In a Nov. 1 Business story, Rudy Pyatt quoted a report by Cognetics Inc. predicting that office-space needs during the coming decade would require the addition of only 138 million square feet nationwide -- less than 10 percent of what was built in the 1980s.
The Cognetics report also offered three other scenarios, none as doom-filled as the one Pyatt chose to highlight. The only Cognetics scenario that attempted to account for building obsolescence and more likely vacancy rates forecast 771 million square feet of space to be built. But regardless of the scenario, the Cognetics study is highly speculative.
First, it ignores the possibility of technological breakthroughs that could fuel economic expansion, although no one knows what biomedical research, superconductor research, robotics and data-processing advances can or will mean for office development.
Further, the study asserted that the lack of a new crop of baby boomers in the work force will mean that "the sources of demand for office space are evaporating." That position clearly undervalues issues of immigration, regional population shifts, retention of older workers, space obsolescence and changing space needs. Changing conditions in any one of these could ease labor shortages and increase demand for new space.
Office construction is cyclical in most cities, with overbuilding occurring every three to five years. Washington has been less cyclical than other regions, but space supply has finally caught up to demand; elsewhere that typically means the demise of the undercapitalized developer, and it will mean the same thing here.
However, most parts of the office market are still strong, led by the District's reported record-breaking absorption pace this year. Some parts of the region are overbuilt, but time and dramatically slowed construction will be the cure.
Pyatt said, "the area has an estimated seven-year supply of office space to be filled before it reaches an acceptable vacancy rate of 6 percent," based on the most conservative Cognetics scenario.
A more likely scenario would see new real estate lending and development beginning once vacancy rates decreased to the 10 percent to 12 percent level. The highest-growth Cognetics scenario appears to suggest that with a more reasonable vacancy rate the market will recover in a much shorter period.
What we now have is an overbuilt market in what many perceive as a national recession with banks that cannot write new loans or extend current ones. The results are obvious: foreclosures, see-through buildings and layoffs. True, we may never see the development levels of the 1980s again, but less than 10 percent of that number in the 1990s ignores a myriad of positive possibilities.
What we are likely to see in the 1990s is, as Cognetics itself suggested, "more informed, selective and sophisticated" development choices. However, these choices will be made in what has been and will continue to be an excellent office market.
-- Jeffrey L. Rappaport
The writer is vice president of a Silver Spring-based economic development consulting firm.