Looming Job Cuts:
May be the word “doom” just brings out the pessimist in people, but 66% of respondents answered this week’s Quick Poll on the side that believes job cuts will “Spell Doom for the Office Market” versus 34% who say they “Won’t Have a Vacancy-Rate Impact.” Jeff Osborn, a managing director of CB Richard Ellis’ Anaheim office, sees the glass at half cycle—in short, his take is that things may get worse, but they will eventually get better. <pNo doubt rising unemployment is going to have an impact on the office market. I wouldn't be in the camp of saying its doom and gloom only because I've been in this business 22 years. When I started out in Orange County, there was approximately 50 million sf of office space and vacancy exceeded 20%. Today we have a base that's approximately 100 million sf—it's doubled—and we have a 15% vacancy.
Down cycles are very common in our industry, but we always come out of it and markets do turn around. Doom and gloom sounds like scorched Earth and the end of the world. I would have to say I wouldn’t go that far.
But the job loss is having an impact on the leasing of office space. Certainly I would say that we are in a challenging and rebalancing time relative to the office market. We’re certainly challenged by what has happened in the home building industry, certainly we all now about the mortgage industry, but there’s another component that gets overlooked and it’s the overall liquidity crisis we have with the credit crunch and the ability of businesses and private individuals to borrow money.
I don’t think anybody would anticipate there would be a correction like this in the mortgage industry. I don’t think anyone would anticipate the pendulum would swing back the way it did.
We’re going to continue to see the vacancy rate increase in Orange County over the next 24 months. The rising vacancy rate is a result of three things: downsizing in the mortgage industry—from 8.5 million sf to 1.2 million sf of space taken by the remaining mortgage companies in Orange County in the last year; a softening national economy; and 4.3 million sf of new construction hitting the Orange County market over the last two years. We’re clearly in a challenging time, but I also think that it isn’t doom and gloom. If you look at Orange County and Southern California in general, at all the challenging times and cycles we’ve been through, we’ve always rebounded.