Crisis and recovery in office markets

From 1987 to 1993, U.S. office markets were in a depression similar in length and magnitude to that of the 1930s. Vacancy rates doubled, development nearly halted, and prices and rents fell precipitously. A disaster of this magnitude requires multiple causes. Poor tax policies in Washington were important causes, as was a pervasive tendency of developers and others to overforecast the growth of office employment. However, the difference between this and earlier postwar office recessions appears to be explained mostly by the effects of the microchip revolution, which entered a new phase starting in the mid-1980s. The paper concludes with relatively optimistic notes on the likely demand growth that will result from the new and improved services that the microchip revolution will permit.