Commercial Building: No Office Party This Year

Two years ago, Webcor Builders Inc. was one of the busiest general contractors in Northern California, with projects in the works for many of Silicon Valley's biggest names. One by one, however, the developments were scaled back or canceled as demand for office space plunged. Webcor still has a couple of big projects in San Francisco. But with vacancy rates topping 20% in San Jose, it is making ends meet by moonlighting as a concrete subcontractor for public-works projects. "Commercial building has practically stopped," says Webcor President and CEO Andrew J. Ball.

Another object lesson from the dot-com bust? Not entirely. All across the U.S., office markets are in deep trouble. Vacancy rates have leaped most significantly in high-tech centers, such as Austin, Tex., suburban Boston, Seattle, and Silicon Valley. But they also exceed 20% in Atlanta, Columbus, Ohio, Dallas, and Salt Lake City--and are in double digits in New York, Chicago, and every one of the top 10 markets except Washington, D.C., where the federal government acts as a buffer. It's the worst period since the 1990-91 recession. Rents, meantime, are sliding.

So when will commercial building rebound? Not until office-sector payrolls rise steadily by at least 1% for 12 months or more and companies begin refilling all the space they've emptied in the past couple of years, says Richard D. Kincaid, chief financial officer of Equity Office Properties Trust, the nation's biggest office landlord. He doesn't see that happening before 2004. Until then, he adds, "It doesn't make any sense to build." Note to contractors: This might be a good time to brush up on other skills.

By Michael Arndt in Chicago

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