Office vacancy rates are on the rise throughout Europe, and the threat of a softening economy could mean that the numbers will continue to rise going forward. Nonetheless, the strength behind credit tenant leases is likely to shield repercussions felt in CMBS transactions emerging from this sector.

According to a report by Morgan Stanley, prime office rates have fallen rapidly during this quarter. In Madrid they has fallen by 8.1%, in Frankfurt by 4.4%, and in London by 2.4%. And economic growth for the UK, Germany, Spain, France and Italy has reached a plateau at a current average GDP/GNP of 0.9% per annum. "We are cautious of the European office market in general due to unfavorable and uncertain market conditions, falling rents and values, and increasing vacancies," reported economists at the bank. "We believe the market will continue to fall, saddled with oversupply; however, it is difficult to ascertain when the market will bottom out."

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