The economic slowdown and the absence of a significant number of new players or company expansions in Puerto Rico have generated new interest in well-kept older office buildings, especially in Hato Rey's Golden Mile, where lower rents and all-inclusive packages make them especially attractive.

So say Gerald J. Christiansen and Rafael Portela, co-owners of Christiansen & Binswanger, which specializes in office real estate but also deals with commercial and industrial spaces. The two noted that whereas lease rates for second-generation buildings average $24 per square foot, including operating expenses and sometimes even water and electricity, the more expensive new buildings cost $20 and up for the space alone.

What's more, tenants receive just an empty shell that will cost $50 to $60 per square foot to outfit with all the necessary items. "On the other hand, adapting a second-generation building to a tenant's needs costs an average $20 to $25 per square foot," Christiansen said.

"About 85% of the absorption of the market is relocations," added Christiansen, "mainly companies moving from their second-generation Hato Rey premises to newer office complexes because they're expanding." Newcomers, from the U.S. or elsewhere, make up the balance.

"The weak U.S. economy doesn't put companies in an expansion mood," Christiansen said. In fact, many are subletting part of their local office spaces. "Some may have 40,000 square feet and, because they have fewer employees, are subleasing a quarter of that," he said.

He added that the U.S. economy is weaker than Puerto Rico's in large part because the island receives federal fund transfers, which act as an economic buffer. "Puerto Rico has rarely experienced property devaluation," said Christiansen. "Today, some local tenants are being offered free rent for several months. That and other incentives are being pushed aggressively in the U.S. to lure tenants."

Portela estimated that one million square feet of office space has entered the local market in the past two years, with another million in the planning stage. "Given the economic slowdown, it's possible that many of the planned buildings won't be constructed immediately. The exceptions will be properties built for companies' own use."

Usually, explained Portela, a developer will announce the construction of a building to arouse interest among potential tenants. With contracts or commitments in hand, the developer then goes to the bank to secure financing for the construction.

Portela also noted that the market for office space is cyclical. There was tremendous demand for office space in the late '90s, with occupancy rates as high as 98%. This prompted a building construction boom.

Relocation of federal or local government agencies also boosts demand, such as "when the commonwealth's agencies moved from the Isla Grande Naval Base or when U.S. Customs moved," said Christiansen.

Commercial and industrial real estate, on the other hand, is booming with expansions and relocations. Christiansen and Portela cited the expansions at Eli Lilly and Procter & Gamble, the shutdown of Intel's Las Piedras plant and the availability of the former JCPenney warehouse building in La Muda.

Christiansen and Portela joined efforts in 1997, combining their vast experience in real estate.