Office vacancies here to stay, economists tell ULI delegates.

Despite the improving state of the economy, New York's office building owners are not guaranteed a reduction in vacancy rates until 2005.

According to the speakers at the New York District Council of Urban Land Institute's Feb. 18 breakfast, the job growth in the New York region is not significant enough to fill all the vacant space accumulated over the past few years.

"The driving indicator [of the health of the market] is the financial services sector," said Mark Zandi, chief economist with Economy.com. "Wall Street is not doing well, it's not adding paychecks, it's not hiring new people. New York will take a long time to recover, possibly not until 2006."

Zandi also warned that despite a visible increase in investment capital and business profits in such areas as technology and healthcare, job growth will depend on other factors, including offshore relocation and federal budget deficit.

"Offshore manufacturing is not going to [disappear]. Chinese and South Asian currencies are undervalued and that makes it much more compelling to [hire people there]," Zandi said. "And the federal budget deficit is going to get a lot worse if the government decides to keep those tax cuts permanently. If nothing is done, we are seeing a very serious budget deficit in 2006--about 3 to 4% of the GEP."

Lloyd Lynford, president of Reis Reports, agreed with those assessments.

"If you view our economy as a car, it is missing on most cylinders," Lynford noted. "We are moving, though slowly, toward an improvement in the economy, but without job growth there is little demand for space. The market is not going to get better fast--we don't really see stabilization until 2005." The speakers did, however, deliver some good news. According to Zandi's research, the economy is expanding for the first time since 2000. If all goes well, significant job growth should follow in a matter of months.