Whereas Los Angeles' last recession in the early '90s was characterized by a server oversupply of office space, today's real estate market was much better prepared for an economic downtown. Although tenant demand for space contracted in 2001, the conservative rates of development for the past 10 years have undoubtedly mitigated the impact of the current recession, according to Insignia/ESG.

The report goes on to say that what is interesting about this contraction in demand is that it came after the tech land grab during which large commitments were made in anticipation of future growth, normally backed by letters of credit. When the bubble burst, tenants were quickly forced to downsize despite having made these large lease commitments. Available space in Los Angeles increased from 14.7% to 18.2% during 2001. During that time, the proportion of space available for sublease increased dramatically. In the West Los Angeles market, home to many of the dot.com casualties, the amount of available sublease space more than doubled over the past year.

Although space was put back on the market, the report states, the space was still leased, landlords were still being paid and money was still flowing. Due to the prevalence of this scenario and under the assumption of a relatively quick turnaround in the economy, the recession was thought to have a much less severe impact on the real estate market than the corporate world--until 9/11. At that point, the recovery that seemed just over the horizon suddenly faded away as the economic ramifications of that event radiated around the world.