Overseas Job Shift Affects Office Market

The offshore outsourcing trend in the United States has claimed another victim: the market for commercial real estate. As firms transfer more back-office operations to low-wage countries, the already sluggish demand for office space in the US has slumped considerably more. "It's just going to take longer to get the numbers down to palatable percentages," said Dale Anne Reiss, global director of Ernst & Young's real estate practice, referring to the vacancy rate. Reiss said 31,000 jobs have moved to India in recent months, displacing enough workers to fill the central business district of Tampa, Florida. Researchers disagree upon the implications of outsourcing for commercial real estate markets. While outsourcing has emptied 105 million square feet of office space since 2001, Raymond G. Torto, managing director of Torto Whorton Research, believes constructors will adjust by building less in the future. "There will be minimal effects in the long term," Mr. Torto said. "It's a relatively small piece of the overall demand for office space." As senior vice president for global site selection at Trammel Crow, a real estate firm which helps corporate clients find and develop sites outside of the US, King R. White predicts that fewer jobs will move to India in the future. "We've seen the initial rush in the last two years," he said. "Now there's a follow-up rush, but it's not going to compound annually." White's clients look to locate overseas not only to access cheaper labor markets, but also to exploit the advantages of being a global firm. Different governments offer tax incentives and credits to entice foreign investment, and firms operating in multiple countries have less exposure to terrorist attacks. "Initially, it was to save money," said Daniel Malachuk of CB Richard Ellis. "But now, it's also to have a portfolio of locations. People are saying, 'I want to spread my bet.' " – YaleGlobal