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Globalization and Real Estate in the Pan Pacific Region
Michael D. Blaschuk,
AACI, P.App - Canada

Director, Real Estate Services,
Public Works & Govt Services Canada
1. Executive Summary
Most simple definitions of "Globalization" describe the way in which people, goods, money and ideas are moved around the world faster and cheaper today than ever before. Most papers and publications have looked at globalization and the resulting relative ease of the transferability of capital as the principle new driver in real property markets. While this is certainly a fact in the supply-side of the real property market model it also has a new impact on the demand-side of the equation. This paper looks at:
the development of trans-border real property markets centred more around "market regions" or "geo-economic regions" than around geo-political boundaries, and
the need for global standards for professional real property services.
2. Introduction
The world has changed and there is a "revolution in commerce, in the power of nations, in the customs, the industry and the government of all peoples." Business people from developed nations "circulate unceasingly around the globe" and we are now connected by "flying bridges of communication." These are not new thoughts, as Emma Rothschild, Director of the Centre for History and Economics, Cambridge University reminds us but rather the writings of Abb? Raynal, one of the most popular political commentators of the 18th century, writing in 1770. What has changed is the speed of the effects of globalization: people, ideas, money and goods move around the world much faster today than they did in 1770.

Developments in technology, particularly through electronic communications media such as the Internet means that people around the globe are more connected to each other than ever before. Information and capital flow easier and faster. In some cases the ease of the movement of capital has been cited as a singular cause of declining and stagnant real estate markets being experienced in some parts of the world today. Globalization also has another equally important effect: goods and services can now move more easily and are increasingly available in all parts of the world. This has a two-fold effect on real property markets and on those people who offer professional services in these same markets.

3. Globalization and Real Property Markets
Alistair Adair (et al) in their paper "Globalization of Real Estate Markets in Central Europe" argue that the degree of international capital investment in real property has been increasing since the 1980s and has risen to unprecedented levels citing that "… over the period 1993-95 foreign direct investment inflows grew by 40% to $317bn (Economic Intelligence Unit, 1997)…". They conclude that this is "…primarily due to the expansion of regional integration, multi-national company competition, liberalisation of investment regimes and world-wide privatization."

While the flow of capital has had a significant impact on real property markets world-wide, globalization has also impacted these same markets through the relative ease of movement of people, goods and ideas (the other parts of the globalization equation).

Juliet Oxborrow, of Investment International in an article dated September 1997 suggests that "…a new school of investment management argues that geographical allocation is becoming a thing of the past. As companies become globalized and economies are increasingly run along the same lines, it is not a question of where you are investing but what you are investing in".

Globalization is also emphasizing the importance of "the city" over the broader "geo-economic" boundaries associated with states/provinces and countries. These local market areas are becoming more influential than many of the regional government structures. According to UNESCO, in 1950 Asia accounted for 25% of the population in the world's 30 largest cities. Today they account for nearly 54% and are projected to reach 60% by 2010.

This suggests that real property markets will not be based on country-wide "geo-political" boundaries but rather on economic boundaries with the "geographic unit" being the City. That is, a global real property market exists based on the movements of goods and services as much as it does based on the movement of capital. While much of Asia struggles with a declining real estate cycle, parts of China (particularly Shanghai) continue to experience developing real estate markets. This appears to be based on the "geo-economic" marketplace than the "geo-political" marketplace. This further suggests that the "City" as the regional market will play a greater role over that of the "Country" itself.

In Canada we used to talk about the "Canadian Real Estate Market". Recently we have identified that we do not have one single market operating in Canada. We have a number of markets that depend on differing global influences and that we may have a number of differing markets within a small geographic area. One simply has to look at the office space market in the major cities in Canada to realize that they are not operating in concert in a "one-world" reaction to globalization. The markets in Vancouver (Asia/timber based); Calgary (oil based); Toronto (financial-based); and Ottawa (high-tech based) have performed in significantly different manners.

This means for Public Works and Government Services Canada, as Canada's largest holder of office space, that globalization and its impact on real property markets are a major concern, even if investments and acquisitions are made locally. The Vancouver market is more dependent on its relation to the Pacific-Rim countries. This is not because of its "geo-political" interdependence but is attributed to its "geo-economic" influence. Grouping our major urban centres with other urban centres around the globe that operate in similar economic spheres shows the close interdependence. Vancouver has more in common with real property markets in Hong Kong and Tokyo than with Toronto or Montreal. Whereas Vancouver experienced a softening of the market in 2001, Tokyo and Hong Kong both experienced similar decreases in housing and office prices.

Calgary's oil-based real estate market has more in common with the cities of Halifax and St. John's on Canada's (5,000 miles away) east coast than the other real property markets in western Canada. The eastern coast cities of Halifax and St. John's are now shifting from marine-based economies to coastal oil-producing and exploration economies.

Toronto, Canada's financial and corporate headquarters centre, compares more favourably with its counterparts in New York and London. House prices jumped 11.2% in London and 11.5% in New York in 2001. Toronto suburbs of Willowdale and Woodbridge experienced market value increases of 11.6% and 10.8%, respectively, for the same time period.

Ottawa, as well as being the nation's capital, is also the high-technology centre for the nation. This means that the recent downturn in this market sector has resulted in a shift in demand for office space, particularly in the suburban area of the city that is most favoured by the high-tech companies. Due to the dichotomy of the markets, the space traditionally used by the government sector has remained relatively stable, however, the global downturn in the high-technology market has definitely affected the real estate sub-markets in Ottawa.

This is not only evidenced in the immediate increase in vacancy rates but also in the residential markets. Residential prices in the suburban community of Kanata, long favoured by the high-tech community have softened whereas most other residential property markets in the Greater Ottawa area have continued to increase since the high-tech meltdown.

Ottawa, particularly Kanata, because of its emphasis on high-technology, has a close correlation to real estate prices in San Jose/San Francisco and Dublin, Ireland. Dublin experienced a residential real property value increase of 14.6% in 2001. The residential market values in Kanata increased by 18.9% over the same time frame. Prices in San Francisco increased only 4.5% in the same time period, however, they arte considered to be at the leading edge of the market and experienced on increase of 33%for the year 2000 over the year 1999.

What this means to the Government of Canada is that although it may have most of its real property holdings (with the exception of its embassies and consulates) within the geo-political boundaries of Canada, we must realize that globalization means that we truly operate in many global markets that are defined by geo-economic boundaries. Our investment strategies, whether they be national, regional or community-based need to reflect that we operate within a market more influenced by global activities and than by geo-political boundaries.

4. Globalization and Professional Standards
These new global real estate markets will also be impacting the real estate professional. Investors and property owners that operate in a global market have little patience for regionally unique "standards" in this same global market place. This means that global standards and global professional real property associations that enforce these standards will become more prevalent. The same office building in Jakarta or Ottawa should have the same measured building area. This is now not always the case as governments and the industry don't always agree on measurement standards and these standards can vary from country to country. Pressure for international standards in all aspects of the real estate professions (appraisal, property management, brokerage, etc.) will continue to increase. As a result, professional associations that, to date, have been oriented around "geo-political" boundaries will be under great pressure to develop global alliances with an emphasis on global standards. I am pleased to note the recent creation of the World Association of Valuation Organizations (WAVO) as an example. One of my managers is the first Chair of this developing organization.
5. Conclusion
The world is a different place in this new millennium. Globalization has led to a much more competitive marketplace with much more informed clients. Real property professions professionals need to understand that although they operate in regional markets, they must be aware of the global implications that shape these markets. The professional that strikes strategic alliances; recognizes the global marketplace; and learns to operate outside the "geo-political" boundaries of their original sphere of expertise will not only survive, they will prosper.

The Real Property Services group at Public Works and Government Services Canada recognizes that "globalization" and "real estate" do not combine in to one homogenous global real estate market but a collection of markets influenced by the "geo-economic" market fluctuations and niches. In acting as the Government of Canada's real property experts we will endeavour to strike international alliances with other similar government organizations to ensure we provide the best possible service to the Canadian taxpayer.

"Globalization of Real Estate Markets in Central Europe" Alistair Adair, Jim Berry and Stanley McGreal (University of Ulster) Ludek S?kora (Charles University, Prague) Ali Ghanbari Parsa, Barry Redding (South Bank University, London)
Juliet Oxborrow of Investment International in an article dated September 1997
"The Politics of Globalization Circa 1773", Emma Rothschild, Director of the Centre for History and Economics, Cambridge University, December 19, 2001
Mr. Blaschuk has been involved in the real estate industry for 25 years in the fields of brokerage, appraisals and tax. His educational background includes diplomas in Real Estate and Appraisal. He is a professionally accredited member of the Appraisal Institute of Canada. Until recently he was the Chief Appraiser for the Government of Canada and was just appointed as the Director of Accommodation and Real Estate Services.
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