Southland Office Glut to End, Study Says : Real Estate: Price Waterhouse predicts that the supply of vacant space will vanish within three years because of a coming surge in job growth.
Taking issue with predictions of a long recovery for the overbuilt Southern California office market, a Price Waterhouse study scheduled to be released this week forecasts that the current supply of vacant space will be absorbed in less than three years because of faster-than-expected job growth.
The 25-page study by the real estate division of the accounting firm looked at employment growth, demographic trends and other factors driving absorption of speculative office space and concluded that “by the end of 1992, . . . vacancy rates are likely to be dropping and effective rents rising” in the Southern California office market.
It says the office market in Southern California has already bottomed out in Orange County, Ventura County and most other Southland areas except in downtown Los Angeles and South Bay beach communities. In the latter two areas, the report said vacancy rates will continue to climb for several years before shrinking to 8% in 1996.
That conclusion is at odds with a number of recent reports on Southern California office leasing, including studies by the Salomon Bros. investment house in New York and the Springfield, N.J., consulting firm of A. Gary Shilling & Co.
Shilling, for example, said if office buildings in the Los Angeles area attract tenants at the pace they did during 1990, it will take 10 years until the current vacant space is fully occupied. Shilling added that even if space is absorbed at the brisker pace registered between 1985 and 1990, it would take five years before the area’s more than 137 million square feet of office space is fully leased.
The Price Waterhouse study forecasts a rosier outlook primarily because its projections are based on robust predictions of future employment growth rather than historical office leasing patterns.
Price Waterhouse believes that Southern California will add 1.7 million jobs in the 1990s, compared to 1.8 million jobs created during the booming 1980s. What’s more, it believes that the average number of square-feet-per-employee will grow, in part, because efficient computerized offices will accelerate the shift away from clerical staffs--which tends to have the smallest amount of office space per employee--to aging managers climbing the corporate ladder.
“In general,” the report explained, “those in their 30s expect larger offices than those in their 20s and those in their 40s expect larger offices than those in their 30s.”
Another factor that will fuel demand for office space in Southern California, Price Waterhouse says, is the continuing transformation of the Southland economy toward the service sector, which tends to base its employees in offices.
