Economic recovery at a safe speed.

When considering the boom-and-bust Southern California real estate market, as well as the area's slow but steady recovery, it is easy to recall Aesop's fable of the hare and the tortoise.

Think of the area stretching from Los Angeles County to the Mexican border as the race course. Like the rabbit, all facets of the local real estate market raced through the 1980s without a care in the world. It wasn't until economic realities caught us napping that the tortoise's u ailingly constant pace began to look good by comparison.

With the frantic hare-like growth of the '80s behind us, Southern California's office and industrial figures confirm that the markets are consistently improving in Los Angeles, Orange and San Diego counties and the Inland Empire.

While this gradual pace may frustrate those of us who miss the heart-stopping, deal-driven activity of five to 10 years ago, the slower, steadier recovery may indicate ultimate victory for the area's long-term economic future.

Orange County: Upwardly Mobile Market Trends Economic, financial and real estate experts agree that Orange County's once-sparkling economy -- the brilliance of which dimmed in the recent recession -- is well on the way to recapturing its former luster.

In addressing the recent UCI Real Estate Conference and Sumigarden Award, an optimistic Dr. David Birch, keynote speaker and director of the Massachusetts Institute of Technology's program on Jobs, Enterprises and Markets, indicated that he believes the market will continue its steady improvement.

"I think you folks are sitting right in the middle of 'Fat City' relative to the rest of the United States," Birch said. "I mean, you are in one of the healthiest environments anywhere in the world today economically." Market indicators seem to agree with Birch's long-term prediction, underscoring upward trends throughout the first half of 1994. Office vacancies are the lowest in four years at 17.8 percent and total net absorption of 603,206 square feet is looking to outpace 1993's approximately 1.2 million square feet.

A brief look at several additional office market trends in the first half of 1994 reveals that:

* Low- and mid-rise office space absorption activity has picked up considerably, and accounts for some 95 percent of the county's total net absorption this year.

* Office vacancies, which have fallen by almost 2 percent from last year, are anticipated to drop as low as 16 percent by year's end.

* Leasing and sales activity have increased, but lack of financing continues to limit widespread growth. No new additional speculative office starts are expected during the remainder of 1994, due in large part to financing constraints.

Current average lease rates, while improving, are not expected to reach levels that can support new construction for another few years. On the industrial and R&D side, total combined net absorption reached 7.7 million square feet in the first two quarters, 56 percent higher than the 4.3 million recorded in the first two quarters of 1993. Overall, the industrial and R&D markets' combined vacancies dropped from around 15.5 percent at the end of 1993 to just under 14.5 percent currently.

Other key industrial market trends throughout the first half of 1994:

* Asking lease rates for all industrial properties remained constant. Both the manufacturing/distribution and R & D markets are holding steady at around 42 cents and 70 cents, respectively.

* Manufacturing/distribution absorption jumped 68.5 percent from the first quarter and R&D is up 46.4 percent. Confidence in the strength of the local economy continues to increase. Landlords and tenants are committing to longer-term leases of five to seven years.

On the residential side, long-time home developer Kathryn Thompson points out in the 1994 Orange County Economic Survey that 17 to 37 percent of the county's population can now afford to buy a first home, leading to the area's largest boom in first-time home buying since World War II.

Such home-buying activity has generated increased competition among builders as well as a demand for first homes that is much higher than the current supply.

Taken together, these figures seem to bear out predictions made by Martin A. Brower, editor and publisher of ORANGE COUNTY REPORT, who wrote in his booklet, "Orange County to the Year 2000," that "as Orange County matures, quantity of growth will be slower but quality will be higher."

TOWARD RESTRUCTURING AND RECOVERY

Compelling evidence indicates that the greater Los Angeles area has weathered the worst of the economic decline, with a bottoming out of the Basin's economy anticipated by the end of this year, according to Grubb & Ellis' 1994 Real Estate Forecast. The annual UCLA Business Forecast disagrees, contending that "the near term outlook for Los Angeles County is not good." Since even well-respected economic gurus fail to reach a consensus, we can probably all agree that L.A. area's economic woes are both complex and unique. Recovery in the greater Los Angeles area means coping with far-flung and powerful economic forces.

Downsizing of the aerospace and defense industries, concerns about the business environment that have resulted in firms relocating outside the area, a restructuring of financial services, the devastating Northridge earthquake and the April 1992 civil disturbances are having long-lasting impact on retailing, construction and real estate.

As a result, Los Angeles is not merely undergoing the rigors of the recession, but is in the midst of a major restructuring, with the future of the local economic base still in doubt. At the same time, however, several major economic indicators show that recovery is imminent, if slow:

Several industries -- apparel design and manufacturing, international trade and motion picture and TV production -- continued to grow in the first half of 1994. There are indications that nonresidential construction will move sideways rather than down, and that new single-family home construction will experience a modest recovery in the Los Angeles Basin in the remaining months of 1994.

Second-quarter figures from CB Commercial show greater Los Angeles area office market vacancies at 18.6 percent, with a net absorption of 608,547 square feet. At year-end 1993, Grubb & Ellis reported an overall office vacancy rate of 19.2 percent and a total net absorption of 1.7 million square feet.

Grubb & Ellis forecasts that office space will end 1994 at around 18 percent, a decline of approximately one percentage point over the course of the year and the lowest vacancy rate posted in four years. The firm also predicts somewhat optimistically that net absorption in the Greater Los Angeles area will begin to turn around, with 2.7 million square feet absorbed by the end of the year.

Though Dr. Walter Hahn, Ph.D., Director of Real Estate Consulting in Kenneth Leventhal & Company's Orange County office, warns that Los Angeles will continue to suffer job losses in 1994, he also points out that international trade will keep growing, the financial services industry will rebound and the diverse and productive manufacturing base will continue to export to the rest of the U.S., which is growing, along with other countries.

MAINTAINING A GROWTH EQUILIBRIUM

While Los Angeles is weathering a serious economic downturn, the Inland Empire continues to experience falling vacancy rates in both the office and industrial markets, with overbuilding the only problem besetting the commercial real estate community.

As California's fastest-growing region, the Inland Empire office market has been fueled by available and affordable land, labor and housing, as well as excellent freeway access to the rest of the state.

CB Commercial reports an overall Inland Empire office vacancy rate of 17.95 percent, with 152,759 square feet absorbed in the second quarter. Asking lease rates ranged from a low of 35 cents per square foot in San Bernardino to a high of $2.30 per square foot in Riverside.

On the industrial side, rental rates are estimated to have fallen 20-25 percent from their 1989 peak, as a result of overbuilding and reduced demand. With 657,194 square feet of industrial space absorbed in the second quarter and a vacancy rate of just 11.54 percent, however, diminishing supply and increased activity means that the Inland Empire will see higher lease rates and sale prices resulting in a healthy industrial market in the months to come.

Several other economic factors indicate that the Inland Empire office and industrial markets will continue to thrive throughout the end of 1994, according to Cushman & Wakefield of California, Inc.'s Market Research Department:

Riverside and San Bernardino counties observed job increases, as well as a surge in new housing permits and home sales.

The Employment Development Department recently released a study showing a one percent increase of jobs compared with the same period last year, totaling 753,000 new jobs in the two-county area. The largest percentage of new jobs occurred in the construction industry, which could be interpreted as a turning point for a sluggish industry that may spur activity on the commercial real estate side.

The housing industry, as noted in a survey by the Construction Industry Board, experienced a 46.4 percent increase in new housing permits in the first quarter. San Diego: Following Through on the Real Estate Rebound San Diego has suffered the same job losses, defense spending reductions and other economic woes as the rest of the state, but the area is poised for both recovery and long-term growth.

According to the 1994 Grubb & Ellis Forecast, the passage of NAFTA, the projected growth of the high tech and tourism industries, and its crucial Pacific Rim location will enhance San Diego's economy in the coming decade.

Local government is helping aid future economic growth by making the area a more business-friendly environment. Stabilizing net absorption and falling vacancy rates in both the office and industrial markets indicate that Grubb & Ellis' predictions are well founded. Net office absorption of 830,000 square feet throughout the second quarter of this year means that San Diego will likely match its 1993 net absorption of 1,110,000 square feet.

Vacancy rates for San Diego office buildings at 18 percent are down four percentage points from 1993 rates. On the industrial side, San Diego logged 810,000 square feet in industrial leases throughout the second quarter, exceeding the annual rate of 1,080,000 square feel logged throughout 1993. Vacancy rates dropped a full percentage from 16 percent in 1993 to 15 percent during the first two quarters.

Other economic indicators point to a modest yet continuous growth in 1994:

Gross regional product is projected to reach $65.5 billion in 1994, the highest amount ever recorded. Total employment rose in both 1993 and 1994, with unemployment expected to fall back to 7.6 percent by year's end.

More residential construction is expected in 1994, following a year in which the area experienced the lowest amount of residential construction in more than 45 years, according to building records kept by the Chapter's Economic Research Bureau. The county's apartment sales for the first half of 1994 were up 36 percent from a year earlier, according to John Burnham & Company data.

WINNING THE RACE: PATIENCE AND PERSISTENCE

To those of us who experienced the adrenaline "high" of the 1980s Southern California real estate market, the past few years have required an inordinate amount of patience, persistence, intelligence and good humor as we have labored through recession, natural disasters and financial restructuring.

Unlike the rabbit in the fabled race against the tortoise, however, we real estate survivors are not only older but much, much wiser in the economic ways of the real estate world today than we were in our most successful days a decade ago.

That experience, and our growing reliance on improved technology, economic research and sophisticated market analysis means that we can help our clients emerge victorious in today's real estate race, responding to the tiniest market shifts with confidence, sophistication and wisdom.

As regional president of the Pacific Southwest region of the Property Division of Koll, The Real Estate Services Company, Jana Turner oversees the leasing and management for more than 18 million square feet of office and industrial space throughout Southern California. She is also a Certified Property Manager (CPM) as well as a candidate for certification as a Certified Commercial Investment Manager (CCIM).