The U.S. real estate market is showing signs of stabilizing, according to Cushman & Wakefield, the worldÂ's largest fully integrated real estate services firm. It remains to be seen, however, whether this is an indication that office markets are on the verge of a sustainable recovery or simply experiencing a lull prior to further layoff announcements in the fourth quarter.
Earlier this year, economic indicators pointed to a strong recovery in 2002. Consumer confidence was rising, job losses were slowing and the Purchasing ManagerÂ's Indices - a measure of business confidence - appeared to be on the rise.
'Over the summer, continued corporate scandals and the threat of conflict in the Middle East deflated any momentum gained in the first half of the year,' said Maria Sicola, senior managing director, Cushman & Wakefield. Real estate indicators, typically lagging, reflected this slowdown in the third quarter statistics.
The supply side dynamic in this recession has not been overbuilding, but sublease space. In the third quarter of 2002, the amount of space available on a sublease basis declined for the first time since it started sharply rising in the fourth quarter of 2000. The total amount of sublease space available is now 122.65 msf compared to 126.2 msf last quarter.
Demand remains subdued, reflected in weak velocity of leasing, and continues to exacerbate the imbalance resulting in increasing vacancy rates and declining rental rates. A snapshot of key statistics reveals the current status of the national office market in comparison to last quarter and a year ago.
While the leasing market has been soft, the investment market has been strong with investor demand often outpacing supply. Interest has primarily been focused on suburban office properties and traditional CBDs such as New York, Boston and Washington, D.C. This activity has been the result of the low cost of capital and what Ms. Sicola called a 'flight to hard assets' as a result of a declining and highly volatile equities market.
Cushman & Wakefield expects that leasing activity will remain weak in the fourth quarter, and some additional space will be returned to markets like New York on either a direct or sublease basis. Downward pressure is expected to continue on rents. Investment sales activity should remain brisk and more transactions should close by year-end.
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(source: Cushman & Wakefield)
