Avoiding ‘Gas-Station-on-Corner Syndrome’
To get a better idea of the record office building spree that swept across America in the last decade, David Birch says to think of America’s former love affair with the gas station.
“What happened in offices is what I call the gas-station-on-the-corner syndrome. If one was good, then why not four?” said Birch, author of a recent study that analyzed the nation’s office building boom from 1975 through 1985.
The study, done for the Center for Real Estate Development at the Massachusetts Institute of Technology, found that during those 10 years, commercial developers put up 1.3 billion square feet of office space--or 36% of all primary office space in America.
“One out of five buildings wasn’t needed,” Birch said in an interview. Now with job growth beginning to decrease, coupled with changes in the federal tax law and financial institutions becoming more selective in making office construction loans, Birch predicts that the country will need only half as much new office space from 1985 to 1995 as in the previous 10 years.
And some cities, such as San Diego, will require significantly less, Birch says.
In order for San Diego to meet its office space needs, Birch forecasts that the city will need only 33% of what was built in the prior decade to maintain a healthy vacancy rate of 6%.
As a city, not just downtown, San Diego had 22.1 million square feet of new office space constructed in 1975-85, according to Birch’s findings. But in the next decade, San Diego can get by with only 7.3 million square feet. If, however, building continues at the pace of the previous 10 years, Birch says the city can expect staggering vacancy rates significantly higher than the record 26% to 27% vacancy rates of 1975-85.
Right now, he said, the nation’s cities have 650 million square feet of empty primary office space, plus 300 million square feet that are rented but vacant, primarily in cities where companies have shelved expansion plans.
Despite the warning signals, changes in the commercial development industry come slowly. “It’s like turning around the Queen Mary,” he said.
While it seems as if the office building boom will never end, the study says that a substantial reduction in new construction doesn’t necessarily mean a drastic economic slowdown. “It isn’t that we’re really going slow, but it’s a return back to normal,” he said.
And what does the commercial development industry have to say about Birch’s report?
“No one has disagreed with it and no one believes it applies to them. It’s developers saying, ‘It’s those idiots over there, but not me. I’ve got the market, the location, the building that people are going to want to move into,” Birch said. “Everyone’s project can’t be special . . . and it’s going to have to come down hard on some.”
