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B of A Forecasts Office Building Glut in County

April 05, 1985|LESLIE BERKMAN | Times Staff Writer

Yet another analysis predicts that economic growth will not keep pace with the office-building boom in Orange County, creating a glut of offices.

The forecast by Bank of America, presented Wednesday, agrees with earlier predictions by economists and local real estate experts. The economic slowdown is occuring nationwide, a natural end to the 27-month recovery. But, the bank economists said, the tapering off also reflects the strength of the dollar, which is making locally produced high-tech products less competitive on the world market, said bank officials.

Orange County's employment expanded by 6.7% last year, boosted by 77,000 new jobs, but is expected to grow by only 3.5% this year. Still, that level of growth exceeds the bank's employment growth forecast of 3.2% for the state and 2.3% for the nation.

Bank of America Vice President and senior economist Duane A. Paul, who wrote the economic forecast, said he expects Orange County home construction to decline in response to reduced job growth and climbing interest rates. He estimated that 16,500 residential building permits will be issued in the county in 1985, down 3.5% from the 1984 level.

As Orange County's economy loses steam, local companies will stop expanding so rapidly, and therefore will have less demand for office space, Paul said. "I think given the large amount of office space built in the last few years and the economy slowing down, you will see a slower rate of absorption over the next couple years," he said.

Paul said he anticipates overall office-vacancy rates in the county will hover in the 10% to 15% range through the year. The economist said owners of new office buildings are already offering initial months of free rent and other concessions to lure tenants.

James P. McDermott, B of A regional senior vice president, said lenders on office building projects are becoming leery and in some cases are requiring developers to pre-lease a percentage of a project prior to construction.

But the bank officials stressed that the glut of office space is a temporary problem, which will be solved by Orange County's long-term economic expansion. The bank projects that this year the county's total personal income will increase 10%, from $33.55 billion to $36.9 billion, compared to last year's 12.2% rate of expansion. Growth of the county's per capita income, will taper off to 8.8%, or $17,540, in 1985, from a rate of 10.8% last year.

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