WASHINGTON — Saddled with a nationwide surplus of office buildings, the real estate industry faces shrinking profits and a continuing shakeout of developers in 1990, according to a new industry study.
Next year "will be painful," said Charles Shorter, senior vice president of Real Estate Research Corp., which recently issued a bearish annual report on the industry.
"Some will drop out," Shorter said of developers. "Not many people will make money, and those who do will work hard to earn every penny they make."
Most industry officials, the report said, expect 1990 to be a worse year for the real-estate business than 1989.
The report, which was based on interviews with more than 100 major developers, lenders and real-estate investors, said 65% of those officials are less bullish about next year, while 13% are more bullish.
Another 22% are bullish about their own firm's prospects, but are not optimistic about the industry overall.
Most of the officials interviewed do not expect conditions to improve until the mid-1990s.
"In general, office markets are overbuilt from coast to coast," said Douglas A. Tibbetts, president of Equitable Real Estate Investment Management Inc., which manages real estate for pension funds and sponsored the report.
"We've got to get more order and discipline," Tibbetts said.
The excess is largely the legacy of "capital driven" development, real-estate investors who were building for tax advantages rather than to satisfy tenant demand, Tibbetts said.
Of the real-estate executives interviewed, 28% said their businesses plan to expand in 1990; 20% said they expect to contract and 52% said they anticipate no change in scale.
A geographic ranking of real-estate markets underscored the industry's gloom.
Los Angeles was ranked by RERC's interview subjects as the most desirable city for investment, development and lending with a rating of only 7.6 on a 10-point scale.
The Washington area placed second with a 7.3 rating, followed by San Francisco at 7.0. Noting that real-estate people are known for optimism, Tibbetts said the low ratings convey a strong message.
The report was prepared before the Bay Area earthquake, and Shorter said he could not predict how the quake might change investors' attitudes about West Coast real estate.
