The mix of poor current prospects and a strong growth forecast suggests that investors will be able to acquire properties at reasonable prices today and ride them through the coming growth cycle. Other markets occupying our top-10 list offer some combination of economic growth prospects combined with a manageable overhang of current supply. Three of the top 10 markets are in southern California, three are in the Southeast, two are in the Southwest, and two are in the Northeast/Mid-Atlantic region.
Across Canada, office vacancy rates have either stabilized or begun to decline. There is no significant new construction on the horizon, although in Montreal and Vancouver the final phases of office real estate valuation auctions. construction that started in 2000 will open in 2004. Leasing has been brisk as tenants have taken advantage of attractive financial terms resulting from a surplus of space.
A resurgence of international investor interest combined with continued strong demand from Canadian investors is putting downward pressure on yields. Capitalization rates are in the 8.0 to 9.5 percent range for CBD assets and the 9.0 to 10.5 percent range for suburban buildings.
In Mexico City, 4 million square feet of new Class A space was completed in 2003, but rents climbed (despite rising vacancy) to approximately $28.00 per square foot per year. Vacancy is expected to breach 25 percent in 2004 due to 3.5 million square feet of additional space still under construction. In South American office markets, the recession combined with significant new construction led to a depressed year in 2003. Vacancy rates in most markets are north of 20 percent, and rental rates dropped nearly 10 percent.