Year-End Survey : Office Vacancy Rate Downtown Declines to 17%

Downtown office vacancy rates in San Diego outpaced a downward trend across the country during 1986, falling from 23.4% to 17%, according to a 39-city survey released Tuesday by Coldwell Banker.

San Diego’s suburban office vacancy rate also fared well during 1986 because office space was occupied faster than new space was made available through construction, according to the survey.

San Diego’s suburban vacancy rate fell to 26.6% in the fourth quarter from 28% in the third quarter. But the rate was an increase over the 22.5% vacancy factor at the end of 1985.

San Diego finished second among the top five downtown areas with the most significant decreases in 1986 vacancy rates. Downtown Tampa led the nation with a decline from a 25.9% to a 14.5% vacancy rate. San Jose, Oakland and Sacramento also registered strong declines in vacancy rates.

Coldwell Banker tracks 31 buildings in downtown San Diego with a total net rentable area of just over 6 million square feet. About one million square feet of office space was sitting vacant last month. Coldwell Banker tracks 146 buildings in suburban San Diego with 10.2 million square feet of rentable space. At year’s end, 1.7 million square feet were not being used. Office buildings nationwide were a little less empty at the end of 1986, as strong demand for office space offset a fast construction pace during the fourth quarter, according to Coldwell Banker’s survey.

Vacancy rates for office buildings in Los Angeles and Orange counties also declined during the last three months of the year, the survey found.

Meanwhile, vacancy rates for suburban office buildings nationwide held steady at 23.8% during the fourth quarter--the first pause in two years of climbing rates--while vacancies at industrial buildings rose to 5.8%, a gain of 0.3 of a percentage point.

Los Angeles-based Coldwell Banker Commercial Real Estate Group, the nation’s largest diversified real estate services company, conducts a quarterly survey of vacancies at buildings in 39 downtown areas and 37 suburban markets. Coldwell Banker, a subsidiary of Sears, Roebuck & Co., also surveys industrial properties in 27 major markets.

Coldwell Banker’s survey indicated that many cities have begun to digest the glut of office space that developed in the early 1980s. But while the feverish construction pace of new buildings has slowed in the suburbs, even more office buildings are expected to be completed this year in the nation’s downtown areas, Coldwell Banker said.

Decline in National Rate

The decline in the national downtown office vacancy rate to 16.4% in the fourth quarter from 16.7% in the previous three months “came about simply because of demand for office space versus construction of new space,” a Coldwell Banker spokesman said. Banks and other financial institutions, in particular, leased significant amounts of space in Los Angeles, San Francisco, New York and Chicago, as well as smaller cities, the survey said.

In Los Angeles, the downtown vacancy rate fell to 15% in the fourth quarter from 17.5% in the third quarter. For suburban Los Angeles, which Coldwell Banker defines as the rest of the county, the vacancy rate was 17.3% in the fourth quarter, compared to 17.5% in the third quarter.

Orange County’s office vacancy rate slipped to 22.7% from 23% in the third quarter. The rate was 19.3% at the end of 1985.

Falling Oil Prices

The highest downtown vacancy rates were found in Denver, at 29.7%, and Oklahoma City, with 26.8%. Both of those cities have been hurt by falling oil prices.

The lowest downtown vacancy rates were reported by midtown Manhattan (8.7%), Boston (9.1%), Philadelphia (9.3%), downtown Manhattan (9.9%) and Washington (9.9%).

The gain of 0.3 of a percentage point in vacancies at major industrial buildings during the fourth quarter reflected moves by many large companies to close and consolidate operations, Coldwell Banker said. However, the increase was moderated as several smaller firms expanded into some of the industrial space left vacant by the larger firms, the company said.

In Southern California, the industrial vacancy rate rose to 6.3% from 5.6% in the third quarter. It was 6.5% at the end of the previous year.

The bulk of the newly available space in Southern California--defined as Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties--”was in obsolete distribution facilities released by companies consolidating their supply operations,” the survey stated.

Nancy Rivera Brooks reported from Los Angeles and Greg Johnson from San Diego.

HOW CITIES COMPARE

Office vacancy rates as of December, 1986, for 10 most populous downtown areas surveyed by Coldwell Banker. City / % New York:

Midtown Manhattan 9.9

Downtown Manhattan 8.7 Los Angeles 15.0 Chicago 11.6 Houston 20.0 Philadelphia 9.3 Dallas 21.6 San Diego 17.0 Phoenix 18.5 San Antonio 21.4 Baltimore 12.7 Source: Coldwell, Banker