Office space construction in the Washington area is expected to plummet by more than 60 percent this year from the level of 1986 after six years of headlong building that has resulted in years of double-digit vacancy rates, according to a report prepared for the American Bankers Association.

The decline -- from 12.1 million square feet of office space last year to an estimated 4.5 million in 1987 -- is the fifth largest among 20 major metropolitan areas covered by the report, and makes Washington one of 10 with expected construction decreases of more than 50 percent.

Nationally, the 1986 total of 111.88 million square feet of office construction is expected to drop to 64.57 million in 1987, a 54.3 percent decline.

"A slowdown of this dimension has simply never happened before," said Michael Sumichrast, the economist who prepared the report.

But he said it was bound to happen because developers have been "dumping so much space on the market, with millions of square feet yet to come" in buildings under construction or planned, he said. "You can't get away with that."

The report is based on U.S. Census Bureau records of building permits issued in the metropolitan areas.

Sumichrast said that his 1987 forecasts are based on the number of permits issued in the first six months of this year, and that records show that 98.2 percent of permits result in completed construction.

Not surprisingly, two Texas cities hit hard by the oil market's depression posted the sharpest drops among the 20 metropolitan areas. Austin construction fell 91.5 percent, from 4.4 million to 372,000 square feet, and Houston dropped 73.8 percent, from 1.55 million to 403,000 square feet.

San Francisco and Boston, two of the country's tightest office markets in recent years, posted declines of 23.7 percent and 39.6 percent respectively.

The survey report called Phoenix "the one notable exception in a constellation of falling stars." About 20 million square feet of new office space has been built there in the past six years.

The only surprise came in the statistics for New York, where 1987 "activity will hold close to last year's impressive level," according to the report.

"The city's 14.5 million square feet of new office space {built in 1987} will top that of its nearest competition, Los Angeles, by more than 5 million square feet."

Several prominent real estate analysts agreed with Sumichrast's assessment of the decline, saying the plunge in construction is a healthy occurrence for the office market.

Since 1981, when tax law changes made commercial office construction an attractive investment, developers have vastly overbuilt in many cities.

Bankers and foreign investors also eagerly promoted the overbuilding with a ready supply of cash for construction loans.

"There should be a reduction in construction to about 50 percent" of its pace over the past decade, said James McKellar, director of the Massachusetts Institute of Technology's Center for Real Estate Development.

An MIT study released late last year showed that 1.45 billion square feet of office space was built in the nation between 1975 and 1985, and that only 650 million square feet will be needed in the period between 1985 and 1995, he said.

The 650 million figure was "based on absorbing the current glut and bringing the market back to 6 percent vacancy," long considered the level at which the commercial real estate market becomes viable.

The MIT study also took projected employment growth into account.

Construction "is definitely down this year," said Janet Nutting, assistant vice president of Real Estate Research Corp., based in Chicago.

Lenders are more cautious and "to a certain extent, even developers are becoming more cautious. They are waiting for tenants" before they start work on office buildings, she said.

Nutting said the decline "will provide a much needed relief for the market."

She said the supply of space has outpaced demand for four years or longer in some parts of the country.

She added, however, that the problem will not be solved quickly, because the oversupply of offices is so great in some cities that absorption of the space will require four or five years.

One fear, she said, is that commercial developers may see the construction decline as a reason for optimism. "This sort of downturn might be enough" to make some decide to start building again, Nutting said.

Analysts cited several reasons for the construction decline, starting with the oversupply of office space in most areas of the nation.

The U.S. office market is "regionalized," with widely varying conditions in commercial real estate, said Steven A. Wechsler, vice president and general counsel for the National Realty Committee, whose members are large developer-owners of commercial properties.

Hard times came to areas where developers expected economic growth that never materialized, most dramatically in the oil states, where "a lot of the {commercial construction} decisions were premised on oil at $40 a barrel. It's half that now and has been lower."

Nearly all areas of the country are overbuilt to some extent, however, and "it's not unlikely that {the construction decline} will continue in 1988," Wechsler said.

Despite the oversupply here, the Washington commercial market "is one of the most resilient in the country," Wechsler said.

"There's definitely a slowdown" in Washington area construction, but building and demand for space "is still in relative balance," said Howard Flax, president of a Bethesda development company that is planning to start work on a 227,000-square-foot office building in downtown Washington next summer.

"But if it were in downtown Chicago, or out in Tysons Corner or the Dulles access corridor, I don't think I would build a building."

The vacancy rate in Northern Virginia office buildings is now at 18.7 percent, but an estimated 6 million square feet of the current available supply of 10.3 million square feet will be leased by the end of this year, said W. Cabell Grayson, vice president of Coldwell Banker Commercial Real Estate Services.

Montgomery and Prince George's counties have an office vacancy rate of about 10 percent, and the District of Columbia's rate is 11 percent, according to Coldwell Banker.

The District's vacancy may increase by one or two percentage points by the end of the year because of construction that will be completed by the end of the year, Grayson said. "This doesn't mean it's a weak market," he said.

"The area hasn't suffered much" with the high vacancy rates because leasing of the space has been brisk, Grayson said.

Comparing new construction to new jobs added is one way of gauging the need for office space, according to another bankers association report by Sumichrast.

The 1.23 billion square feet of office space built in the nation between 1981 and 1986 is about 20 percent too much, the report said. The estimate is based on a standard of 196 square feet of space per office job. Using this formula, the Washington area is classified as "mildly overbuilt" with 39 percent more office space than it needs.

It is too soon to be sure what effects the heavy losses in the stock market will have on commercial real estate development, according to several analysts.

"When there is uncertainty in the world, tenants act no differently than people who are buying houses or cars or making other large purchases," said Raymond G. Torto of Coldwell Banker/Torto Wheaton Services in Boston, noting that they postpone decisions and moves to new offices.

About 1 million square feet of office space leased in Boston in the last 1 1/2 years is occupied by various kinds of stock investment companies, Torto said.

As a result, he said, commercial property owners "are quite concerned" about the effect of the stock market plunge on these companies.

Federal agencies, lawyers, lobbyists and trade associations -- as well as a growing number of private companies -- occupy Washington office space, outnumbering investment firms by a wide enough margin to preclude stock market-related concerns among area property owners, according to Stephen B. Goldstein, senior vice president of Julien J. Studley Inc., a large real estate brokerage firm.

Most tenants of all types who had planned to sign leases for new offices before the end of the year say they will go through with their plans, "although they are a little more nervous than they were" because of the stock market's collapse, Goldstein said.