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Trouble Brewing in Some California Office Markets

LOS ANGELES-Forecasters predict that the economy in California won't slow as much next year as in other areas of the nation. But many of the state's commercial real estate owners are already feeling the sting of shrinking demand.

By David W. Myers | Updated on December 17, 2000

LOS ANGELES-While most forecasters still predict that California’s economy will enjoy a “soft landing” next year, many commercial real estate owners in the state are already hitting some turbulence.

Dozens of property investors, from San Diego to San Francisco, are beginning to suffer from vacancies created by shrinking demand from dot-com tenants. Meantime, a small but growing number of retailers have begun trimming back their Golden State operations, even as some retail investors struggle to cope with the string of closures triggered by failures in the movie-theater business.

“The current low rate of unemployment, the narrowing of the interest rate spread and the disappointing corporate profits have been pointing to the end of the economic expansion for some time,” says Edward Leamer, an economist at UCLA’s Anderson School of Business. Though the national economy will slow more than California’s next year, he adds, the statewide unemployment rate appears certain to rise and growth here will moderate in 2001.

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