Office Marketers Say Real Estate Dip Hanging On : Brokers: Vacancy rate for commercial buildings improves, to 20% at 1991’s end from 22.7% in 1990. But the economy virtually halts new construction.

NEWPORT BEACH —  John Davidson apologized for his tardiness at a Grubb & Ellis conference Thursday with an excuse that all his fellow brokers could understand.

“Sorry for being late,” Davidson said. “I was on the phone with a tenant (and prospective client). That doesn’t happen a lot these days.”

Though the excuse won a chuckle from his colleagues, their laughter was bittersweet. The brokers had gathered at Grubb & Ellis’ office here for a summary of the industry’s performance in 1991. The news was not cheery.

On the surface the vacancy rate for the county’s office market improved, to 20% at 1991’s end from 22.7% in 1990. But that welcome decline in vacancies largely resulted from a virtual halt in new construction.

A more telling statistic was the amount of office space under construction at the end of 1991: a mere 79,000 square feet, down sharply from 2.1 million a year earlier--already a weak year. And 1992 should be even worse, with no new office buildings on the drawing boards.

“We’re done seeing construction of office buildings for another couple of years,” said John D’Angelo, a Grubb & Ellis research director.

Despite the slump, tenants took 1.4 million square feet of office space off the market--evidently most of it resulting from tenants moving from building to building in search of lower rents or nicer digs, Grubb & Ellis said. In 1990, this so-called absorption rate--the consumption of available space--was 2.4 million square feet, the study said.

But the county’s office market appears almost rosy in contrast with downtown Los Angeles, which is in the midst of its greatest office expansion ever--despite little demand for space. Los Angeles added 4.8 million square feet of office space in 1991 and has 1.7 million due for completion in 1992.

Los Angeles’ vacancy rate of 21.4%--already the highest in years--will get worse in 1992, Grubb & Ellis said. Much of the new space will probably stand vacant for years.

“We’re much better off than Los Angeles,” said George Spragins, district manager for the Newport Beach office. “Actually, we’re lucky that construction slowed down last year.”

North County posted the county’s lowest vacancy rate, 18.2%; South County had the highest, 24.1%.

The industrial market, with a vacancy rate of 20.2%, fared better than the office market in 1991. Its absorption rate has held steady at about 10 million square feet for the past three years, and leasing activity is projected to remain flat in 1992.

Problems aside, broker Russ Johnson said “people still have an overall good feeling” about the county’s office market.

Lower rents resulting from the high vacancy rates have kept many tenants from fleeing to such traditionally cheaper markets as Riverside County, said Johnson, district manager for the Anaheim office of Grubb & Ellis.

Orange County’s Office Market

Vacancy Rates: North: 1990: 25% 1991: 17% Central: 1990: 21% 1991: 20% South: 1990: 27% 1991: 25% West: 1990: 23% 1991: 20% Airport: 1990: 22% 1991: 20% Grubb & Ellis divides the county into five submarkets Absorption Rates A market’s absorption rate represents the amount of newly built or vacant space that is leased or otherwise taken off the market (e.g. occupied by its owner or demolished). An Excess of Space After six years of vacancy rates of 20% and more countywide, 1992 is expected to see a drop to 19% as construction virtually stops. Completed Construction: In millions of square feet 1987: 4.06 1988: 3.56 1989: 3.16 1990: 2.94 1991: 2.10 1992*: 0.79 *Forcast

Vacancy Rates: 1987: 23% 1988: 23% 1989: 21% 1990: 23% 1991: 20% 1992*: 19% *Forcast

Source: Grubb & Ellis