Office Property Market to Rebound in ‘93, Study Says
A national Realtor group predicted Thursday that the slumping office market will start to improve next year as demand for space rises and new construction comes to a near halt.
But the upturn may be slow in coming to Los Angeles, which the group labeled one of the nation’s worst commercial real estate markets.
“Beginning next year, it appears we will be absorbing substantially more office space than we will be constructing, and we should begin to see some significant drop in vacancy rates after the year 1992,” Dan Wilkinson, president of the Society of Industrial and Office Realtors, said at a Washington news conference.
The study reinforces an emerging view held by many once-gloomy real estate analysts that a credit crunch has caused an abrupt halt in new office construction, helping to reduce the specter of a continuing glut of office space.
In Los Angeles, for example, developers such as Koll Co., Watt Industries and Pacific Atlas Development Corp. have delayed or tabled more than half a dozen major office buildings in the last year because of concern over the soft leasing market or an inability to find financing.
Meanwhile, some hard-hit markets are seeing a pickup in office demand.
In the South Bay area, near Los Angeles International Airport, distribution companies are filling up office space vacated after the aerospace industry cut back last year.
“The doomsayers have the attention of the public at present,” the report noted. “But the statistics seem to say there is good reason to question their all-too-conventional wisdom.”
Still, the president of the largest local affiliate of the society said conditions remain poor and added that any boost in demand for gleaming new office space will come at the expense of older, inefficient buildings.
“I’m not sure we’ve reached bottom,” said Akiko Maeda, president of the Los Angeles-area chapter of the society as well as the Los Angeles-based Pacific Business Properties brokerage firm. “As larger users move to new projects with generous concessions, they leave a gaping hole in the secondary market.”
The society’s study, compiled from a survey of 125 industrial markets and 115 office markets nationwide, found that both sectors remain depressed, with the industrial properties particularly troubled. Just 107 million square feet of industrial space were leased in 1991, a decline of 40% from the previous year.
Office vacancy rates rose 1.9% during 1991 to a nationwide average of 18.9%. But new office construction will level off somewhere in the range of 40 million square feet by the end of 1992, officials predicted--so vacancy rates may not rise much.
Not surprisingly, Los Angeles was rated among the worst cities in both office and industrial vacancies. Maeda said the area’s ranking was hurt by the inclusion of vastly overbuilt commercial markets in outlying Inland Valley areas around San Bernardino.
