Friday, August 21, 2009

Dallas office space glut of '86 dwarfs today's oversupply

In 1986, the space shuttle Challenger blew up.And in what was then the Soviet Union, a nuclear reactor at Chernobyl exploded.In Dallas, we were struggling with an office market glut that generated plenty of its own dire headlines.

Back then, Dallas had the biggest oversupply of office space in the nation. There was enough empty space here to provide every resident in the area with a 10-square-foot office.Fretting economists predicted it would take at least 10 years to fill up the excess. Some said it might have to be torn down.

What a bunch of bosh. The office market rebounded quicker than the doomsayers predicted.So pardon me if I don't get all lathered about the current state of affairs in the local real estate market.

In the worst economy in generations, the commercial real estate business here is certainly facing challenges.But so far, it's been nothing like the meltdown we experienced 20 years ago.And unless the economy gets sickeningly worse or a ton of new building space just falls out of the sky, it's not going to be 1986 all over again. (Although I wouldn't mind being 30 again.)

If you don't believe me when I say the situation isn't so dire, just look at the real estate numbers.During the last big realty bust, we had 30 million square feet of office space going up when demand began to fizzle. A combination of loony lending practices and the Oil Patch recession slammed leasing of office space into low gear.

This go-round, we had – at most – 6 million square feet of office space in the mill.
Oh, and did I mention that the overall market in 2009 is about 75 percent larger than it was back in 1986?The flood of vacant office space that was hunting renters in '86 grew to more than 40 million square feet – more than in any other metro area in the country.

Indeed, D-FW back then had more empty office space than most cities had in their total market.So-called see-through office buildings up on the Dallas North Tollway became mini-tourist attractions, just like the acres of half-built condos on Interstate 30 out toward Lake Ray Hubbard.Currently, we again have almost 40 million square feet of empty office space in D-FW. But today, that works out to only about 20 percent of the market.

In 1986, the overall office vacancy in North Texas was over 30 percent. In Plano, 38 percent of the buildings were vacant.And along with the offices, there were millions and millions of square feet of empty shopping centers, warehouses and the like going begging.

What all this meant was that for several years, real estate developers got to develop their fly-fishing and legal deposition skills while the economy caught up with the overburdened office market.This time, commercial builders might have the opportunity to get in some extra golf time but, hopefully, won't be spending as many hours in the courthouse.It's hard to argue that the current problems in our real estate market and economy in general were caused by eager-beaver office builders.
And I'm betting the bounce-back will be lots quicker than in the late 1980s and early 1990s.