It’s logical then to ask how. At the core of the question is the definition of globalization; how do we define the structural changes occurring in the global economy? For this discussion, we will consider three pervasive globalization indicators: (1) cross-border flow of goods and services; (2) cross-border flow of people and knowledge; and (3) cross-border flow of financial instruments and investment.

1. Flows of Goods and Services

Over the last 30 years, the annual growth of international trade has surpassed the annual growth of the world economy with only a few exceptions. For the corporate real estate (CRE) professional, international trade necessitates an international footprint for manufacturing, distribution, country and sales offices, and assets of all types. Management of a global footprint, however, is significantly more complex than a national or local portfolio and requires a greater focus on proactive strategy. If real estate decisions are left to local business units, portfolio management will likely miss the global perspective needed to see cross-border and cross-business unit opportunities for efficiencies. This means the corporate real estate professional should act in an elevated role as a centralized source of market intelligence, portfolio information and strategy, and a significant partner in broader business planning.

2. Flows of People and Knowledge

Globalization and global education have created an open, international market for talent. Thus, talent is willing to migrate to markets that offer specific opportunity. Indeed, high-skilled migrants relocate to countries at a rate 3.25 times higher than low-skilled migrants. Ultimately this creates a reinforcing cycle of migration and specialization. This cycle may be best illustrated by Silicon Valley in California.

In the 1970s, Intel released the first microprocessor in Santa Clara, CA. Around the new industry grew other semiconductor firms, programmers, venture capital firms and a culture of innovation. This resulted in Silicon Valley being the center of essentially all major technology revolutions to follow: personal computers, the internet, and social media. To capitalize on these opportunities, highly skilled and specialized talent flocked to the area, sometimes led by, and sometimes followed by, other firms who needed access to that talent. This cycle has been further reinforced by universities and institutions.

The result is that select countries, regions, and metro areas develop deep, specific specializations. For example, among the 35 member countries of the Organisation for Economic Co-operation and Development (OECD), the United States, the United Kingdom, Canada and Australia constituted the destination for nearly 70 percent of high-skilled migrants in 2010. This talent typically comes at a price, but, if your business demands access to cutting edge skills in a specific industry, often you can’t afford not to be in those markets or industry “clusters”. Real estate professionals should actively be working with business units and human resources to understand how to best align facility locations to capitalize on location concentrations and to also mitigate the talent price premium by migrating non-essential functions to low-cost markets or working to identify alternative hubs that can serve some of the talent need at a lower cost.

3. Flows of Financial Instruments & Investment

Foreign direct investment (FDI) is generally of three types: (1) “greenfield” development of new projects; (2) mergers & acquisitions; and (3) financial portfolio investments. Globalization has driven the growth of FDI and has, among other things, resulted in the interconnectedness of financial systems and the rise of global demand for local residential, commercial, and industrial real estate. Because of this, economists theorized we would see convergence and/or correlation in real estate prices and price movement across markets around the world. In other words, real estate costs and rents in major markets would increasingly rise and fall together.

Research shows there has been a convergence among only a few key markets, among them London, New York, Tokyo, Singapore, and Hong Kong. This group has outpaced all others in lease rate growth. These are the new global cities.

Over the long-term, it is likely foreign investment and global demand will continue to drive up costs in these metropolitan areas. What does that mean for your portfolio? If you have a major presence in these markets but aren’t benefitting from the global connectedness they offer it may be worthwhile considering migrating to lower cost markets. If you need to have a presence in the major global cities, consider working with human resources to identify mission critical staff and required business adjacencies. The talent that doesn’t need to be in those markets may be able to relocate to lower cost areas nearby or in other parts of the world, and also better leverage the goods, services, talents, and financial resources that continue to migrate globally.