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LOS ANGELES-Real estate professionals from different parts of the state espouse opposite views on how the office market will fare in light of the economic downturn and whether the credit crunch is worsening or easing, according to a newly released study called the Allen Matkins/UCLA Commercial Real Estate Survey. The survey, conducted for the third time over the past two years, polls California real estate professionals in the office space and investment market in Los Angeles, San Diego and Orange County. This latest survey, for the first time, also included San Francisco.

Results of the survey, which will be discussed this Wedndesday at the at the UCLA Anderson Forecast Conference at UCLA, show that the real estate professionals on the panels in Los Angeles and San Diego sense that while credit conditions are likely to remain tight for the near term, the credit crunch is starting to ease. But in Orange County and San Francisco, the panels believed the opposite is true.

Jerry Nickelsburg, UCLA economist and author of the survey results summary, explains that the survey asked the regional panels for their views on what market conditions will be like in 2011 and asked for the panel members’ views on likely changes. In Los Angeles, for example, the panel does not believe the office market will tighten between today and 2011. With an average vacancy rate in Los Angeles at levels lower than those of the past 20 years, today’s conditions represent a healthy office space market, the panel believes, and with new supply expected to come on the market over the next three years at a rate just about equal tothe expected increase in demand, the market will remain healthy.

The San Diego panel was pessimistic last December about the region’s office market. It now sees the market tightening out to 2011 with both occupancy rates and rental rates higher. “We see the turnaround as a result of the growth in office-using employment,” Nickelsburg points out. “Although SanDiego did not make much progress in the first quarter of 2008 in terms of overall job growth, outside of finance, office space-using employment grew in the first quarter 2008 from the first quarter 2007 by 1.5%.”

In Orange County the survey finds that developers are pessimistic about the market, with downward pressure on the price of land for office space development. Along with a weaker market, higher financing costs and slack demand translate into a market where investors will have to choose their projects carefully, the panel believes.

The San Francisco panel’s analysis of the market is similarto that of the Orange County panel, except that the San Francisco panelists consider land costs to be a more significant factor. The panel forecast that occupancy rates will rise at the same time as real rental rates are falling. But office-using employment hasbeen increasing in recent years in San Francisco, and real rental rates and occupancy rates are finally rising again.

Nickelsburg points out that if the recovery continues, it could result in a shortage of office space by 2011, which would be the opposite result of the panel’s assessment.

The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project wasinitiated by the law firm of Allen Matkins Leck Gamble Mallory & Natsis LLP in 2006. Future surveys will focus on other real estate markets and will feature additional cities.

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