"The amount of available space in the office market nationallymay actually be overstated," Grubb & Ellis says. The zombiebuildings, combined with the phenomenon of shadow space, present adifficult proposition for anyone trying to accurately calculate theamount of office space that is actually vacant and available in theUS. Shadow space is office space that users are leasing but notoccupying because they have downsized their staffs. Researcherslike Bach and like Arthur Jones of CBRE Econometric Advisors knowthe shadow space is there, they just don't know how much. They saythat the amount of shadow space is one of the unknown numbers thatwill play a key role in when and how quickly or slowly the USoffice market recovers. The problem with trying to tally shadowspace, however, is that―although it is empty because theworkers who once occupied it have been laid off―itdoesn't show up on vacancy reports. Technically, it still counts asoccupied space because the tenants who are leasing it have notvacated it or offered it for sublease.

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When combined with the difficulty of calculating how much spaceis off the market, in a sense, because of zombie buildings, thephenomenon of shadow space further muddies the picture. Bach saysthat, regarding zombie buildings, "Now that the values of manyproperties purchased during the peak of the market have fallenbelow the balance due on the loan, some landlords are toocapital-constrained to offer the tenant improvement allowances andother concessions necessary to attract tenants in today'smarketplace."

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However, he adds, "One caveat to the trend is that the wave offoreclosures was much less severe than anticipated. We expectedbanks to be proactive in taking distressed assets back, butinstead, they're avoiding taking those write-downs by helpinglandlords retain their assets. That being said, the fact remainsthat many landlords are unable to offer the kinds of tenantimprovement allowances and other concessions that require capitalon hand. That's good news for landlords who are in a good capitalposition―they have much less competition than thereported market statistics would indicate."

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According to Grubb & Elli8s, a summary of the zombiebuilding trend in key markets across the nation shows that inAtlanta, some landlords are handing the keys back to the bank,prompting operational challenges as properties transfer ownership."Additionally, amenities such as cafés, restaurants, sundries shopsand dry cleaning services normally associated with Class A andClass B+ buildings are at risk of ceasing operations due todecreased foot traffic," Grubb & Ellis says.

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In Boston, the active investors of 2006 and 2007 are challengedby decreased property values, causing several trophy Boston-areaoffice buildings to go back to the lender. Several other landlordshave been unable or unwilling to make capital improvements to theirbuildings, including necessary systems upgrades, removing thosefrom broker tours as well.

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In Downtown Portland, a large portfolio of historic propertiesis currently in bankruptcy, meaning that 15% of the class C spacein the Downtown market can't compete. "Financial records are beingrequested on both sides of the table," Grubb & Ellis says."Landlords want to make sure their tenants will be viable for thefull term of the lease, while some tenants are going so far as torequire a letter of credit from landlords until all tenantimprovements are completed."

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In Downtown Chicago, the landlords holding as much as 20% of theoffice inventory are not in a position to compete aggressively, butthose landlords in a stronger financial position are actually ableto keep asking rental rates at higher levels than would otherwisebe achievable, according to Grubb & Ellis.

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Texas, while considered to be a healthy market, is estimated tohave more zombie buildings than well-capitalized propertiesthroughout the state. Nonetheless, tenants are still renewingleases and touring zombie buildings in Texas, which is not the casein other markets. "Tenants frequently negotiate a back-up lease inthe event the negotiations with the zombie building landlord fallsapart, usually due to lack of lender approval of lease terms," Bachpoints out.

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