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AUSTIN-If you take the long view, things aren’t that bad. They were really bad in the late 1980s when Austin’s commercial real estate was overbuilt. And they’ll get better starting in the second quarter 2002, with the local economy humming at full speed by 2004. Until then, hold on and don’t put up more buildings whether they be office, industrial, retail or multifamily.

That’s the word Angelos Angelou, founder of Angelou Economic Advisors, delivered Wednesday to a sold-out audience of about 600 real estate professionals. It’s the first time Angelou has updated his annual beginning-of-the-year forecast to reflect the rapidly changing economy. He spoke at a luncheon sponsored by the Real Estate Council of Austin.

Angelou and Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University, concur that Austin’s economic rebound should begin in 2002′s second quarter.Until then, the Central Texas economy will work off the excesses of the 1990s. “We all got a little fat,” Angelou said, “including myself. I’ve lost 14 pounds.”

It may take longer for the Austin office market to lose the increasing amounts of space coming on the market in new buildings and vacated sublease space, according to his forecast. The office market, Angelou says, “is going to have some challenges.”

He’s calling for a 54% negative net absorption this year, followed by a negative 24% in 2002 before rebounding to positive absorption of 62% in 2003 and 34% in 2004. Angelou puts the current occupancy rate at 93%, falling to 85% by year end and rising to 89% in 2003 and 91% in 2004.

“It is time we put some controls on future supply,” Angelou emphasized. Referring to the office market, he said, adding, “There’s probably 1.8 million sf under construction right now and there’s another 2.5 million sf projected. Maybe we need to hold on to some of these other projects a little bit longer.”

The inventory of space gives Austin a valuable tool for recruiting new business to Central Texas. It’s a good opportunity for out-of-town companies looking to reduce costs. He said Austin needs to re-engage its economic development machinery and aggressively market itself to companies in other parts of the country, particularly California.

While Angelou said the industrial market is healthier than the office market, it too will post a decline in occupancy rates. Current occupancy is 95%. He projects that will drop to nearly 87% in 2002 before rising to 91% in 2004.

In retail, “This is where I think I have some good news,” Angelou said. “Not a whole lot of product is coming online. Vacancy rates are about 4% now and should remain steady, if not decline.”

Builders will add about 8,600 multifamily units this year, bringing the total to 139,000, Angelou said. “We’re anticipating occupancy rates to decline from about 93% to about 90%. Not too bad,” he said.

By 2004, the multifamily occupancy rate should rebound to 95%. “People are still moving to Austin, people are still going to have to have a place to live,” he said. “Clearly the market has seen a significant upswing over the years. The situation is fairly stable. I would not encourage significant new construction.”

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