Office Space Surplus--at 17%--Stays High as Construction Goes On

The vacancy rate for Westside offices increased to 17% in the third quarter of 1985, up from 14% at the same time last year, according to a survey of 205 buildings throughout the area.

The newly released study shows 2.9 million square feet of unoccupied office space out of a total of 17.3 million square feet in the Westside.

The study, conducted by Grubb & Ellis Commercial Real Estate Services, included all Westside office buildings that have more than one tenant and more than 20,000 square feet of space, officials said.

The Westside’s high vacancy rate is expected to continue because an additional 4.1 million square feet of office space is under construction and only 266,153 square feet has been preleased, researchers said.

Much of the new office construction will be completed in the next 18 to 24 months, said Greg Gann, vice president and district manager of the company’s Westside office.

“We can anticipate a temporarily higher vacancy rate over the period it takes to absorb the new space,” he said. “It should be remembered that real estate is cyclical and we’re at that point in the cycle that momentarily benefits the tenant seeking space.”

The Westside office vacancy rate of 17% is about the same as the nationwide average, estimated by Grubb & Ellis to be about 16%.

“The current oversupply of office space in the nation promises to last for some time,” said Charles Froland, director of research for the nationwide company. A similar oversupply in 1975 took five years to be leased up, and it started with a lower vacancy level, he said.

Froland attributed the current oversupply to a variety of factors. He said that a shortage of offices in 1979 prompted a burst of construction that eventually exceeded the demand. Also, a 1981 tax law spurred office development through provisions benefitting real estate investments, he said. Grubb & Ellis analysts said that the vacancy rate in downtown Los Angeles is about 17.5%, partly because of 2.8 million square feet of new construction that became available recently. They reported that about 4 million square feet of space is vacant out of a total of 22.7 million square feet.

“Never before in the history of downtown Los Angeles has such a large amount of office space hit the market in 90 days,” said Jeffrey T. Carey, Los Angeles district manager. “We are almost at the top of this particular development cycle and construction will now begin taking a back seat to the marketing of this huge inventory.”

The Grubb & Ellis survey included Beverly Hills, Century City, Hollywood, West Hollywood, Marina del Rey, Culver City, Fox Hills, the Mid-Wilshire area, Santa Monica, West Los Angeles, Westwood and Brentwood.

Another study, conducted by the Beverly Hills office of Coldwell Banker Commercial Real Estate Services, surveyed 259 Westside buildings with a total of 28.9 million square feet and found about 4 million square feet, or 13.7%, vacant.

Coldwell Banker also found that among 21 buildings totaling 3.25 million square feet under construction, only 407,000 square feet of space was preleased, according to Joel Kurtz, vice president and manager of the Beverly Hills office.

Coldwell Banker’s study included offices in West Hollywood, Beverly Hills, Culver City, Marina del Rey, West Los Angeles, Brentwood, the Wilshire-Fairfax area, and Santa Monica.

Kurtz said that the Westside’s high vacancy rate will continue for a few years because office space is coming on the market faster than it can be absorbed.

The Westside normally absorbs about 1.5 million square feet of space a year, he said, but 3.25 million square feet is under construction and about 8 million square feet more is planned for the next five years.

With so much space available, the office leasing market will be soft for about four years until the excess is absorbed, and then there should be an upswing in the market, he said.