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Urban values plunge worldwide.

The investment value of office space in many major world cities has been pushed significantly downward during the present international real estate slump.

The recent Jones Lang Wootton International Research publication, Worldwide Property Performance Indicators compares indices of prime office rents, investments returns, and capital values in 16 major international office markets from 1978 to 1991. The index tracks the recent decline in values in four major U.S. cities, London, Paris, Brussels, Sydney, Auckland, Jakarta and Singapore. By contrast, the index showed an increase in Frankfurt, Amsterdam, Hong Kong and Kuala Lumpur.

"A worldwide average index showed a 17 percent decline in the value of prime office space for 1991, the first such decline since 1984," noted Helen R. Arnold, senior director of Jones Lang Wootton's U.S. research operation. "It was also, average, a larger decline than the one seen in 1984. The business inactivity during the period of the Gulf War, worldwide recession, and that impact of overbuilding in some of the world's largest markets those in the U.S. and London - combined to push office investment prices downward.

"The decline in capital values has been particularly intense in those markets where sophisticated national financial systems allowed the most aggressive and innovative techniques to finance new construction," Arnold continued. "This includes the USA, Great Britain, Australia, and Canada. Overbuilding resulted, demand for space did not keep pace with supply, income levels fell, and the owners found themselves unable to service their debt. In a nutshell, it means that even the best office space isn't worth what it was at the international market peak in 1989."

Although the international average shows a decline, international markets both today and in the recent past provide an extremely varied spectrum of events. The U.S. is suffering from the worst overbuilding problems in the last 40 years. But, of all the international locations, the U.S. is the most difficult to determine the actual decline in values, since there have been almost no prime office transactions in the major cities. Even so, the U.S. has far lower estimated capital values than those of its counterparts in Frankfurt, London, and Paris, and this has been the case for almost five years.
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Title Annotation:investment value of office space in major world cities decreases
Publication:Real Estate Weekly
Date:Aug 5, 1992
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