Over the last 10 years, more data generated from real estate transactions is being collected and keyed overseas by third-party companies. That trend is mixed news. Real estate companies are expected to increase outsourcing to reduce technology and data entry costs. But the overall trend could have an adverse effect on the real estate industry in the long run.
Some believe the yearly toll from global outsourcing will add up to nearly 53 million square feet of empty office space and a loss of approximately $1.2 billion in rent due to offshore outsourcing. It also means a loss of an estimated 3.3 million jobs across all industries, which could hurt the long-term demand for housing if job growth slows in the United States as it has in the last few years.
“The economy can’t continue to outsource as many jobs as the U.S. is losing and not have it impact the real estate industry,” said Ronald R. Pollina, president of Pollina Corporate Real Estate, a corporate site locator company based in Chicago. “There are severe adverse effects to the real estate market if outsourcing continues.”
Companies decide to outsource because U.S.-based data collection is time-intensive and costly. Overseas markets offer a less expensive and fairly reliable alternative to higher-priced U.S.-based services. Many businesses that cut staff and trimmed budgets to stay afloat during the national economic recession found a cheaper alternative by moving some operations overseas.
Experts say the trend has a downside.
“Approximately 8,000 facilities have been closed or significantly vacated during the past three years as blue collar jobs moved to China, Mexico and other low-wage markets across the globe,” Pollina said.
The United States is witnessing what may be the largest out-migration of non-manufacturing jobs in the nation’s economic history.
Layoffs in the service, software and high-tech sectors have coincided with the creation of market research, medical transcription and data analysis services in countries such as India, the Philippines and Ireland, according to a report from the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.
The motivation to look overseas is also driven by low cost of manufacturing abroad, the growing availability of skilled labor and the pro-business environments of developing countries.
While it is difficult to estimate precisely how many U.S. jobs are being transplanted and created overseas from real estate data outsourcing and other industries, research suggests business process outsourcing and software outsourcing have generated hundreds of thousands of jobs overseas since 2000, in addition to the million or more jobs created overseas during the 1990s.
Global outsourcing in the real estate industry, which began as a response to tight labor markets in 1999 and 2000, has continued as well, becoming a factor in the jobless recovery of 2003, according to the Fisher Center report.
“The cost-cutting by firms may end up as the permanent loss of jobs that remain abroad even during the subsequent (economic) recovery,” the authors of the report said.
Grubb & Ellis in its 2004 real estate forecast announced that even though the real estate industry should fare well in the coming year, global outsourcing will continue to have a negative impact on the market.
Outsourcing’s proponents say the benefits outweigh the potential costs.
Global outsourcing has been a primary option for businesses looking to better manage costs, especially in an economic downturn. Industry insiders point to the figures: a company that outsources a majority of its data collection and input facilities overseas could have a cost base that’s one-third of that of a wholly U.S.-based company.
As increasing numbers of Realtors place listings online and more home buyers use the Internet when buying or selling a home, information needs to be instantaneously accessible. The most cost-effective means of data collection and input is often done outside the United States.
“Outsourcing real estate and financial services provides access to a qualified, highly trained English-speaking workforce at significant cost savings,” said Susannah Harter, marketing manager for Ocwen Financial Corp., which offers overseas outsourcing of business processes for the real estate industry at two servicing centers in India. “Through outsourcing, companies can deliver high-quality work with a shortened cycle time for processing while remaining cost effective and competitive in the real estate marketplace.”
Outsourcing also helps U.S. companies become more profitable and pass price savings on to consumers, as well as boost the export of equipment and software to the developing countries, according to a report by management consultant McKinsey & Co.
“Unless we pander to protectionism, there is no good reason to believe that our dynamic job-creating economy cannot absorb the level of change” posed by outsourcing, the report said.
Not everyone is convinced, especially considering Forrester Research’s prediction that the U.S. will lose some 3.3 million jobs to offshoring by 2015.
Gartner Inc., a research and consulting firm in a Stamford, Conn., estimates that 10 percent of all the jobs at U.S. information technology vendors and service providers and 5 percent of all technology jobs at more general companies will shift offshore by the end of next year. Fewer than 40 percent of American workers who lose their jobs to outsourcing will find work within the same company, Gartner forecasts, and that impact includes the real estate market.
“The global outsourcing trend will have damaging effects on the real estate industry in the long term,” Pollina said.
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