Office Markets Slipping as Economy Slides: Survey

WASHINGTON, DC-The US economy’s sudden and unexpected downturn has given the lie to prevailing wisdom saying that real estate is among the last industries to cave in during economic slowdowns. According to a newly released survey, office vacancy rates have risen dramatically in key areas, and we’ve yet to hit bottom, much less begin climbing out of the hole.

Not surprisingly, Oncor International’s Mid-Year 2001 North American Office Market Report shows tech centers suffering the greatest tenant losses. Technology, telecommunications and Internet ventures, predictably, left the deepest dents in office-occupancy rates.

And tenant flight has been much faster than analysts expected. Survey data from year-end 2000 were nothing short of glowing. Occupancy was high, tenants were optimistic about expansions and brokers were popping corks between lease signings.

What a difference six months can make.

Dot-com capital San Francisco’s CBD saw vacancies jump from 5.14% at the end of 2000 to 9.82% at mid-year.

In Seattle, another cyber-mecca, a lot of programmers apparently went out for coffee and never came back. According to the survey, the December CBD office-vacancy rate in Seattle was a negligible 1.94%. At mid-year, 4.95% of Seattle office space was available. And its geographic counterpart, Boston, also took a hit, with CBD office vacancies up from 2% to 7.10% over the six-month period.

Chicago, which never really embraced the techno-craze, nevertheless has a few more empty offices than it did last year. December 2000 vacancies in Chicago’s CBD were at 10.30%. Oncor’s mid-year figures showed empty office space in the Windy City was up to 12.48%.

Orlando remained virtually flat, with vacancies inching from 10% in December to 10.45% in June.

Despite the massive exodus from Silicon Alley lofts, New York escaped the national doldrums relatively unscathed. Big Apple office vacancies creeped up from 5.10% in December to 6.30% in June. Los Angeles saw a similar rise in available space. According to Oncor, Angeleno office-building owners saw a small rise in vacancies, from 16.64% at year-end to 18.36% on the Q2 survey.

The overall trend among the 46 markets reflected in the survey is a relatively modest rise in vacant office space, from 10.16% at year-end to 10.65% most recently. But Oncor isn’t betting the farm on a quick turnaround of the situation. The vast majority of its forecasters, 93%, see no improvement in Downtown occupancy levels this year. Hunches are more optimistic for next year, with 65% of survey participants predicting an upturn in 2002.

An organization of privately owned commercial real estate companies, Oncor International comprises more than 50 companies in over 200 markets worldwide.