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Report: office vacancies up in downtowns across the country.

Office vacancy rates for downtowns reached their highest level in five years during the first quarter of 2002, according to Cushman & Wakefield senior managing director, research, Maria T. Sicola. But the global real estate firm said many tenants see opportunity and are aggressively seeking space.

"Real estate generally lags the economic recovery," she said. "But a number of corporate tenants are exploring their real estate options." On a national basis, leasing activity is up when compared to the same period last year but we are still a long way from the level of activity we saw in 2000.

Cushman & Wakefield reported the national vacancy in downtown rose to 13.2 from 12% at the end of 2001 and 8.3% a year ago. On the supply side, it is the space being returned to the market on both a direct and sublease basis that is driving up the vacancy rates. Technology laden economies such as San Francisco have had the highest vacancy rate increases.

San Francisco's vacancy rate has risen to 24.4% from less than 3% prior to the Internet bust. Silicon Valley, also hurt by the dramatic downturn in high tech and Internet employment, now has a vacancy rate of 23.8%.

"We will start to see vacancy rates decrease when we begin to see real employment growth," Sicola said. "It is likely that this will not occur until 2003.

Construction has slowed in response to the economic slowdown. Thirty-eight million SF is expected to be completed in 2002, 10 million SF in the CBDs and 28 million SF in the suburbs, versus 87 million in 2001. By contrast, more than 100 million SF of new construction was added every year in the late 1980s, prior to the last downturn in the early 1990s.

The wealth of supply placed on the market and decreasing rents has resulted in a tenant's market and created opportunities for firms in industries that have managed to weather the economic storm and have timely lease expirations.
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Publication:Real Estate Weekly
Article Type:Brief Article
Date:May 15, 2002
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