The real estate industry usually hums a few basic mantras, and chief among these is: values hold up as long as supply does not outstrip demand.

And when industry pundits measure supply, they look chiefly - if not exclusively - at speculative development. In the past two property recessions in the US and Europe, in 1991 and 1982, swingeing losses were directly attributable to a surge of speculative development just as the economy was slowing.

Now, however, a new element of property risk is rearing its ugly head: speculative leasing.

In the US, where a recession in all but name has been under way since last year, the effects of speculative leasing are showing in the latest data from Boston-based Torto Wheaton Research, supplier of data on US property markets. According to TWR, 2001 will turn out to be the first ever full year of negative net absorption - the first time more office and industrial space was offered to let than was taken up by occupiers. Even during the recessions of 1982 and 1991, absorption remained positive.

The culprits of this new phenomenon are the occupiers themselves. They leased space, speculating that the fantastic economic growth rates of the past decade would continue into the new millennium. But they didn't.

"Companies looked at rising rents and falling vacancy rates and said: 'I'd better take more space'," says Ray Torto, principal and managing director at TWR. Fuelling their enthusiasm for such speculative leasing was a vast amount of venture capital available for expansion.

Mr Torto notes that in the US, companies leased an average of 80 million sq ft a year during the strong growth years of 1998 and 1999. In 2000, the year the economy began to slow, companies absorbed 120 million sq ft. It is that space, he says, that is now being dump ed on the market.

"It's funny, but I don't think that anybody saw this coming," says John Lutzius, real estate securities analyst at Green Street Advisors, a California-based research firm. "This was the longest ever period of US economic growth and we just got complacent. Investors have learned the hard way that it's just as important to worry about demand as supply." Europe may not be far behind. It has been slower to show signs of the latest economic downturn although there are now signs that, in overheated markets such as central London, tenants are also dumping space.

Real estate securities analysts at Merrill Lynch note that in London's West End, where some of Europe's most expensive office space lies, vacancy rates have risen 20 per cent in the third quarter of 2001. Much of what is newly available is space that has been placed on the market, not by landlords, but by occupiers who no longer need it. Healey & Baker, property consultants, note that available space across central London increased by more than 50 per cent to 8.8 million sq ft in the third quarter of 2001 alone. In the overheated West End, almost half the new space coming on the market was by way of assignments or subleases from tenants, and prime rents there have fallen to £80 sterling a sq ft. Earlier this year, they were headed towards £100.

The latest trend, and its impact on real estate markets, suggests that perhaps a more thoughtful definition of risk is required. It is too simplistic to consider that the definition of supply is limited to new or refurbished space.

"We were generals fighting the last war," Mr Lutzius says, referring to the role of speculative development in the two previous US property crashes. "We have to take care that we do not draw our definition too narrowly." Future models of supply and demand may have to take into account some element of supply coming from space that is offered to let by the present occupier in addition to that offered directly by landlords.

The financial impact of a surfeit of space offered by tenants is quite different from a surfeit offered by landlords. Landlords, typically, have loans secured on their property and as long as the tenant is on the hook for the lease and has not gone bankrupt, the landlord will receive his rent. That means that bank debt used to finance the purchase or development will be repaid.

The spectre of bank failures from losses on real estate lending is a much less likely feature of the current recession, Mr Torto says. He notes that many lessons have been absorbed from the last recession, and due diligence by lenders has been far better in the current cycle than in the previous one.

However, it is difficult to imagine that landlords can be insulated from speculative leasing, even if the effects take time to work through the system.

A landlord with a multi-tenanted building fully let at market rents could suddenly find a third of it is offered to sublet at levels well below those prevailing. At a stroke, he owns an over-rented building.

It is difficult to imagine that capitalisation rates - or yields - set on these buildings by valuers will not be affected.

Moreover, even when economic recovery begins, it will be some time - perhaps years - before rents move back to their frothy 2001 levels.

"I have a renewed respect for the concept of a reversion to the mean," Mr Lutzius says, noting that rents in some US markets are rising at double-digit rates. "If you see a spike that is too sharp, or which goes on for too long, you have to stop and remember that at the end of the day, real estate is just a commodity."