"Zombie Buildings" Frightening Prospect for Owners Without Capital

May 4, 2010
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The amount of available space in the office market nationally may actually be overstated. Commercial real estate services and investment firm Grubb & Ellis Company experts believe that, as a result, office tenants have fewer realistic alternatives than record-high vacancy rates would indicate. Many properties that have decreased in value since they were purchased at the peak of the market and are now unable to fund market-level tenant improvement allowances and commissions have been dubbed “zombie buildings” by economists because they very often remain empty, making it difficult to compete for tenants.

However, the wave of foreclosures was much less severe than Grubb & Ellis economists originally anticipated. The company expected banks to be proactive in taking distressed assets back, but instead, they’ve avoided taking write-downs by helping owners retain their assets. The zombie building phenomenon has put office building owners with capital in a good position--they have much less competition from owners who are unable to offer incentives that attract new tenants.