Demand for office space down globally

Real Estate Weekly, Oct 30, 2002

Global Property Alliance, an international consortium of independent commercial real estate firms, released statistics today that demonstrate most European cities have seen a drop in tenant demand for office space and an increase in availability rates. The findings are part of the fall 2002 Global Market Statistics, the Global Property Alliance's semiannual 12-page report that provides office, retail and industrial property data and synopses of 36 international markets in North and South America, Europe and Asia.

"Retail and industrial properties throughout Europe performed significantly better than the office sector in the first half of 2002," noted Global Property Alliance executive director Matthew Purser, who is also director of international services for London-based Lambert Smith Hampton.

England's commercial real estate markets held steady, with London remaining the most expensive office markets in Europe and one of the few cities to avoid a substantial increase in available office space. However, Germany, Berlin and Hamburg have performed so poorly in the first half of 2002 that German investment funds have turned to other markets for better returns.

Strength and resiliency resonated in New York City's commercial real estate market in the first half of the year, with steady progress being seen in Manhattan's ongoing recovery from the events of Sept. 11, 2001. Despite the recovery efforts, the rental rate gap between Midtown and Downtown Manhattan has widened: Midtown rents are nearly twice as high as rates Downtown once deals are actually signed.

"Although the national economy remains relatively strong, businesses throughout the United States continue to put off real estate decisions unless they have an immediate need for space," said Seth Dudley, executive vice president of Julien J. Studley Inc. and director of U.S. business development for the Global Property Alliance. "The legal and-bio-tech sectors are among the few industries actively looking for space."

Washington, D.C., is one of the few markets to see strong interest from tenants. The district has benefited from a significant increase in leasing activity from government- and defense-related businesses and boasted the lowest overall availability rate in the nation. On the West Coast, San Francisco continues to struggle, with a Class A availability rate surpassing 20% and Class A rents that have fallen from $54.69 at midyear 2001 to $30.92 at midyear 2002.

Many Latin American markets were hard hit by the recession and suffer from high levels of available space in all property types. Availability rates for office, retail and industrial space in Buenos Aires have reached or surpassed 20%. Until recently, Mexico City fared relatively well despite Mexico's financial crisis, although new construction has added a significant amount of space to the office supply and caused availability rates to climb. The Asian markets have experienced mixed performance but have generally weathered the recession well, with the retail sector demonstrating continued strength. South Korea is one of the strongest markets, with Seoul benefiting tremendously from hosting the World Cup earlier this year.