One surprise in this year's survey was that an equal number of respondents opened facilities as shut them down during the past year. On the other hand, not unexpected was that two-thirds of respondents ranked availability of long-term financing as an important consideration. Overall, however, the minimal year-over-year change reported in most categories masks key changes that have occurred in corporate real estate during the recession, particularly with respect to surplus property and surplus labor now flooding most markets.
Commercial real estate financing is always one of the last credit functions to return to normal after a recession, and this time around is no exception. As a result, many companies that are interested in making new investments cannot get third-party financing. Similarly, renters are locked into existing lease commitments and face an unattractive sub-lease market, thus preventing them from consolidating space. Because most of the increased profit reported by S&P companies during the past year has resulted from cost-cutting (especially reducing employment), companies are sitting on vast quantities of surplus property. Unless top-line revenue growth resumes in earnest (and new hires start filling vacant space), tight commercial real estate financing will remain a top concern throughout 2010.
It was no surprise that 21 percent of respondents reported closing facilities during the past year, but it was unexpected that an equal number reported the addition of new locations. I suspect that this reflects growth through acquisition rather than true facility expansion. Moreover, the survey confirmed the importance of labor costs and availability. However, had respondents been asked if their company is facing labor constraints (or rising labor costs) at any of its current locations, I suspect the answer would have been a resounding no.
Surplus corporate real estate, weak labor markets, and limited commercial real estate financing should keep corporate real estate activity anemic throughout most of 2010.