U.S. Real Estate Market Faces a `Sharp Contraction,' (Update1)

By Robert Burgess

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New York, Aug. 2 (Bloomberg) -- The U.S. real estate market faces a ``sharp contraction'' with rising vacancy rates, slowing rent growth and falling property values that will last through 2002, according to consulting firm PricewaterhouseCoopers LLP.

``The expansion phase of the cycle has ended, and ended rather abruptly,'' said Peter Korpacz, director in the firm's global real estate research group.

The report is the latest evidence of a weakening real estate market. Torto Wheaton research said last month that the U.S. office vacancy rate has risen to its highest point in four years. A Merrill Lynch & Co. study found that apartment owners are offering more concessions such as free rent to keep tenants.

In the retail sector, 75 percent of the nation's stock of retail space will be in contraction by the end of 2001, up from 47 percent a year ago, PricewaterhouseCoopers found. Shopping mall developers report lower sales in malls as consumers cut back on spending and retailers bankruptcies.

``I've met with retail executives that have been in retail for more than 30 years and they have never seen three and four months in a row with (sales) decreases like we're experiencing right now,'' Robert Taubman, chief executive of Bloomfield Hills, Michigan-based mall developer Taubman Centers Inc., said in a conference call with investors this week.

In the office market, 19.7 million more square feet was given up than leased in the first half of the year, according to brokerage Colliers International. A year earlier, 20.1 million more square feet of space was leased than given up. Landlords say tenants are deferring leasing decisions, hoping rents will continue to fall. ``It's like someone turned off a switch,'' said Korpacz.

Empty Space

At one development, the $500 million Pacific Shores project in Redwood City, California, about 65 percent of the 10 million square feet of space is vacant or up for sublease with less than three months to go before completion.

PricewaterhouseCoopers found that companies are jamming more workers into smaller space. Occupied space per employee fell 12 percent between 1991 and 2001. Unlike the real estate collapse of the early 1990s, which was caused by overbuilding, the slowdown this time is caused by a dearth of demand from tenants, the report found.

`The red flags aren't in abundance today as they were 10 to 12 years ago,'' said Korpacz. ``We may be over the top, but we are a long way from being under siege.''

-- Swissrose (cellier3@mindspring.com), August 04, 2001

Answers

With the residential construction market still going like gang busters it behooves one to figure why the commercial real estate market is falling apart. Usualy there is some unison. It doesn't make sense.

-- Chance (fruitloops@hotmail.com), August 04, 2001.