A lagging economy is prompting commercial office demand to sag in a number of metro areas. As a result, property owners have begun to look elsewhere for new revenues.

Rents in downtown markets are down between 1 percent and 2 percent in the first quarter, while suburban markets are down between 5 percent and 10 percent, according to a survey by Colliers International. And as firms see a business slowdown, sublease activity is surging -- especially among high-tech firms.

"There is uncertainty in commercial real estate markets in North America as the U.S. economy slows down," said Ross Moore, vice president and director of research for Colliers. "Prospects for the second quarter and the balance of the year are now in question. The technology and financial services sectors are feeling the brunt of the slowdown."

Absorption figures -- the amount of new commercial space rented in a given metro area -- point to a sharp downturn in several U.S. markets. In Boston, average absorption in 2000 was 583,000 square feet per quarter. Yet in the first quarter of 2001, the absorption rate ran negative 436,000 square feet. Similar numbers appear in Dallas (+136,000 per quarter last year versus -279,000 during the first quarter of 2001), San Francisco (+890,000 versus -1,688,000) and Seattle (+457,000 versus -378,000).

Absorption figures have taken a slight turn for the better in a few metro markets, including Baltimore, Miami, St. Louis and Washington, D.C. Of these, however, only Washington absorption in the hundreds of thousands.

Despite the fact that failing technology firms have caused much of the commercial building downturn, some say, is that telecommunications firms may save the real estate industry in the coming few years. The idea is that if rents fall and vacancies rise, owners can offset some of the decline with new revenue from broadband applications.

Building Local Exchange Carriers (amusingly dubbed "BLECs") are poised to generate annual revenue of nearly $1 billion by 2004, up significantly from $71 million in 2000, according to the New Paradigm Resources Group, a consulting firm.

BLECs partner with office building owners to wire multi-tenant buildings for state-of-the-art broadband services. The in-building network gives BLECs control of the "first mile," the network connection from an office tenant to the global communications network outside the building, enabling BLECs to more easily provide and maintain broadband services for building tenants.

"Broadband is quickly becoming a cost of doing business, and office building tenants often face hurdles to fast installation, high capacity and quality service if they have to rely on traditional carriers," said Terry Barnich, president of New Paradigm.

More than 700,000 buildings in the United States are not yet wired for broadband, Barnich said. But commercial real estate owners can reap untold rewards by taking part in the BLEC revolution.

According to New Paradigm, BLEC broadband services not only help building owners market office space to tenants, but also increase building revenue by giving real estate owners a share in the communications revenue BLEC services generate.

For more articles by Lesley Hensell, please press here.

Published: April 18, 2001

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net