Commercial real estate industry poised for dramatic growth in coming year as vacancies decline and rents increase.

LOS ANGELES--(BUSINESS WIRE)--Nov. 15, 1995--Vacancy rates in most of the nation's major office markets are declining sharply and will continue to drop next year, pushing rents higher and possibly setting the stage for a new building boom in 1997, according to a new study by CB Commercial Real Estate Group.

``It appears that 1996 is shaping up to be a much better year for landlords in most sections of the U.S. than 1995 has been,'' said Ray Torto, principal of Torto Wheaton Research, the CB Commercial unit that compiled the vacancy report.

``If vacancy rates continue to fall at their current rate, and the economy begins to pick up again, we could see construction cranes come out of cobwebs in 1997 or 1998.''

Further demonstrating the strength of this recovery, the Torto Wheaton survey revealed that 11 of the top 54 metropolitan markets reported single-digit vacancy rates in the third quarter of 1995 -- none of those 54 markets had single-digit vacancy rates in 1993.

Hot Cities

Several hot markets are leading the recovery into 1996. At the front of the surge are the metropolitan markets of Seattle, where the office vacancy rates have dropped from 13.2 percent to 9.4 percent in the past year; and Albuquerque, N.M., with the lowest office vacancy rate in the nation, where the rates fell from 10.1 percent to 6.8 percent.

Several struggling southeast U.S. cities also posted strong signs of recovery over the last 12 months. Metropolitan office vacancy rates dropped from 15.8 percent to 11.8 percent in Atlanta; 14 percent to 10.2 percent in Nashville, Tenn.; 17 percent to 13.2 percent in Fort Lauderdale, Fla.; 17.9 percent to 14.3 percent in Miami; and 18.9 percent to 15 percent in Tampa, Fla.

In the third quarter of 1995, Los Angeles' vacancy rate dipped by 2.1 percent, the greatest drop of any of the 54 cities surveyed. Los Angeles' downtown vacancy rate also fell from nearly 26 percent in the third quarter of 1994 to just under 19 percent through the third quarter of 1995.

Suburbs Continue to Outpace Downtowns

Continuing a trend that began about five years ago, CB Commercial's study also revealed that vacancy rates in the suburbs are generally declining much faster than rates in the nation's central business districts.

A combination of lower rental rates and convenience have made the suburban marketplace more and more attractive.

``Companies have been shifting away from downtowns and moving to the suburbs because suburban leasing rates are often much lower,'' Torto said. ``And, since most workers live in the suburbs, they are willing to accept less money because they're so much closer to their jobs -- which saves employers even more money.''

Absorption Rates Temper Growth

But tempering that upbeat forecast for new building has been a marked drop-off in the national net absorption rate of new office space -- 20 percent off from last year -- which Torto Wheaton attributed to a cooling economy and sluggish job growth.

Companies holding off on hiring new employees, consolidating space with neighboring tenants and a transforming work environment where a slowly increasing number of workers are opting to telecommute have combined to put additional downward pressure on absorption rates, according to the survey.

Torto cautioned that while absorption rates do not significantly impact current landlords because their projects are already leased, vacancy rates could jump and rents drop if new developers start to flood back into the market with new projects.

Much of the commercial real estate industry's future also will hinge on the nation's economic performance, according to the CBC study.

``Everyone's waiting for the economy to pick up again,'' Torto said. ``We saw some good numbers for the third-quarter GNP that showed the economy was growing fairly quickly. If that keeps up, the state will be set for rental rates to climb, and then the building cycle would kick in again, probably sometime in 1997.

``If there is another building boom, it won't take much to start pushing vacancy rates up again,'' Torto added. ``The real worry is that if developers start building again and absorption continues to weaken, it won't take much to push vacancy rates up again fairly quickly and send rental rates back down.''

CB Commercial Real Estate Group is the nation's largest commercial real estate services firm, providing diversified services in 172 offices in 32 countries.

CONTACT: Braun Ketchum Public Relations 

Jeremy Kehoe, 310/444-1339