CHICAGO-The national office market may have hit bottom, says the boss of the largest US office REIT. Not that it means it will be business as usual for Equity Office Properties and its 2,600 employees, especially those involved in managing the 127-million-sf portfolio.

Chairman, president and chief executive officer Samuel H. Zell tells the Banc of America Securities investment conference an encouraging sign can be found in the REIT’s leasing of 6 million sf of space in the second quarter. “Sixty-five percent of that 6 million sf took occupancy and started paying rent in the second quarter,” Zell reports, a change from decision-making that took more than six months. “That suggests that the cycle of decision making has been dramatically shortened. We think this is an indication of changing concern and uncertainty about the market place. Whether one is uncertain or not, you can’t operate on the street.”

Meanwhile, new construction is expected to dwindle to 23 million sf in Equity Office Properties’ markets in 2003, down from a pace that saw 100 million sf being built a quarter. “History tells us when new construction falls, we eventually start to see a pickup,” Zell says. “We figure we’re kind of bouncing along the bottom right now.”

Rents are as much as 30% below where they need to be to justify new construction, Zell says. Equity Office Properties estimates they are 14% below the break-even point in the Central Business District and 13% below in the suburban markets. “Eventually, the market must come back to replacement cost,” Zell says.

However, property managers and leasing agents are seeing long-lasting changes in their jobs, Zell tells the conference. “In many of our markets, our people became high-paid order takers. They’re finding that their world has changed dramatically,” Zell says.

An experiment in Boston, where the REIT had 55 property managers for each of their assets, will be rolled out across the country, Zell says. Property management was consolidated from 55 to one central office, Zell says, while employees were focused on their strengths, he adds.

For instance, in the past, property accountants might spend time on leasing and other duties, Zell says. “We’re refocusing our people on what they’re good at,” Zell says.

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