Management Matters with Mike Myatt: Globalization's Impact on Commercial Real Estate

"Over the years I have had the opportunity to transact business in various parts of Asia, the Middle East, Canada, the European Community, Central and Latin America and Russia and former Eastern Block countries. Internationally expanding the geographic footprint of your business would have at some point in the past been cost and risk prohibitive for most companies. But that is no longer the case today, when backed by a sound operating strategy. In fact, if you are not taking aggressive steps to globalize your business, then you may be making a big mistake.

From my perspective conducting business internationally in today’s marketplace is as much of a defensive play as an offensive play. In examining the upside of going global, consider the sheer size of international markets as contrasted with the size of the domestic market and you will likely find that the majority of your potential customers live abroad.

Now consider the downside of not going global. If your company is not pursuing those customers, your competition will. They will not only take a first mover's advantage of securing customer loyalty and brand recognition, but they will also tie-up key projects, partners and distribution agreements. As consumers continue to become more demanding and the world economy continues to flatten there will soon be an expectation that you be able to serve multiple markets in a seamless fashion.

Over the past 20 years, the commercial real estate market in the United States has developed a depth and sophistication that is beginning to approach the maturity and efficiency of alternate asset categories. Improved market efficiencies coupled with today's surplus of capital flow have created the most competitive commercial real estate market environment in recent history. The confluence of these macroeconomic trends and current market conditions have created a reduction in the total investment returns that can be achieved on investments in U.S. commercial real estate assets.

Given the surplus capital flow and the fact that commercial real estate as an asset class offers many advantages over other investment alternatives, asset/investment managers will not be able to disinvest themselves from real estate allocations. Rather, they will simply begin to look around for other higher growth markets that will allow them to maintain yield.

Emerging markets in Eastern Europe, India, Latin America, China and the rest of Asia present scenarios for higher growth, even on a risk adjusted basis. On an aggregate basis the statistics are impressive. For example, currently 80 percent of the world's population accounts for 20 percent of world GDP. By 2015, 50 percent of world GDP will be accounted for by emerging markets.

For all of the optimism surrounding the macro- and microeconomic trends driving the globalization of commercial real estate, investors wishing to approach emerging markets should rightly do so with some degree of caution. Some of the more common risks of investing in emerging markets include political risk, legal and regulatory transparency and property rights issues provided by title companies in the United States. In many less advanced markets, even after a local real estate attorney researches a property, squatters can step forward and file a legal claim of historical residency rights to the property." read more

By Mike Myatt, Chief Strategy Officer, N2growth