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Recession hits US commercial property sector

San Francisco and New York are among the most affected, various reports indicate. Job losses mean that companies are returning empty space to the market.

Office property rents in San Francisco suffered a massive 24% decline in the first quarter from a year earlier, the biggest decline since the dot-com crash in 2001, according to a new report from Colliers International.

The average rent fell from $50.92 to $38.80 a square foot for Class A space and the office vacancy rate rose to 13.2% from 12.6% in the previous quarter and up from 10.2% a year earlier.

'It's tough to lease right now even if you've dropped the rent. We think the market won't bottom until 2010,' said Alan Billingsley, a San Francisco-based analyst for Deutsche Bank AG's RREEF Research.

Rising unemployment and lower consumer spending are also cutting commercial rents in New York. Manhattan office rents fell the most in at least 25 years in the first quarter of 2009, according to commercial property broker Cushman & Wakefield.

In San Francisco, companies including public utility Pacific Gas & Electric, bankrupt law firm Heller Ehrman and health-care provider Blue Shield of California put 553,825 square feet of office space on the market in the first quarter.

Almost half of the largest companies in the San Francisco Bay Area plan to cut staff in the next six months, said John Grubb, spokesman for the Bay Area Council, which represents the region's biggest employers including Chevron, Google, Yahoo!, Safeway and Wells Fargo.

Vacancies are expected to increase in the second quarter as San Francisco-based Charles Schwab, the largest independent US brokerage by client assets, and Macy's, the second-biggest department store chain, abandon space in San Francisco.

Commercial property purchases in San Francisco are 'nearly non-existent' as surging defaults and reduced availability of debt curtail acquisitions, according to the Colliers report.

San Francisco's first quarter rent decline, the biggest since a 49% drop in the fourth quarter of 2001, followed a tumble of 22% in the fourth quarter, Colliers added.