Office Owners Expect Weak Demand

Owners of office properties this year are bracing for more vacancies and for lower rents as companies try to curb real estate costs.

Though other sectors of the economy seem to be perking up, office property owners last week gave a downbeat forecast at a real estate conference sponsored by Lehman Bros.

“So far the signs are not there that we’re having a recovery in real estate,” Boston Properties Inc. Chief Executive Edward Linde said.

Surveys of office markets have shown that demand is weakening, with more space opening up all over the United States.

A study by PricewaterhouseCoopers found 200,000 fewer office occupants at the end of 2001 than a year earlier. The study predicted continued weakness through 2003.

Real estate boomed in 2000, when the roaring economy bolstered demand for office space and Internet and high-tech companies pushed rents to phenomenal levels. But the 2001 recession and the Sept. 11 attacks caused vacancies to rise and rents to fall as many companies found they did not need the space.

“Office markets are going back to the 1999 level,” said Sam Zell, chairman of Equity Office Properties Trust at the New York conference. “We went through the spike and came back down.”

Equity Office is the largest owner of office properties in the United States.

Shares of real estate investment trusts, the companies that own and manage large portfolios of real estate, jumped in 2000. The Morgan Stanley REIT index surged 27% that year as demand for all types of property, including office space, heated up to a frenzied pace.

Such a rise is unusual for REIT stocks, which generally attract investors seeking a steady stream of dividend income. Law requires these companies to pay 90% of their taxable income to shareholders.