Accounting industry changes hurt downtown offices.

The downtown office market, still struggling to fill space vacated by consolidating financial institutions earlier this decade, is about to be swamped again - this time by changes in the accounting industry.

Although four of the Big Six accounting firms recently announced their intentions to merge, many downtown real estate brokers say the biggest impact on the market won't come through these corporate consolidations. Instead, such practices as shared offices and telecommuting - which are common at the accounting and consulting firms - will have a more immediate and negative impact on downtown.

Three of the firms were already planning to shed a combined total 160,000 square feet of space, even while expanding their labor force. For the Big Six accounting firms, which currently lease almost 1 million square feet of downtown office space, that represents about a 15 percent reduction in their total combined space requirements.

As for eventual layoffs that may come through the proposed merger of Coopers & Lybrand and Price Waterhouse LLP and Ernst & Young LLP's merger with KPMG Peat Marwick LLP, representatives of the firms either did not return phone calls last week or said it is too soon to tell.

Brokers, meanwhile, expressed concern about the impact on the downtown office market.

"Whatever it is, it won't be positive," said Andrew Ratner, senior vice president at Cushman Realty Corp. "The extent of its negative impact won't be known yet."

Real estate brokers estimated it could be a year or more before the full ramifications of the mergers on downtown are known.

The downtown office market is still sorting through the almost 1 million square feet that Wells Fargo & Co. dumped on the market after its acquisition of First Interstate Bancorp last year.

As of the end of the third quaffer, downtown posted a 16.6 percent vacancy rate, an improvement from the 17.7 percent rate a year earlier, according to CB Commercial Real Estate Group Inc.

That figure does not include available sublease space, which totaled almost 1.5 million square feet as of last quarter, according to Cushman Realty.

There's an additional 1 million square feet of empty space that companies aren't bothering to market as sublease space, said Steve Marcussen, senior vice president at Cushman Realty.

Worse yet, leasing activity is slow, many brokers say, meaning downtown still has years before it can be considered robust.

"When something like this happens, it stops the momentum," said Whitley Collins, first vice president at CB Commercial. "The rent spike (the landlords) are hoping for is still a long way off."

Unlike during the recession, most of the companies downtown are currently healthy - and many are even adding to their labor forces. That doesn't necessarily translate into larger offices, however, as technology enables companies to let their employees work in the field more often.

"All of these businesses are growing, but they are using more people per square foot," Marcussen said.

Accounting firms are particularly well-suited for concepts such as "hoteling" (sharing offices) because accountants might spend months off-site - examining books at clients' offices, Marcussen noted.

In hoteling, an employee essentially checks into his or her office through a concierge-type service and is assigned a work space for a day.

Before the mergers were announced, Ernst & Young, KPMG Peat Marwick and Arthur Andersen LLP were each looking to significantly reduce the space they lease downtown.

Arthur Andersen, which so far has not announced any intentions to merge, now occupies 200,000 square feet at Library Tower. The firm is in negotiations to shave 60,000 square feet from that total as it renews its lease, said Tony Morales, vice president of leasing for Maguire Partners, which owns Library Plaza.

Prior to the announcement of merger plans by Ernst & Young and KPMG Peat Marwick, each firm was separately shopping for considerably less space than they currently occupy. KPMG Peat Marwick, whose 180,000-square-foot lease at Citicorp Plaza will expire in the year 2000, trimmed almost 60,000 square feet from its new space requirements.

Ernst & Young, whose 120,000-square-foot lease at Arco Plaza expires in 1999, reduced its square footage requirements by 40,000 square feet.

If the two firms do combine, they could potentially be looking for a contiguous block of 200,000 square feet.

Only Deloitte & Touche has run counter to the space-trimming trend, but only because it is consolidating and centralizing its L.A. County operations at its downtown location. The accounting firm currently leases 200,000 square feet at the 1000 Wilshire building and is looking to add 20,000 square feet to its downtown operations. That may be at the 1000 Wilshire building, or elsewhere downtown.

Deloitte & Touche is currently "hoteling" its employees as well, a practice it will continue when it reconfigures its office under a new lease, said Stuart Laff, director of corporate real estate for the firm.

The creative use of office space "gives one a competitive advantage," he said, noting that an effective office plan can reduce costs as well as enhance recruitment and employee satisfaction.

The two remaining accounting firms, Coopers & Lybrand and Price Waterhouse, are expected to have the least impact on the office market. Coopers & Lybrand, which occupies 175,000 square feet at Two California Plaza, has 11 years left on its lease. Price Waterhouse, which has 120,000 square feet at 400 S. Hope St., has five years left on its lease.