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Office space demand drops

Slow economic growth and the credit crunch curtail investment in commercial real estate.

June 19, 2008|From Bloomberg News

Investment in U.S. commercial real estate fell 70% in the first quarter from a year earlier as banks curtailed credit, the National Assn. of Realtors said Wednesday.

Investors spent $48.2 billion on commercial properties in the period, down from $157.8 billion in the year-earlier period, the trade group said.

"Slow economic growth is lowering demand for commercial space, mostly in the office and industrial sectors," said Lawrence Yun, the Chicago-based association's chief economist.

"Despite the slowdown, the commercial real estate market is in much better shape compared to conditions during the 2001 recession."

Office vacancies are projected to increase to 13.7% in the fourth quarter from 12.5% a year earlier, reducing annual rent growth to 3% from 8% last year.

Office building transaction volume has declined. In the first four months of 2008, $18.5 billion in office buildings traded, down from $95 billion in the same period in 2007, the Realtors said.

The biggest decline occurred in the suburban markets, the group said.

The value of retail space changing hands fell 72% from last year, to $7.5 billion during the first four months of 2008 from $27.7 billion a year earlier.

Even as international buyers have invested in strip malls in Southern California, Chicago, the Northeast and the Southeast, transaction volume for such properties has declined 77% from a year earlier, the group said.

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