"The real estate market is better prepared for an economic downturn than nearly any other industry," Moore says. "The hard lessons learned during the last real estate downturn in the early 1990s have been remembered during this upswing in the real estate cycle. Most markets have not become overbuilt and any lessening of demand will not significantly affect major office markets."
However, Moore is quick to point out that if the financial markets continue to weaken in coming months, then the commercial real estate market will begin to soften. He credits the strong performance of the office market to very high demand. However, if Wall Street continues its volatile performance, there will be a change in the supply and demand equation.
"I think we have about a month to three months and then we will have exhausted pent-up-demand and then things will start to get interesting," Moore warns. Some of the concerns Moore cites in his report include higher energy costs and a slowing US economy, which Colliers credits as being "the primary engine of growth for the world's economy.
Moore says that although the problems with the high-technology sector, and specifically dot-com companies, have received a lot of media attention, the industry comprises a small percentage of the worldwide office market. He stresses that dot-com failures and downsizings will have little tangible impact on most major metropolitan office markets around the world.
According to the Colliers report, markets in North America continued to post strong results. While the US economy slowed significantly in the latter half of 2000, most office markets showed little sign of weakness with only a slight up tick in sublease space and a deceleration in rental growth, Colliers officials say.
Major office markets in both the US and Canada such as New York, Boston, San Francisco, Washington, DC and Toronto all registered near record low vacancy rates and sharply higher occupancy costs. One looming concern is the power supply crunch in California, which, if prolonged, may affect business growth in that region.
Specifically, the Collier's report estimated that the office vacancy rate in San Francisco stands at 4.2% and quoted rent for class A space is $110 per sf. Midtown Manhattan has a vacancy rate of 5.4% and quoted rents of $95 per sf. Other major US cities included in the report were Atlanta with a 7.3% vacancy rate and quoted rent of $30.50; Chicago with a vacancy rate of 10.2% and $40 per sf quoted rent; and Los Angeles with a 1.5% office vacancy rate and quoted rent of $34 per sf.
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John Jordan
John Jordan is a veteran journalist with 36 years of print and digital media experience.
