Nationwide Trend : Fewer Vacant Offices Found in Downtown L.A.

Office buildings in downtown Los Angeles and nationwide were a little less empty at the end of 1986, as strong demand for office space offset a fast construction pace, according to a survey released Tuesday by Coldwell Banker.

Vacancy rates for office buildings in San Diego and Orange County also declined during the last three months of the year, the survey found.

Meanwhile, vacancy rates for suburban office buildings nationwide held steady at 23.8% during the fourth quarter--the first pause in two years of climbing rates--while vacancies at industrial buildings rose to 5.8%, a gain of 0.3 percentage point.

Los Angeles-based Coldwell Banker Commercial Real Estate Group, the nation’s largest diversified real estate services company, conducts a quarterly survey of vacancies at buildings in 39 downtown areas and 37 suburban markets. Coldwell Banker, a subsidiary of Sears, Roebuck & Co, also surveys industrial properties in 27 major markets.

Coldwell Banker’s survey indicated that many cities have begun to digest the glut of office space that developed in the early 1980s. But while the feverish construction pace of new buildings has slowed in the suburbs, even more office buildings are expected to be completed this year in the nation’s downtown areas, Coldwell Banker said.

The decline in the national downtown office vacancy rate to 16.4% in the fourth quarter from 16.7% in the previous three months “came about simply because of demand for office space versus construction of new space,” a Coldwell Banker spokesman said. Banks and other financial institutions, in particular, leased significant amounts of space in Los Angeles, San Francisco, New York and Chicago as well as smaller cities, the survey said.

In Los Angeles, the downtown vacancy rate fell to 15% in the fourth quarter from 17.5% in the third quarter. For suburban Los Angeles, which Coldwell Banker defines as the rest of the county, the vacancy rate was 17.3% in the fourth quarter compared to 17.5% in the third quarter.

The overall vacancy rate in Los Angeles, a weighted average of the downtown and suburban rates, also declined slightly to 17.3% from 17.5% in the third quarter. It was 16.9% at the end of 1985.

A total of 12.2% of the office space in downtown Los Angeles, or nearly 2.2 million square feet, was absorbed during the year, while 5.6% of the office space in suburban Los Angeles was absorbed.

Only two major projects are expected to be completed in downtown Los Angeles this year, so “some of our salesmen are predicting the return of single-digit vacancy rates because there’s not that much out there,” the Coldwell Banker spokesman said. But other buildings about to begin construction could boost vacancy rates again in 1988 and 1989, he said.

Big Drop in San Diego

Downtown San Diego recorded one of the largest drops in its vacancy rate during the year among cities surveyed. The downtown vacancy rate stood at 17% at the end of 1986, down from 18% in the third quarter and 23.4% at the end of 1985.

In suburban San Diego, the vacancy rate fell to 26.6% in the fourth quarter from 28% in the third quarter. But the rate was an increase over the 22.5% vacancy factor at the end of 1985.

Denver Rates Highest

Orange County’s office vacancy rate slipped to 22.7% from 23% in the third quarter. The rate was 19.3% at the end of 1985.

The highest downtown vacancy rates were found in Denver, at 29.7%, and Oklahoma City, with 26.8%. Both cities have been hurt by falling oil prices.

The lowest downtown vacancy rates were reported by mid-town Manhattan (8.7%), Boston (9.1%), Philadelphia (9.3%), downtown Manhattan (9.9%) and Washington (9.9%).

The gain of 0.3 percentage point in vacancies at major industrial buildings during the fourth quarter reflected moves by many large companies to close and consolidate operations, Coldwell Banker said. However, the increase was moderated as several smaller firms expanded into some of the industrial space left vacant by the larger firms, the company said.

In Southern California, the industrial vacancy rate rose to 6.3% from 5.6% in the third quarter. It was 6.5% at the end of the previous year.

The bulk of the newly available space in Southern California--defined as Los Angeles, Orange, Ventura, San Bernardino, Riverside and San Diego counties--”was in obsolete distribution facilities released by companies consolidating their supply operations,” the survey stated.

HOW CITIES COMPARE

Office vacancy rates as of December, 1986, for 10 most populous downtown areas surveyed by Coldwell Banker. City / % New York:

Midtown Manhattan 9.9

Downtown Manhattan 8.7 Los Angeles 15.0 Chicago 11.6 Houston 20.0 Philadelphia 9.3 Dallas 21.6 San Diego 17.0 Phoenix 18.5 San Antonio 21.4 Baltimore 12.7 Source: Coldwell, Banker