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DOWNTOWN LOS ANGELES QUALITY OFFICE SPACE MARKET IN BETTER SHAPE THAN GENERALLY REPORTED, PRICE WATERHOUSE REPORTS

 DOWNTOWN LOS ANGELES QUALITY OFFICE SPACE MARKET IN BETTER SHAPE
 THAN GENERALLY REPORTED, PRICE WATERHOUSE REPORTS
 Market Recovery Time Could Be Significantly Shorter
 Than Previously Believed
 LOS ANGELES, April 14 /PRNewswire/ -- Countering a flood of negative reports about the downtown Los Angeles office market, a new report released today on the downtown Los Angeles office market by Price Waterhouse said that a market recovery could begin as early as 1993 and a full recovery for Premier and Class A buildings could be completed by the 1995 year-end.
 The report, based on a comprehensive compilation and analysis of current data, noted that Premier buildings that are beyond their lease- up stage (older than 24 months) have direct vacancy rates of only 4.2 percent. In addition, Class A buildings and newer Class B buildings have relatively low direct vacancy rates, at 8.6 percent and 10.3 percent, respectively. In contrast, older Class B and C buildings -- those built before 1980 -- have direct vacancy rates of 29 percent.
 "Despite a serious recession in Southern California and plummeting demand in other parts of the nation for office space, absorption of space in Premier and Class A buildings has continued strong in recent years, at an average of 1.1 million square feet per year," said Dennis Macheski, director of real estate research at Price Waterhouse. "Moreover, most of the absorption in Premier and Class A buildings -- nearly 90 percent -- was absorption that was new to downtown Los Angeles, not at the expense of older downtown buildings."
 The report noted that the growth in leased office space in downtown Los Angeles has been one of the highest in the nation, with an annual increase of 7.4 percent compounded from year-end 1985 to year-end 1991. As detailed in the Price Waterhouse report "Demand for Office Space in Southern California" (May 1991), the absorption of this increased office space has been high because of four key factors:
 -- Generally higher than average employment growth rates (though
 not in 1991);
 -- Growth in the percentage of employees housed in office space
 vs. industrial, retail and other space;
 -- Growth in the percentage of office space that is located in
 large, multitenant buildings vs. owner-occupied buildings; and
 -- Growth in the average number of square feet per employee
 Macheski cautioned, however, that expected bank, law firm and accounting firm consolidations -- particularly the merger of Security Pacific Bank and Bank of America -- could seriously impact absorption rates in the short-term. "Such consolidations could reduce net absorption to approximately 800,000 square feet in 1992 and 1.2 million square feet in 1993, returning to 1.4 million square feet thereafter," Macheski said. "Yet, despite the short-term implications of such consolidations, the long-term outlook for absorption is positive, with an in-migration of office space users to offset the losses."
 Building Trends
 The makeup of the downtown Los Angeles office market has shifted dramatically because of the building boom of the 1980s. At the beginning of that decade, the market was dispersed among small, often owner-occupied, Class A, B and C buildings, while today, 15 Premier buildings contain 42 percent of the multitenant office space in downtown Los Angeles. An additional 12 percent is located in Class A buildings, while Class B and C buildings built before 1980 represent only 32 percent of the market. Newer Class B and C buildings make up the remaining 14 percent of the market.
 Downtown Los Angeles Market Outlook
 The report also cited factors that portend continued growth in net absorption of downtown Los Angeles office space, including:
 -- Anticipated resumption in employment growth, particularly in the
 services sector, once the Los Angeles basin climbs out of the
 recession (sometime near the end of 1992 or early 1993);
 -- The continued trend toward housing employees in multitenant
 office space; and
 -- Long-term, an increased share of the Los Angeles basin's occupied
 office space will be located downtown, particularly as the city's
 new commuter transit systems become fully operational and their
 positive impact is felt.
 "Certainly, there are a number of factors that, in the short term, are likely to cause vacancy rates to climb, including the expected consolidations noted earlier as well as two new buildings about to enter the market that will temporarily cause vacancy rates to climb," Macheski said. "Yet long-term, completions are expected to come to a halt in 1993 and 1994, and vacancy rates will drop, with rental rates likely to increase. We expect that by 1998, effective rental rates for the first five years of a lease could double from their current low levels."
 -0- 4/14/92
 /NOTE: Copies of complete report available on request.
 /CONTACT: Gregory F. Romano or Scott R. Heath of Berkhemer Kline Golin/Harris, 213-623-4200, for Price Waterhouse/ CO: Price Waterhouse ST: California IN: SU:


KJ-EH -- LA030 -- 8264 04/14/92 15:31 EDT
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Publication:PR Newswire
Date:Apr 14, 1992
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