Eurozone office mkts brace for rental falls-report

* Frankfurt rents to fall by double-digits by 2010

* London City office rents bottom at 415 stg/sq m

* Madrid office rents to fall 30-35 pct by 2010

LONDON, May 13 (Reuters) - Recession will drive down office rents in nearly all of the Eurozone's biggest economies in coming months, as distressed businesses relinquish space onto an already bloated lettings market, a report showed on Wednesday.

"Whilst the higher cost of debt has curtailed development in many markets, availability is rising as distressed tenants consolidate and downsize," research from real estate services company DTZ (DTZ.L) showed.

"This will lead to falling rents across the board," the report said, adding that extent of declines would vary from market to market.

Upset in the financial services sector has hit demand for office space in Frankfurt office market, leading to tougher lease negotiations between landlords and tenants.

DTZ said it expected rents in Germany's historic financial centre to fall by double-digits in 2009-10 with recovery in the market slated for 2012.

The City of London office market is another big casualty of the credit crisis as its biggest bank occupiers look to contain costs by cutting jobs and vacating surplus space.

Weak demand twinned with strong development completions has doubled the volume of available space in the City district to 12 percent in the past 18 months.

Rents, which have fallen by 23 percent in the last two quarters, are now at the same level seen at the end of second-quarter 2005. DTZ is forecasting prime City rents to drop to 415 pounds per square metre at the trough of the cycle, from a peak of 700 pounds per square metre recorded at end-2007.

Despite a more diverse tenant base, DTZ said the outlook for London's West End office was just as grim, with rental falls of over 20 percent forecast between Q2 2009-10.

Rents will bottom out at about 700 pounds per square metre in 2010, with the market going into recovery from 2011 onwards.

The impact of the financial crisis on the Madrid office market could be compounded by an increase in supply, with about 700,000 square metres of development due to complete in 2010.

"Madrid will be witness to one of Europe's largest rental corrections, with prime rents expected to decline by approximately 30-35 percent over 2009 and 2010," DTZ said.