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PHILADELPHIA-Warning that sublease space could threaten the stability of some office markets and create imbalances until 2005 or beyond, a second-quarter research report by Pittsburgh-based PNC Real Estate Finance and New York-based Grubb & Ellis Co. ranks five Pennsylvania and Ohio cities below the national average of 24%. Of the five, Philadelphia has the highest surplus.

Here, 4.418 million sf of office space is leased, but empty, representing approximately 19.9% of total available space, according to the report. The study confirms that information companies, including technology, telecom and dot-com firms, accounted for a high proportion, 42% of sublease office space nationwide.

Markets such as Pittsburgh and Columbus, OH, which avoided dependence on the so-called “new economy,” have less of a sublease vacancy problem than the high-tech markets of Seattle, San Francisco and Boston, all of which have sublet space exceeding the national average.

Columbus, OH has 812,405 sf of sublease office space, representing 12.6% of the total office vacancy. Sublease office space in Pittsburgh is 1.3 million sf, or 15% of available. Cleveland, OH has 1.17 million sf of sublease space, representing 15.9% of all available. In Cincinnati, 1.14 million sf of sublease office space is available, or 18.3% of the total available.

Co-authors of the report, Bob Bach, national director of market analysis for Grubb & Ellis, and Elizabeth Ptacek, senior analyst, market research at PNC, detected an unexpected “slight decline” in sublease space during the second quarter, potentially signaling the start of a sustained recovery. However, the decline, they say, is tempered by the large existing inventory of sublease space that has been put back on the market as a result of corporate downsizing and cutbacks.

Bach says the research “suggests there will be a race over the next three years between any market recovery and the rate at which sublease space expires and returns to the market.” He estimates that the overall office market is unlikely to achieve balance until 2005 at the earliest.

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