Sharp contraction predicted for U.S. real estate market
Bloomberg News Service
NEW YORK — The U.S. real estate market faces a sharp contraction with rising vacancy rates, slower 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 the nation's weakening real estate market, though Hawai'i is largely bucking the trend.
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 mall developer Taubman Centers Inc. in Bloomfield Hills, Mich., said in a conference call with investors late last month.
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.
PricewaterhouseCoopers found that companies are jamming more workers into less 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 nationwide slowdown this time is caused by a dearth of demand from tenants, the PricewaterhouseCoopers report found.
