at ten cents on the dollar, like those beautiful Steelcase workstations for which your company had paid $4,000 a piece, but the furniture broker’s best offer only netted you $400 per station.  You blink and recall several unfounded but costly unlawful termination and harassment lawsuits that cost the company millions of dollars to settle.  Now you ask yourself, should I hire 200 U.S. employees to handle business growth, should I further investigate new technology that might allow my current workforce to take care of this, should I hire temporary or part-time workers instead of permanent employees, or should I investigate offshoring these job functions?

 

Here are my two cents on global offshoring, and a number of other major factors currently impacting demand of U.S. office space.  Technology has allowed fewer employees to do more and still our productivity per employee gains are at amazing levels.  There are battalions of middle-managers made obsolete by the PC, which allowed senior management at a click of a mouse to see real-time inventory, sales and other summarized reports which formerly took days or weeks to produce.  Clerical levels are empowered by today’s PC software and Internet to work at levels formerly of management domain.  A very significant portion of the U.S. workforce telecommutes, or has virtual office space without a permanent office or cubicle.  Even a few years ago it was hard to envision having such warp-speed web access from a home PC or wireless laptop.  Corporate America is continuing to “right-size.”  Costs were driven down in wave after wave of downsizing, and in many cases each cutback in employees brought additional bottom-line financial strength.  No wonder many companies didn’t stop with the first or second reduction.  CNN Money (2/25/04), “AT&T Corp. Wednesday told analysts it was planning to cut 8 percent of its workforce, or about 4,600 jobs, this year in a drive to cut costs.  The nation’s largest long-distance company said the moves would save about $400 million this year, and leave it with about 57,000 employees.  SVP and CFO Thomas Horton said the company cut 18 percent of its workforce in 2003 and saved $800 million.”  So do you think the current job cut will be the last?  What about the long-term costs inherent in hiring new full-time employees versus hiring temporary workers or squeezing more work out of your existing employees?  In the Wall Street Journal (3/11/04), “GM’s Liabilities For Retiree Health Top $60 Billion.”  Companies commit to paying for future benefits for a retired workforce …wonder what type of benefit programs are offered in India or China?

 

In summary, it is my personal belief that technological changes that began with the personal computer and accelerated with the dramatic increase of functionality of the Internet will significantly and permanently change the way companies world wide do business.  Major corporations will continue to move job functions overseas to lower cost centers.  Work functions that are digitally transferable will increase, allowing types of work today thought domestically captive to be sent offshore.  Countries worldwide will compete for this digital business, and while India may seem cost-competitive today they may lose future business to even lower-cost regions such as China or Africa.  As this article was written, Cisco announced it was hiring 1,000 new employees and made a strong point in its announcement that these would be U.S.-based jobs.  We expect U.S. hiring increases to be aggressively promoted in the media, while most offshore job relocations will be kept as quiet as possible to minimize backlash.  United States job growth will come primarily through small and medium companies.  What used to be black and white issues will increasingly become grey and blurred – San Ramon Valley Times (4/8/04) “IBM said on Wednesday that it would acquire Dakesh eServices, the third largest company in India providing call center based technical support and customer care services”  National boundaries will continue to transition from black-and-white to grey.  A U.S. corporation owning a major offshoring company that is taking U.S. jobs?  Also, IBM may have had a big press release on new job hiring, but in a much smaller news column, “IBM plans to move up to several thousand skilled software jobs from the United States to India, China and other countries, which could amount to one of the biggest such actions yet in the technology industry.  IBM documents obtained by the Wall Street Journal said about 4,700 programming jobs could be shifted overseas to save costs, a growing high-tech industry trend known as offshoring.”  Reporters will try their hardest to seek out offshoring failures, such as the reports last year of Dell shifting a portion of its call centers back from India to the United States, but the facts seem to point towards much greater success stories overwhelming the few negative reports.

 

According to the San Francisco Chronicle (4/14/04), “More than half Dell employees working outside U.S. boarders…Computer-maker Dell Inc. has more workers overseas than it does in the United States, reversing the makeup of its workforce of just a year ago.  Dell said it is allocating resources where growth has been fastest, including China and Japan.  Dell said overseas job growth in the past year ran the gamut from sales and manufacturing to call center support.”

 

Our United States office space inventory in many regions will fill up, but I do not see a resurgence or office boom like the dotcom days any time in the near or medium term.  Venture capital start-ups who locate offshore can extend their burn rates many years longer than if they struggled with U.S. costs of doing business.  Biotech is now evaluating what functions can be offshored if the quality is maintained but a dramatically lowered cost basis.  However, with each corporate round of “right sizing”, American entrepreneurs create new companies and we are seeing quite a bit of 1-10,000 square feet leasing activity due to this.  There will be new office construction in the future, although in some U.S. sub-regions it may take 5-10 years before rental rates rise to high-enough levels to support this.  Until then, landlords are subdividing larger floorplates to accommodate this small-business growth.  Institutional investors are taking a more realistic approach to predicting just where rental rates will go in the future.  Software and hardware engineers, based here in the U.S. or perhaps now based in Dubai or Manila, are inventing new and more efficient methods that will further increase demand for global offshoring.  Those who anticipate these changes in the way we do business will prosper.  The United States workforce is resilient, and has proven time and time again it is capable of meeting new challenges.  Our office building industry is also being challenged to meet this new globalization of work processes.  Turbulent, ever-changing and motivating times ahead will test us all in flexibility, creativity and determination to succeed in this new global office environment.

 

 

 

Jeffrey S. Weil, MCR.h, CCIM, SIOR

Senior Vice President

Colliers International

1850 Mt. Diablo Blvd., Suite 200

Walnut Creek, CA 94596

Ph. 925.279.5590  Fax 925.279.0450

jweil@colliersparrish.com

www.officetimes.com

 

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