Corporations are on the move and the country is still working off a glut of office space, experts say.

Municipalities may try to cope with a company's departure by squeezing more taxes from residential and commercial property, but that can turn the area into a lemon from a relocation standpoint.

"It's a vicious cycle" John Lonski, chief economist at Moody's Investors Service, said recently. "Any increase in taxes just serves to make a region less desirable as a place to locate new business.

"It puts a lot of pressure on [municipalities] to keep taxes low, if only to maintain the attractiveness of a particular region," he said.

Corporations have made less than a quarter of the job cuts they have announced, he said. Still, fewer people means less office space is needed.

With competition increasingly forcing corporations to seek cheaper labor outside the United States, areas with concentrations of low-skilled workers are most likely to lose businesses, Mr. Lonski said.

Hyman C. Grossman, managing director at Standard & Poor's Corp., said the pace of the recovery will vary from region to region.

In New York City, downtown Manhattan is worse off than midtown when it comes to the office space overhang. Philadelphia and Houston are coming out of the woods and Dallas is also improving, though more slowly than Houston, which was hit by the recession earlier, Mr. Grossman said. He noted the cyclicality of the real estate market.

A 14-city list of office building vacancy rates in central business districts, complied by Cushman & Wakefield Inc., shows Dallas with the highest rate at 32.7%. Houston has a 22.5% rate, downtown Manhattan is at 19.8%, and midtown Manhattan at 17.7%.

As the value of commercial property declines, more building owners are having their property reassessed at a lower rate.

"They [have been] more successful in that over the last few years because their losses are real, not imagined," Mr. Grossman said.

Aubrey Zaffuto, an economist and head of AZ Advisory Group, noted a 1 1/2% drop in administrative positions since February 1991, the point at which she considers the recession to have ended. Those administrators are the prime users of office space, she said.

In addition, as leases expire for tenants in older buildings, those tenants are passing up renewals to upgrade to new buildings, Ms. Zaffuto said. That in turn reduces the value of the older buildings and affects their owners' ability to pay taxes, she said.

They Kept on Building

A 20% overhang in office space coupled with a dramatic slowdown in the growth of the labor force means the commercial real estate market's recovery is at least 10 years off, Ms. Zaffuto said.

While it took the nation only a few years to emerge from a real estate glut in 1975, that recovery was helped along by a spate of baby boomers entering the work force she said.

To accommodate these changes, municipalities will have to change their tax structures, Ms. Zaffuto said.

Compounding the excess office space problem, demographics experts forecast fewer consumers and therefore less consumer spending, she said, constraining states' abilities to offset tax losses in other areas with sales tax revenues. States will have to rely increasingly on income taxes, Ms. Zaffuto said.

The real estate bust spread from Texas, the product of a decline in oil prices and overbuilding, she said, adding that she gleaned much of her information from a book by Lowell L. Bryan.

Despite extremely high vacancy rates, "they still built these buildings," Ms. Zaffuto said.

The main culprit behind the building frenzy was financial deregulation. Before, builders generally needed to ensure a 60% to 80% occupancy rate before going to the banks for financing.

With deregulation, the banks, desperate to put money to work, went to the developers and basically told them, "~Build me a building,'" she said.

"They weren't looking at the underlying demographics," Ms. Zaffuto said. Growth in cottage industries also decreased the need for office space.

Where Jobs Migrate

The demographics have proven much more favorable in other regions of the country, especially in the South.

"The South, of course, is trying to get all the industry it can, "Ms. Zaffuto said, adding that its proximity to Latin America and its lower labor costs make it a good destination for such companies.

Many of those jobs came from states with high labor costs such as New Jersey, she said, which posted manufacturing job losses during the state's boom period from 1979 to 1989.

"We lost 20% of our manufacturing jobs to the South and elsewhere," Ms. Zaffuto said. High-cost labor and stiffer environmental costs drove those jobs south, she said.

Though jobs overall in New Jersey grew by 25% during that period, construction and financial services, each of which increased by 55%, provided the boost, "Here's a state that is strapped," she said.

In the West, Nevada and Utah are taking jobs from neighboring California with their promise of lower labor costs and property taxes, she said.

The message is clear: States with labor and tax advantages stand to attract more new business in an era of leaner corporate operations. And depending on whether Latin America or Eastern Europe takes off first, locations closer to those areas will especially benefit, Ms. Zaffuto said.

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