The Breakdown

Explaining Southern California's economy

The outlook is poor for office demand, in the U.S. and California

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Economist David Shulman of the UCLA Ziman Center for Real Estate doesn’t sugarcoat it: beyond a few important markets, the prospects for an office space expansion look grim.

A weak recovery and companies' rethinking of how much space they require has kept vacancy rates at 17 percent. Shulman calls that figure “elevated” in a December report issued by Ziman and the Anderson Forecast.

"Even before the Great Recession, the office business was sick," he writes.

Shulman warns that his exceptions to this trend - San Francisco and the Westside of Los Angeles - shouldn’t get cocky. Office rents in those California cities haven’t recovered to their dot-com era peaks in more than a decade.

Shulman sees the vacancy rate declining, but at a slow pace. He also points out that the way we work, especially at high-tech companies, has changed.

You don’t need a lot of office space when you don’t have any filing cabinets, when information lives in “cloud” servers, and when ever more employees work from home.

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