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Thinking of opening or expanding a European office! Now may be the time. Companies like Procter & Gamble, Johnson Controls, and the Walt Disney Company are now riding on the crest of freer trade and bargain prices and snapping up real estate in prime locations across the continent.
They're not alone. In a recent survey commissioned by Cushman Wakefield Inc. in New York City and Healey Baker in London, 30 percent of U.S. CEOs said their organizations now have facilities in Europe, 34 percent expect their companies to have a European facility in two years, and 38 percent foresee a European presence for their company in the next five years.
The timing couldn't be better. High interest rates, overdevelopment, sagging demand, and a recessionary economy similar to that of the U.S. have propelled a free-fall in rents and capital values in major Western European cities. The market for offices has been particularly hard hit. Office rentals in European cities plunged an average of 14.4 percent in the year ended June 30, 1993, compared to a drop of 13.2 percent for industrial sites and 4.7 percent for retail locations, according to figures provided by Jones Lang Wootton, an international real estate consultancy with offices in London. Capital values for purchased office space, however, have remained somewhat more resilient, only dropping 9.8 percent over the same period. What's more, vacancy rates average over 10 percent, which means there is a good supply of prime office space available.
While numbers like these have kindled pessimism and uncertainty in the consumer markets of France, the United Kingdom, Italy, Germany, and Spain, buyers are swooping in to scoop up the deals. Given the ripe pickings in many of Europe's markets, many U.S. companies are taking a fresh look at the myriad factors involved in purchasing their office space overseas, including tax minimization and avoidance of capital and earnings erosion through inflation, availability, and liquidity.
A BUYER'S MARKET
Gerald Blundell of Jones Lang Wootton says the decision to buy your own office space should hinge on the geographic area your company is looking at. "In what I call the European core, a sausage-shaped area extending from Milan through Frankfurt to London, it's worth getting your stake there, subject to price,...