Same Office Market, Contradictory Numbers
In a ritual repeated every three months, Los Angeles’ legion of commercial real estate researchers rush to crunch numbers, double-check facts and publish their quarterly office market statistics.
Then, in another time-honored tradition, the recipients of the reports--used to make important leasing and investment decisions and studied by economists--struggle to make sense of the different and often contradictory results.
During the second quarter, for example, a batch of rival research reports for downtown Los Angeles showed either a troubling drop, an impressive increase or hardly any change at all in the amount of occupied office space, a key indicator of a market’s health.
“It causes a lot of confusion in the marketplace,” said Tony Morales, leasing chief for MaguirePartners, one of downtown’s largest landlords. “It would be nice to have one consistent methodology.”
The research generated by the area’s top commercial real estate brokerage firms is often based on common pools of information. But different research methods, policies and definitions ensure inconsistencies among the companies’ quarterly reports. Researchers disagree over market boundaries, building classifications and even when a space is deemed vacant.
Despite the confusion and conflicting data, real estate researchers make no apologies for the lack of common standards and results.
“I like to see differences because I know there are differences in methodology,” said Kevin Morrow, Western regional research director for Insignia/ESG Inc. “To come up with the same numbers would be creepy.”
Researchers say it’s more important to make sure their own statistics and standards are consistent year over year in order to track trends and developments.
“What direction is the market going? That’s what’s important to investors,” said Grubb & Ellis Co. research services manager J.C. Casillas.
Fast and accurate research is a selling point and a source of pride for the area’s largest real estate brokerage firms. Rival research staffs race to get their quarterly results published in glossy handouts or on company Web sites.
The tenacity, industry relationships and luck of individual researchers can sometimes lead to the differences in results. One analyst, for example, may discover through a friendly broker that a major lease has been signed as the statistics are being reviewed. Analysts at other firms may not hear of that information until after their reports are completed.
A good deal of the variations among companies result from differences in basic measurements. In downtown Los Angeles, for example, Insignia/ESG counts buildings 30,000 square feet and larger in its research. But a building has to be at least 50,000 square feet to be included in Colliers Seeley’s results.
Market boundaries also can differ greatly. The northern boundary of the West Los Angeles office market is Olympic Boulevard, says CB Richard Ellis. Insignia/ESG, however, puts the border about half a mile away along Pico Boulevard.
The variations are sometimes the result of “timing” differences. Some brokers, for example, adjust their reports as soon as a lease is signed to fill empty space. But as far as Grubb & Ellis is concerned, that space is empty until the day the tenant moves in.
Some companies also publish an “availability rate” that includes vacant offices and space that will soon be available for lease. But how soon is a matter of debate, ranging from a few weeks to 12 months for Insignia/ESG.
The brokers, tenants, investors and others who use the reports have learned to live with the inconsistencies. Many simply create new reports by adjusting the numbers to try to find common trends. In addition to trends, closer examination of the reports often turns up mistakes and even more questions.
In reviewing a report for the San Fernando Valley, economist Jack Kyser discovered that statistics from Ventura County had been included.
“It gets pretty wild and somewhat frustrating,” Kyser said.
Few if any attempts have been made to reconcile the statistics. The major real estate firms are more reluctant than ever to reach a consensus because statistics and standards would have to be changed not only in Los Angeles but also across countless cities worldwide.
Los Angeles real estate broker Jerry Asher at CB Richard Ellis recalls an attempt a few years ago to minimize the differences among the reports. But the effort didn’t go very far, he said.
“No one could agree on the standards.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Battling Statistics
Market research by real estate firms can result in different numbers for what is supposed to be the same area.
Second Quarter 2001
Downtown Los Angeles
*--*
Market size (in millions Vacancy Absorption* Real estate firms of square feet) rate (in square feet) Cushman & Wakefield 32.51 18.10% 4,559 Insignia/ESG 34.28 21.34 60,522 CB Richard Ellis 30.83 15.10 182,192 Colliers Seeley 32.28 22.00 19,300 Grubb & Ellis 32.10 19.10 -141,276
*--*
*
West Los Angeles
*--*
Market size (in millions Vacancy Absorption* Real estate firms of square feet) rate (in square feet) Cushman & Wakefield 38.26 10.70% -31,858 Insignia/ESG 41.87 10.60 -266,852 CB Richard Ellis 40.79 11.14 -23,296 Colliers Seeley 43.26 9.30 -224,600 Grubb & Ellis 46.84 11.20 -725,419
*--*
*
Century City
*--*
Market size (in millions Vacancy Absorption* Real estate firms of square feet) rate (in square feet) Cushman & Wakefield 8.85 5.40% 31,736 Insignia/ESG 9.38 5.89 -102,048 CB Richard Ellis 9.35 7.98 -116,763 Colliers Seeley 8.90 8.00 -127,900 Grubb & Ellis 9.00 5.10 9,281
*--*
*
*Net change in occupied space
Source: Times research
