The capital’s commercial real estate market seems to be rebounding this year, according to the forecast by the Real Estate Research branch of Deutsche Bank, as published recently by Emporiki Bank. The German bank’s estimate for 2005 expects a 5.7 percent rise in rental rates followed by another 4.4 percent rise in 2006. The upward trend had stopped in 2001, having reached 40 euros per square meter per month at central exposure points, such as in Syntagma Square. Since then, the market’s correction was expected, with rates dropping by 17.8 percent in 2002-2003 and a marginal fall in 2004 (0.2 percent). This fluctuation in rental rates has certainly had its consequences. High leases along the three main roads of Kifissias (in particular), Mesogeion and Syngrou have led many companies to relocate to cheaper areas, such as near the national highway, which is rapidly transforming into a business center, on Pireos Avenue and in Nea Ionia. Even after the decline in rates, Greece continues to be among the world’s most expensive countries in the office real estate market, coming in at 14th place, down from 10th in 2001. One of the positive aspects of the report is the rebound in demand this year, following the drop noted just after the end of last summer’s Olympic Games, primarily due to the relocation of companies and corporations in both the public and the private sector. It is mainly major service sector firms, banks and public corporations that demand large office spaces for leasing. The service sector is growing faster than the rest of the economy, representing about two-thirds of the country’s gross domestic product. The rebound in rates comes despite a rise in the total stock of spaces available, at least according to the data at end-2004. This is attributed to a variety of reasons, such as the availability of the spaces used for the Olympic Games and the development of new office space by big companies in the sector, now choosing to combine both offices and commerce. The supply is also expanding as many companies are moving away from the center, opting for the Attiki Odos and the national highway, with several ministries and state corporations also planning to relocate. This, however, does not translate into the high availability of empty office space. Deutsche Bank estimates that the portion of office space available will post another decline this year, to stand at 9.9 percent, against 11.6 percent in 2004 and 13.9 percent in 2003. The picture is expected to be better in 2006 with a further drop to 8.7 percent. Contrary to the office market, commercial stores show a different picture. Traditionally this domain is affected by the volume of sales of consumer goods and services (e.g. food, apparel, catering, entertainment and cosmetics). As a result, the level of leasing rates and returns is directly linked to consumer expenditure, the structure of disposable income and consumer loans. Although in previous years consumer spending posted an increase and consumer credit was quickly expanding, in 2002 and 2003 store rentals had a downward course and remained stable last year. There were some reductions in rents, mainly in the major shopping districts in Kifissia and Glyfada and along the side roads to the main markets, while rents remained as before in Athens city center, i.e. Ermou and Tsakaloff streets. The main reasons cited for the decline in rental rates are their extremely high levels and the goodwill which is gradually disappearing, at least from the less commercial spots of the capital. Also important was the impact of low interest rates on real estate prices, as well as the worries created in the market about the rise in prices along a great spectrum of consumer goods, which renders potential consumers more reluctant.