Regional Outlook
 

FEDERAL DEPOSIT INSURANCE CORPORATION THIRD QUARTER 2001 

FDIC
 

Kansas City
 

Region
 

Division of
 

Insurance
 

John M. Anderlik,
 

Regional Manager
 

Jeff W. Walser,
 

Regional Economist
 

Richard D. Cofer,
 

Jr.,
 

Senior Financial
 

Analyst
 

A Message to Our Readers 

The FDIC community extends its deepest sympathy to the families, friends, and 

co-workers of the victims of the attacks on September 11, 2001. 

The articles in this edition of the Regional Outlook were prepared before the 

tragic events of September 11. We will assess the implications of these events in 

future issues of the Regional Outlook. The public can rest assured that deposit 

insurance is in full force—money is safe in an FDIC-insured account. 

Regional Perspectives 

◆ Regionwide, farmers relied on government payments for more than half their 

net cash income in 1998 and 1999. Farmers in Iowa and North Dakota demonstrated even greater reliance. See page 3. 

◆ Indirectly, farm banks also rely heavily on government payments for loan repayment. However, the timing and amount of these payments are uncertain, which 

makes it difficult for lenders to assess borrowers’ creditworthiness. See page 5. 

◆ High levels of government payments also could be exerting substantial influence 

on farmland prices, representing as much as half the value of the Region’s farmland. A sudden or significant reduction in government payments could contribute 

to higher levels of farm loan defaults, while at the same time putting downward 

pressure on land values. See page 6. 

By Richard D. Cofer, Jr., Senior Financial Analyst 

In Focus This Quarter 

◆ Slowing Economy Reduces Demand for U.S. Office Space—A slowing 

economy has contributed to softening in many U.S. office markets during the first 

half of 2001. The office vacancy rate has recorded the largest six-month increase 

in the past 20 years. A combination of trends—a substantial drop in demand for 

office space and an uptick in construction activity in some markets—has led to this 

slackening. 

This article reviews recent developments in U.S. office markets and describes 

demand-side and supply-side trends that have contributed to the recent weakness. 

It notes the role played by the changing fortunes of high-tech firms in a number of 

U.S. metro areas and how this situation has contributed to large increases in the 

volume of space available for sublease. Finally, the article focuses on the local 

construction and commercial real estate loan exposures of FDIC-insured banks 

and thrifts that have the task of managing their risks under changing market 

conditions. See page 9. 

By Thomas A. Murray 

A Publication of the Division of Insurance 
The Regional Outlook is published quarterly by the Division of Insurance of the Federal Deposit 

Insurance Corporation as an information source on banking and economic issues for insured 

financial institutions and financial institution regulators. It is produced for the following eight 

geographic regions: 

Atlanta Region (AL, FL, GA, NC, SC, VA, WV)
 

Boston Region (CT, MA, ME, NH, RI, VT)
 

Chicago Region (IL, IN, MI, OH, WI)
 

Dallas Region (CO, NM, OK, TX)
 

Kansas City Region (IA, KS, MN, MO, ND, NE, SD)
 

Memphis Region (AR, KY, LA, MS, TN)
 

New York Region (DC, DE, MD, NJ, NY, PA, PR, VI)
 

San Francisco Region (AK, AS, AZ, CA, FM, GU, HI, ID, MT, NV, OR, UT, WA, WY)
 

Single copy subscriptions of the Regional Outlook can be obtained by sending the subscription 

form found on the back cover to the FDIC Public Information Center. Contact the Public Information Center for current pricing on bulk orders. 

The Regional Outlook is available on-line by visiting the FDIC’s website at www.fdic.gov. For more 

information or to provide comments or suggestions about the Kansas City Region’s Regional 

Outlook, please call John Anderlik at (816) 234-8198 or send an e-mail to janderlik@fdic.gov. 

The views expressed in the Regional Outlook are those of the authors and do not necessarily reflect 

official positions of the Federal Deposit Insurance Corporation. Some of the information used in 

the preparation of this publication was obtained from publicly available sources that are considered 

reliable. However, the use of this information does not constitute an endorsement of its accuracy by 

the Federal Deposit Insurance Corporation. 

Chairman Donald E. Powell 

Director, Division of Insurance Arthur J. Murton 

Executive Editor George E. French 

Writer/Editor Kim E. Lowry 

Editors Lynn A. Nejezchleb 

Maureen E. Sweeney 

Richard A. Brown 

Ronald L. Spieker 

Publications Manager Teresa J. Franks 
Regional Perspectives
 

Regional Perspectives
 

• Regionwide, farmers relied on government payments for more than half their net cash income in 1998 and 

1999. Farmers in Iowa and North Dakota demonstrated even greater reliance. 

•	 Indirectly, farm banks also rely heavily on government payments for loan repayment. However, the timing 

and amount of these payments are uncertain, which makes it difficult for lenders to assess borrowers’ creditworthiness. 

•	 High levels of government payments also could be exerting substantial influence on farmland prices, representing as much as half the value of the Region’s farmland. A sudden or significant reduction in government 

payments could contribute to higher levels of farm loan defaults, while at the same time putting downward 

pressure on land values. 

Farmers and Lenders Continue to Rely on Government Payments
 

to Support Cash Flows and Farmland Values
 

Kansas City Regional Outlook, second quarter 2001, 

explained how continued low prices for corn, soybeans, 

and wheat have contributed to a stressed agricultural 

sector in the Region. Government payments to farmers, 

coupled with strong sources of off-farm income, have 

helped many farmers remain in business. However, 

uncertainty exists about the future of government payments and the outcome of the 2002 farm bill debate. 

As a result, a discussion of how a reduction in payments 

could affect farmers and their lenders is timely and 

important. Any substantial reduction in government 

support could have an adverse effect on farmers’ ability 

to repay their loans and could contribute to a decline in 

the value of farmland collateral held by farm banks. 

Government Payments Have Aided Farmers 

and Farm Banks; However, the Uncertainty 

of These Payments Is a Downside 

Government payments have increased during the past 

three years and reached record amounts during the past 

two years, helping to maintain net farm income near historical levels. As a result, the Region’s farm banks continue to report sound asset quality despite historically 

low commodity prices. Loan delinquencies and loan 

losses remain low by historical standards. As of December 31, 2000, total delinquent loans at farm banks 

accounted for 2.1 percent of total loans; by comparison, 

at year-end 1996, prior to the current problems in the 

farm sector, 2.4 percent of loans were past due. Farm 

banks charged off 0.2 percent of total loans in 2000, the 

same ratio as in 1996. 

Much of the government aid during the past couple of 

years has taken the form of emergency assistance and 

loan deficiency payments,1 the amounts of which were 

uncertain prior to the growing season. Last year, emergency payments totaled $8 billion, or 35 percent of the 

$23 billion in total payments. Farmers and their lenders 

could not count on these payments until Congress 

passed the necessary legislation during the growing season. Deficiency payments accounted for another $6 billion, or 26 percent of the total. These payments are also 

uncertain because they depend entirely on the variance 

in crop prices during the marketing year and the level at 

which farmers opt to “lock in” the government payments. Additionally, the U.S. Secretary of Agriculture 

has the authority to change loan deficiency payment 

rates each year; this could be an issue next year, as the 

rates were not changed for 2001. 

How Important Are Government Payments 

to Farmers and Farm Banks? 

How dependent are farmers and their lenders on federal 

payments? To answer this question, we measured farm 

banks’ reliance on government payments using two 

1 For the purposes of this article, deficiency payments signify government payments paid to farmers under both the loan deficiency program 

(LDP) and the marketing assistance program. 

Kansas City Regional Outlook 3	 Third Quarter 2001 
Regional Perspectives
 

general barometers: the proportion of farmers’ net cash 

income that consists of farm payments and banks’ 

concentration of total assets in agricultural lending. 

Farm banks in a given area, such as a state or state district, tend to have borrowers with similar farm operation 

characteristics, such as row crop and livestock operations. Therefore, understanding farmers’ cash flows 

should help us understand how critical government payments are to borrowers’ repayment ability. 

Nationally, direct federal government payments represented 38 percent of farm net cash income in 1999;2 in 

the Kansas City Region, however, they represented 71 

percent. In fact, without farm payments, farmers in the 

Region would have posted a net loss in 1999, and our 

estimates for 2000 do not look any better. The Region’s 

higher-than-average dependence on government payments can be attributed to its high concentration relative 

to the rest of the country in production of wheat, corn, 

and soybeans—crops whose prices are depressed but for 

which farmers receive government payments. Nationally, farmers produce hundreds of commodities; they 

receive no government assistance for most of them, and 

most are doing relatively well. 

Chart 1, which shows the ratio of government payments 

to net cash income by state in 1998 and 1999,3 illustrates 

farmers’ tremendous reliance on government payments 

across the Region. North Dakota, where government 

CHART 1 

Source: Economic Research Service, USDA 

Government Payments Have Been 

Crucial to Farmers’ Cash Flows 

Direct Government Payments to Net Cash Income 

(1998 and 1999 Combined) 

IA KS MN MO ND NE SD 

Percent 

Region 

0 

20 

40 

60 

80 

100 

2 The most recent year for which data are available at a state level. 

3 Chart 1 shows combined results for 1998 and 1999 income data. 

This represents a more accurate measure because farm marketing 

years typically overlap two calendar years. 

payments represented about 87 cents of every dollar in 

farm net cash income, has by far received the highest 

amount. However, even in Nebraska and South Dakota, 

where the ratios were the lowest in the Region, farmers 

relied on government payments for almost 50 cents of 

every dollar of net cash income during this period. 

The level of government payments differs significantly 

according to the type of agricultural product. Most 

direct government payments are tied to crop commodities; livestock production is not subsidized. Therefore, 

states where livestock production constitutes a high percentage of total farm cash receipts tend to receive lower 

levels of government payments. For example, crop cash 

receipts are more than triple the amount of livestock 

cash receipts in North Dakota; livestock cash receipts 

exceed crop cash receipts by a two-to-one margin in 

Kansas. As a result, North Dakota receives a higher 

level of government payments than Kansas. 

Of course, individual farm banks may have few borrowers who are reliant on government support even though 

these farmers reside in states that are heavily dependent 

on government payments. For instance, some farm 

banks may develop a niche in extending credit to hog 

production or cattle finishing operations or making 

loans to farmers raising nonprogram crops. 

Farm Banks, by State, Have Vastly Different 

Agricultural Loan Concentrations 

Assessing insured institutions’ level of exposure to the 

agricultural sector is another means of evaluating the 

vulnerability of farm banks to declining government 

payments. Simply by definition, almost all farm banks 

have a high agricultural exposure compared to other 

banks.4 For example, fewer than 1 percent of all 1,212 

farm banks5 had less than 10 percent of total assets 

concentrated in farm lending. Most had much higher 

concentrations. We gauged farm banks’ overall exposure 

to farm lending by grouping them into three ranges 

according to the farm loan-to-total asset ratio. The 

results, shown in Table 1, clearly demonstrate that the 

Region’s states vary considerably in the level of concentration in agricultural lending among farm banks. 

4 The Federal Deposit Insurance Corporation defines a farm bank as 

an insured institution that holds farm production or farmland-secured 

loans equal to at least 25 percent of total loans. 

5 Total number of farm banks in the Kansas City Region as of 

December 31, 2000. 

Kansas City Regional Outlook 4 Third Quarter 2001 
Regional Perspectives
 

TABLE 1 

Farm Loan Concentrations of 

Agricultural Banks Vary Widely 

among the Region’s Banks 

PERCENTAGE OF EACH STATE’S BANKS 

IN EACH RATIO RANGE 

STATE 

RANGE OF FARM LOANS-TO-TOTAL 

ASSETS RATIOS 

LESS THAN 

30% 30%–45% 

MORE THAN 

45% 

IA 65% 27% 7% 

KS 62% 29% 9% 

MN 57% 34% 9% 

MO 85% 15% 0% 

ND 49% 37% 14% 

NE 34% 40% 26% 

SD 29% 46% 26% 

The aggregate median farm loan-to-total asset ratio 

of all 1,212 farm banks is 28 percent. 

Source: Bank Call Reports 

This variance can be explained, at least in part, by 

urbanization influences. Farm banks located near metropolitan areas can diversify their lending more readily 

than can their more rural counterparts. This strong influence affects banks in metropolitan counties as well as 

banks in counties adjacent to metropolitan counties. To 

illustrate, farm banks with loan-to-asset ratios under 

30 percent constitute over two-thirds of the farm banks 

in metropolitan and surrounding counties, but less than 

one-half of farm banks in rural counties not adjacent to 

metropolitan areas. 

Therefore, states with fewer metropolitan areas tend to 

have higher farm loan concentrations. For instance, 

Nebraska and South Dakota have much lower ratios of 

urban area (metropolitan and surrounding counties) to 

rural area (other counties), at 1:4 and 1:9, respectively, 

than other states; Missouri and Iowa have the highest, 

both at 2:3. As Table 1 shows, farm banks in Nebraska 

and South Dakota exhibit a much higher exposure to 

farm lending than those of other states, particularly 

Missouri and Iowa. 

North Dakota stands out from the rest of the states in the 

Region in terms of dependence on government support 

and farm banks’ concentration in farm lending. North 

Dakota’s farmers are the most dependent on federal payments, and farm banks in the state tend to be relatively 

highly concentrated in farm lending. The other states 

present a more mixed picture. For example, although 

Iowa exhibits a relatively high dependence on government payments, its banks tend to be less concentrated in 

farm lending. Conversely, Nebraska and South Dakota 

farm banks tend to be much more concentrated in agricultural lending, but these states’ farmers appear to be 

less reliant on government payments. However, the fact 

remains that all states in the Region are home to farmers who are highly reliant on government payments and 

to farm banks with relatively high concentrations in 

agricultural lending. As a result, the entire Region 

appears to be vulnerable, to some degree, to a significant reduction in government payments. 

Carryover Debt Continues to Rise despite Several 

Years of Record-Setting Government Payments 

Even though record levels of government payments 

have helped maintain farmers’ debt repayment ability 

and have contributed to relatively low levels of past-due 

loans, increasing levels of carryover debt indicate potential problems. Carryover debt consists of loans that 

could not be retired in one period and were “carried 

over” into subsequent periods, often with amortization 

periods of several years and additional farmland collateral. Carryover debt is not reported on the Call Report 

either as a separate asset category or as a past-due loan. 

While reported financial data do not contain carryover 

debt information, other sources of data indicate that 

carryover debt levels have risen significantly in the 

Region. Surveys completed by Federal Deposit Insurance Corporation (FDIC) examiners point to higher 

levels of carryover debt. As shown in Chart 2 (next 

page), FDIC examiners report that the share of examined 

banks experiencing a “moderate” to “sharp” increase in 

carryover debt levels jumped from about 10 percent in 

March 1998 to more than 40 percent by September 1999. 

Although the number of insured institutions exhibiting 

increases in carryover debt has moderated since then, the 

number of institutions reporting increases continues to 

outpace the number reporting decreases. 

In addition, rising levels of carryover debt appear to be 

reflected in aggregate loan data. These data show 

increasing levels of loans secured by farmland; at the 

same time, the level of operating loans remains stable or 

is declining, trends that suggest increasing carryover 

debt levels. As seen in Chart 3 (next page), farmoperating loans have declined by $380 million since 

Kansas City Regional Outlook 5 Third Quarter 2001 
Regional Perspectives
 

CHART 2 

Percentage of Institutions 

Examined in the Prior Six Months 

Showing a Change in 

Carryover Debt 

Source: FDIC, Loan Underwriting Surveys 

Carryover Debt Levels Continue to 

Build, although at a Slower Rate 

Percent 

Sharp or 

Moderate 

Decline 

Sharp or 

Moderate 

Increase 

0 

10 

20 

30 

40 

50 

Mar ’97 

Sep ’97

Mar ’98 

Sep ’98

Mar ’99 

Sep ’99

Mar ’00 

Sep ’00

Mar ’01 

CHART 3 

Source: Call Reports, Farm Banks, Kansas City Region 

The Shift between Operating Loans and Loans 

Secured by Farmland Suggests Increasing 

Carryover Debt Levels 

$ Billion Outstanding 

1995 1996 1997 1998 1999 2000 

Agricultural 

Production 

Loans 

Loans Secured 

by Farmland 

5 

6 

7 

8 

9 

10 

11 

12 

13 

1997, while loans secured by farmland have increased 

by $1.2 billion. As a result, farmland-secured loans 

increased from 32 percent of all farm loans in 1995 to 

37 percent by 2000. Although some of the increase in 

farmland-secured loans may be unrelated to carryover 

debt, the change in loan mix suggests higher carryover 

debt levels. 

Greater reliance on government payments, rising levels 

of carryover debt, and increased emphasis on farmland 

collateral suggest the importance of understanding the 

effect of government payments on farmland values. 

Farmland Prices Have Risen despite Historically 

Low Commodity Prices 

Given the significant decline in farm operating net cash 

income during the past few years, one could reasonably 

expect that farmland values would decline. Farmland, 

like any business property, derives its value from its 

income production potential. Instead, prices have held 

steady or posted moderate gains despite falling farm 

revenues. The current situation differs from that of the 

late 1970s and early 1980s, when the Region experienced a rapidly expanding price bubble caused largely 

by strong export demand and low or negative real interest rates. As the dollar strengthened and exports fell, the 

bubble burst. 

According to the U.S. Department of Agriculture 

(USDA), cropland and pastureland values across the 

nation rose 4.5 percent and 3.6 percent, respectively, 

between year-end 1996 and year-end 1999, the year for 

which the most recent data are available.6 Cropland 

prices in the Kansas City Region rose 3.6 percent and 

pastureland rose 4.3 percent during the past three years. 

However, there are vast differences in the changes in 

land prices among the Region’s seven states. Missouri 

and Minnesota experienced the greatest increases in 

cropland values at 6.7 percent and 5.5 percent, respectively, while Kansas posted a 0.9 percent increase; the 

value of cropland in North Dakota declined slightly. 

South Dakota and Missouri pastureland values 

increased 7.5 percent and 6.6 percent, respectively, the 

largest gains in the Region. Pastureland values in 

Kansas and Iowa posted smaller increases. Given the 

significant decline in farm production revenue, the fact 

that prices have increased or remained flat raises the 

question, what could explain the resiliency of farmland 

values during this period? 

The influence of urbanization is important, as farmland 

near expanding metropolitan areas continues to be purchased (for much more than its farming economic 

value) and developed into nonfarm properties. Given the 

tremendous economic boom during the past decade, 

6 The land price data in this section and in Table 1 are derived from 

information in USDA, Agricultural Land Values, http://usda.mannlib 

.cornell.edu/reports/nassr/other/plr-bb/land0300.pdf, National Agricultural Statistics Service, March 2000. 

Kansas City Regional Outlook 6 Third Quarter 2001 
Regional Perspectives
 

encroaching development has certainly supported farmland values in most metropolitan areas and even adjacent counties. Moreover, rising wealth and incomes have 

contributed to an increase in hobby-farming, rural 

estates, and even farmland purchases for recreational 

uses such as hunting. While much of the land continues 

to be farmed, some of its value stems from these alternative uses. 

Although these influences may be contributing to 

increases in farmland prices in some areas, they do not 

explain the entire story. The most likely explanation 

appears to be the record-setting levels of government 

assistance. 

How and to What Extent Do Government 

Payments Influence Land Prices? 

Because farmland value is derived from capitalization 

of income, the proportional influence of government 

payments on land prices is related, to some degree, to 

government payments as a proportion of total net cash 

flow. That is, as government payments represent more of 

the total value of net cash income, these payments 

represent much more of the land value, and vice versa. 

Mitchell Morehart presented a method for calculating 

the upward influence of government payments on 

farmland prices at the USDA’s Agricultural Outlook 

Forum in February 2001.7 Using the direct income capitalization method,8 Morehart estimated that nationally, 

farmland values would have declined substantially if it 

were not for government payments. Presented in a time 

series graph, the analysis showed a dramatic widening 

between the actual and estimated land prices if government payments are excluded as agricultural problems worsened from 1997 to 2000. In 2000, estimated 

land prices if government payments are excluded are 

about 24 percent lower than actual land prices. In other 

words, in 2000, government payments may account for 

as much as 24 percent of the aggregate national value 

of farmland. 

7 Morehart is an agricultural economist with Economic Research 

Service, USDA. 

8 Morehart used existing land values and farm cash flow information 

to calculate capitalization rates for farmland. He adjusted the cash 

flows to discount direct government payments and divided the adjusted cash flows by the capitalization rate to determine an estimated land 

price if government payments are excluded. An explanation of the 

methodology and the results is available at http://www.usda.gov/oce/ 

waob/oc2001/speeches/morehart.txt. 

The influence of direct government payments on land 

values in the Kansas City Region is certainly greater 

because the Region has a higher concentration of the 

types of crops that are eligible for government assistance. Our replication of Morehart’s analysis using 

regional data is shown in Chart 4, which shows that 

direct government payments could be responsible for as 

much as 52 percent of the value of the Region’s farmland in 1999. This figure has increased considerably 

from 14 percent in 1996. 

Table 2 shows that government payments could account 

for as much as 59 percent of the value of farmland in 

North Dakota at the high end, and 39 percent in South 

Dakota at the low end. This analysis indicates that even 

CHART 4 

Source: Economic Research Service, USDA 

Government Payments Appear to be 

Supporting Farm Land Prices to a Greater 

Degree since 1997 

Estimated Land Price if 

Government Payments 

Are Excluded 

Actual Land Price 

$ Dollars per Acre 

300 

400 

500 

600 

700 

800 

900 

1996 1997 1998 1999 

TABLE 2 

The Estimated Percentage of Land 

Value Associated with Government 

Payments Has Increased Dramatically 

STATE 1997 1998 1999 

IA 12% 27% 53% 

KS 19% 33% 55% 

MN 21% 33% 57% 

MO 14% 29% 58% 

ND 24% 44% 59% 

NE 14% 27% 47% 

SD 13% 29% 39% 

REGION 15% 30% 52% 

Source: Economic Research Services, USDA, and 

National Agricultural Statistics Service, USDA 

Kansas City Regional Outlook 7 Third Quarter 2001 
9 

Regional Perspectives
 

a small reduction in government payments could affect 

farmland values negatively, and a significant reduction 

in assistance could have more adverse results. 

However, it is important to keep in mind that the numbers in Table 2 should be viewed as a general description. The methodology is based on the assumptions that 

future income expectations are derived from current 

income, change annually, and are immediately incorporated into the value of land. Moreover, the methodology 

does not differentiate between government payment 

cash income and operating cash income. As discussed 

earlier, the analysis does not incorporate nonfarming 

influences on land values.9 

James Ryan, Charles Barnard, and Robert Collender discuss 

assumptions contained in this analysis in “Government Payments to 

Farmers Contribute to Rising Land Values,” USDA’s Agricultural 

Outlook, June–July 2001. 

Conclusion 

Farmers in the Region continue to rely greatly on government assistance to meet debt obligations. Significant 

reductions in emergency payments in 2001 or 2002, or 

reduced support in the next farm bill, could have a significant impact on farmers and their lenders. Farmers 

like those in North Dakota and Iowa, who are highly 

dependent on government payments, or farm banks with 

high concentrations in agricultural loans could be more 

vulnerable. In addition, should these payments decline, 

collateral protection could be eroded in areas where 

farmland values are supported by current government 

payments and the expectation that these payments will 

continue. Collateral protection for farmland is becoming more important as the level of carryover debt 

secured by farmland continues to increase. 

Richard D. Cofer, Jr. 

Senior Financial Analyst 

Kansas City Regional Outlook 8 Third Quarter 2001 
In Focus This Quarter
 

Slowing Economy Reduces 


Demand for U.S. Office Space
 

•	 Demand for U.S. office space contracted during 

the first half of this year as the amount of newly 

vacated space exceeded the amount of newly 

occupied space for the first time since at least 

1981. 

•	 The U.S. office vacancy rate jumped 250 basis 

points in the first half of 2001, from 8.3 percent to 

10.8 percent. 

•	 With construction levels remaining high and 

demand still weak, the vacancy rate could rise 

further by year-end. 

Overview 

Commercial real estate (CRE) markets traditionally 

have been—and remain—highly cyclical. During the 

1990s, most U.S. office markets experienced a strong 

upswing. However, declining office employment 

growth along with other recent signs point to a possible 

downturn. As reported by Torto Wheaton Research 

(TWR), the U.S. office vacancy rate, which stood at a 

19-year low of 8.3 percent at the end of 2000, jumped in 

only six months to 10.8 percent, the largest six-month 

increase in the 20 years TWR has tracked these data. 

Office vacancy increases range from modest levels in 

some markets to high levels in markets where supply 

and demand imbalances are more pronounced. 

An uptick in construction activity combined with a substantial drop in demand for office space has led to a 

slackening of office market conditions. In light of the 

ongoing uncertainty as to the near-term direction of the 

U.S. economy, these trends make the current situation 

difficult for office market participants to read. 

This article reviews recent developments in U.S. office 

markets and describes demand-side and supply-side 

trends that have contributed to the recent weakness.1 

It notes the role played by the changing fortunes of 

1 For further discussion of demand and supply trends, see Sally Gordon, “CMBS: Red – Yellow – GreenTM Update, Second Quarter 2001 

Quarterly Assessment of U.S. Property Markets,” Moody’s Investors 

Service, July 6, 2001. 

high-tech firms in a number of metropolitan areas and 

how this situation has increased the volume of space 

available for sublease. Finally, the article focuses on the 

local construction loan exposures of insured banks and 

thrifts that have the task of managing their risks under 

changing market conditions. 

Vacancy Rates Have Risen 

Quickly from Cyclical Lows 

At year-end 2000, the U.S. office vacancy rate stood at 

8.3 percent—a 19-year low. Many individual metro 

areas posted even lower vacancy rates. For example, at 

year-end 2000, vacancies were 4.4 percent of available 

space in Seattle, 1.3 percent in San Jose, and 3.0 percent 

in Oakland. Beginning with first quarter 2001, as a 

result of a slowing economy and the fallout from the socalled “tech-wreck,” the U.S. vacancy rate rose by 120 

basis points to 9.5 percent—the highest absolute quarterly increase since these data were first published in 

1981. Another record increase of 130 basis points 

occurred during the second quarter, bringing the vacancy rate to 10.8 percent. To put these increases in perspective, consider that the national office vacancy rate 

has increased more than 50 basis points in any given 

quarter only twice.2 Nonetheless, the current vacancy 

rate of 10.8 percent remains low by historical standards, 

as the average rate for the past 20 years has been 13.9 

percent. 

Most of the nation’s large metro areas saw increases in 

office vacancies during the first half of 2001. Fortyeight of the 53 major metropolitan areas tracked by 

TWR recorded a higher vacancy rate in June 2001 than 

at year-end 2000. Thirty-eight markets experienced 

increases of at least 100 basis points, and four markets 

saw vacancy rates jump by more than 600 basis points. 

As shown in Table 1 (next page), most of the markets 

experiencing the largest jump in vacancy rates also are 

home to concentrations of high-tech employment.3 As 

2 TWR notes increases of 60 basis points in the second quarter of 

1989 and in the first quarter of 1999. 

3 Seven of the ten markets with the highest first-half 2001 vacancy 

rate increases are also among the top ten cities having the greatest 

levels of high-tech employment. 

Kansas City Regional Outlook 9	 Third Quarter 2001 
In Focus This Quarter
 

TABLE 1 

In Many Markets, Office Vacancy Rates Reflect 

Concentrations of High-Tech Employment 

VACANCY RATE VACANCY RATE INCREASE IN HIGH-TECH AS % 

AS OF 6/30/01 AS OF 12/31/00 VACANCY RATE OF TOTAL MARKET 

METRO AREA (%) (%) (BASIS POINTS) EMPLOYMENT 

AUSTIN 11.8 5.0 680 10.1 

SAN JOSE 8.1 1.3 680 27.4 

OAKLAND 9.3 3.0 630 6.5 

SAN FRANCISCO 10.3 4.1 620 8.3 

SEATTLE 9.4 4.4 500 6.6 

KANSAS CITY 15.9 11.0 490 2.7 

BOSTON 8.7 3.9 480 8.2 

PHOENIX 16.9 12.5 440 4.7 

WILMINGTON, DE 10.4 6.2 420 3.8 

WASHINGTON, DC 7.8 3.9 390 7.8 

NATION 10.8 8.3 250 4.8 

Sources: Torto Wheaton Research, Economy.com, Inc. 

high-tech markets spurred higher demand for office 

space in the recent past, these markets are now giving 

back greater quantities of previously occupied office 

space. Table 2 (see page 18) lists office vacancy rates 

and changes along with lending concentrations, construction activity levels, and high-tech employment 

percentages for 53 major metropolitan areas and for 

the nation. 

Unlike the last cycle, during which office vacancies 

shot up primarily in overbuilt downtown areas, recent 

increases are occurring more sharply in suburban than 

downtown sections of metropolitan areas. As of June 

30, 2001, the average downtown office vacancy rate 

was 8.5 percent, and the average for suburban markets 

was 12.1 percent. Increases in office availability are 

dispersed among Class A office properties as well as 

Class B/C properties, yet vacancy rates do show disparities across many submarkets. For example, the 

South of Market area in San Francisco reports significantly higher office vacancy rates than the Financial District.4 Similarly, in the Washington, DC, 

metropolitan area, the technology-intensive northern 

Virginia office market has experienced higher office 

vacancy increases than downtown Washington, DC, or 

suburban Maryland. 

4 Louis, Arthur M. July 24, 2001. “Empty Offices, Economic Downturn, Overconstruction Leave Commercial Landlords with More 

Space on their Hands.” San Francisco Chronicle. 

Office Demand Drops 

Net absorption, the primary indicator of demand for 

office space, was negative during first quarter 2001 for 

the first time since TWR began reporting the series.5 

(Negative absorption occurs when space returned to the 

market by existing tenants exceeds the space occupied 

by new tenants.) This negative performance was repeated in the second quarter. The decline in the volume of 

competitively leased space totaled 30 million square 

feet during the first half of 2001. (See Chart 1.) 

The bulk of negative absorption in the first half of 2001 

is due to the return of office space to the market through 

subleasing.6 TWR reports that there were 43 million 

square feet of space “give-backs” through subleasing in 

the first half of 2001, and after offsetting absorption of 

13 million square feet, negative absorption was 30 million square feet. 

Office employment growth, the source of new office 

space demand, tends to be driven by the finance and services sectors.7 Year-over-year job growth in the finance, 

5 Net absorption is the net change in total competitively leased space 

per period, as measured in square feet. 

6 In some metropolitan areas, over half the total office space available 

for rent (vacant space) is sublease space. 

7 TWR constructs its office employment index based on trends in the 

FIRE sector plus selected categories of the services sector. See TWR 

Office Outlook, Spring 2001, Vol. II, p. A.1. 

Kansas City Regional Outlook 10 Third Quarter 2001 
 

In Focus This Quarter
 

CHART 1 

Net Absorption Turned Negative in 2001 

Vacancy Rate (%) 

Square Footage (000s) 

Vacancy 

Rate (%) 

–40,000 

–20,000 

0 

20,000 

40,000 

60,000 

80,000 

100,000 

120,000 

140,000 

Completions 

(S.F.) 

Absorptions 

(S.F.) 

Negative 

Absorption 

’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 

0.0 

2.0 

4.0 

6.0 

8.0 

10.0 

12.0 

14.0 

16.0 

18.0 

20.0 

Notes: 2001 is as of June 30. S.F. = square footage 

Source: Torto Wheaton Research 

insurance, and real estate (FIRE) and services sectors 

combined was more than 3 percent in every month from 

January 1993 through June 2000. Since the middle of 

2000, job growth in these sectors has fallen steadily to a 

year-over-year rate of less than 1.5 percent in June 2001. 

A spring 2001 survey conducted by Salomon Smith 

Barney indicated that tenants estimated their growth in 

office space demand to be only 0.6 percent over the following 12-month period.8 Also contributing to reductions 

in demand are increases in worker layoffs. Announced 

layoffs during the first seven months of 2001 totaled over 

983,000 individuals, more than triple the number of 

announced layoffs during the same period last year.9 

The slowdown in the demand for office space contrasts 

sharply with the situation last year, when absorption 

rates and office employment growth were robust in most 

markets, and leases were executed quickly for newly 

constructed properties. As shown in Chart 2, absorption 

of office space in 2000 actually outstripped the trend in 

office employment by a considerable margin. Why? 

With relatively easy access to initial public offering and 

venture capital funding, many startup firms anticipated 

rapid growth and leased office properties accordingly. In 

fact, venture capital funding facilitated historically higher rates of office space absorption by high-tech and other 

startups. In active bidding wars, new high-tech firms 

increased their office space holdings. A phenomenon of 

space hoarding developed in which some high-tech 

companies leased large quantities of office space in 

anticipation of future expansion. 

8 Boston, Gary, Ross Nussbaum, and Jonathan Litt. May 16, 2001.
 

“Real Estate Demand Survey.” Equity Research: United States, Real
 

Estate Investment Trusts. Salomon Smith Barney. 
 9 Data provided to Haver Analytics by Challenger, Gray & Christmas.
 

More recently, because of a slowing economy, curtailed 

funding, and failures to achieve sales expectations, 

many high-tech and dot-com firms have closed or 

scaled back operations significantly. At the same time, 

traditional firms have reconsidered plans to expand, 

adopting a “wait and see” attitude. Consequently, as 

demand for space declines, large blocks of office space 

are returning to markets for sublease. 

Space available for sublease is similar to landlordoffered space available for rent—space under both categories should count toward a market’s available rental 

space. However, in the case of subleasing, tenants, 

rather than landlords, offer properties for rent. Tenants 

may attempt to sublease the property themselves or use 

a broker; however, in general, only space handled by a 

broker is included in the tally of a market’s available 

rental space. Consequently, current office vacancy 

increases could be higher than reported. 

CHART 2 

Office Demand Spiked in 2000 as Employers
 

Took on More Office Space than Needed
 

Sq. Ft. Absorbed Office Employment 

(000s) Growth (000s) 

120,000 

Office employment 

growth 

Office absorption 

’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 

1,000 

900 100,000 

800 

80,000 700 

60,000 600 

40,000 500 

400 

300 

20,000 

0 

200 

–20,000 100 

–40,000 0 

Note: 2001 is as of June 30. 

Source: Torto Wheaton Research 

Kansas City Regional Outlook 11 Third Quarter 2001 
In Focus This Quarter
 

Meanwhile, Construction Continues 

An uptick in office construction activity that began in 

many metro areas during the late 1990s has been a key 

element contributing to recent increases in office 

vacancies. According to the Bureau of the Census, 

U.S. expenditures on office construction totaled $47.5 

billion in 2000, continuing a seven-year cycle of 

expansion. Adjusted for inflation, this amount represents about 78 percent of the peak level of office construction expenditures that occurred in 1985. 

Recently, the pace of construction has slowed slightly, 

falling to an annualized rate of $44.3 billion in 

May 2001. 

Reflecting these large dollar outlays on office construction, TWR projected in December 2000 that 

111.3 million square feet of new office space (or 3.6 

percent of existing stock) would be completed during 2001. This newly completed space will come 

on the market following a period of rising construction activity from 1998 through 2000, during which 

the volume of completed office space averaged 84.9 

million square feet per year. As shown in Chart 3, 

however, current office construction activity as a 

percentage of existing stock falls well below that of 

the 1980s. 

CHART 3 

Many metropolitan areas currently experiencing high 

levels of construction activity also are seeing the largest 

increases in office vacancies. For example, cities that 

are positioned toward the upper right quadrant of Chart 

4 are characterized by higher vacancy rate increases and 

more new office space construction. The ten cities with 

the highest first-half 2001 vacancy rate increases had 

total square footage of under-construction office space 

at 6.5 percent of existing stock as of year-end 2000.10 By 

comparison, total office space under construction 

nationally was 4.5 percent of existing stock.11 

Even as most projects move toward completion, some 

developers are reconsidering office construction 

plans. Builders have stopped construction of significant 

projects midstream in the Austin, Dallas, Seattle, and 

northern Virginia markets in response to retrenchment 

by major tenants and competition from subleased space. 

Softening Extends to Other 

Commercial Real Estate 

Other major commercial real estate markets are also 

feeling the effects of a slowing economy and, with the 

exception of the retail sector, are experiencing increasing vacancy rates. 

Office Construction Activity Increases in Recent Years yet Remains Well Below Level of the 1980s 

12 

10 

8 

6
 

4
 

2
 

0 

Notes: Construction activity is completions per year divided by prior year-end stock. 2001 is projected. Office Completions Divided by Stock (%) 

’82 ’83 ’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 

Source: Torto Wheaton Research 

10 One measure of a metropolitan area’s exposure to overbuilding 

and rising vacancy rates is the degree of construction activity. This 

measure is found by dividing a metropolitan area’s completions 

square footage or the under-construction square footage by the 

total stock of office property. 

11 The national 4.5 percent level for office properties under construction at December 2000 is higher than the 3.6 percent level for projected completions in 2001 because not all properties being built in 2001 

will be completed during the year. 

Kansas City Regional Outlook 12 Third Quarter 2001 
In Focus This Quarter
 

CHART 4 

Some Markets with Large First Half 2001 Office Vacancy Increases 

Also Have High Construction Activity 

Note: Construction activity is measured by a market's under-construction square footage at year-end 2000 divided by total square footage in that market as of year-end 2000. 

Source: Torto Wheaton Research, Spring 2001 Basis Point Vacancy Increase 

Construction Activity as Percentage of Stock 

Austin 

San Francisco 

San Jose 

Oakland 

Ventura 

Fort Lauderdale 

Seattle 

Miami 

Charlotte 

Orlando 

Las Vegas 

Northern New Jersey 

Phoenix 

Boston 

Washington, DC 

Kansas City 

Wilmington, DE 

Portland 

Atlanta 

Denver 

Columbus 

San Diego 

Nation 

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

–200 

–100 

100 

300 

400 

600 

700 

800 

0 

200 

500 

Industrial vacancy rates had fared well in recent years. 

As of year-end 2000, the national vacancy rate of 6.7 

percent was the lowest since 1984. Now, however, a 150­

basis-point increase has occurred, with industrial vacancies increasing to 8.2 percent in the first half of 2001.12 

As the economy and the nation’s high-tech and manufacturing sectors continue to slow, demand for industrial 

space for research and development and storage and distribution is declining. Industrial property subleasing is on 

the rise, and negative absorption occurred in the first half 

of 2001. At the same time, completions of industrial space 

during 2001 are estimated to exceed 220 million square 

feet, the highest level since 1988. Landlords are offering 

concessions, such as lease terms of one year compared 

with five to ten years, in an attempt to attract new tenants. 

Industrial properties are somewhat less exposed to risks 

from overbuilding than office properties because of 

shorter construction periods and the ability to respond 

quickly to any change in demand. An exception is the 

telecommunication hotel,13 a new entry into this market. 

This property type is characterized by a longer construction cycle and the fact that it typically has a “single 

use” design. In recent months, construction of these 

structures began in many high-tech markets to provide 

enhanced levels of data service. With declining demand, 

some telecom hotels stand vacant. 

12 Torto Wheaton Research. 

13 Telecom hotels are large, high-energy-consuming warehouses that 

house machinery, servers, routers, and switches that are the physical 

underpinning of the electronic commerce conducted on the Internet. 

They are hotels in the sense that they house equipment belonging to 

many different telecommunication companies. John Holusha, “Home 

for Machinery of the Internet,” The New York Times, August 16, 2000. 

The demand for hotel rooms is adversely affected by a 

slowing economy. Businesses have cut travel budgets 

and consumers have scaled back leisure plans, contributing to a decline in occupancy levels and revenue per 

available hotel room in most markets throughout 2001. 

Currently, upscale and luxury hotels are suffering more 

than limited service hotels. According to Smith Travel 

Research, limited service hotels, particularly budget 

hotels, represent the only lodging sector with higher 

occupancy levels through the first four months of 2001 

when compared to the same four month period in 2000. 

The supply of new hotel properties is lower than in the 

past, as financing for new hotel construction for the 

most part has been curtailed in recent years. However, 

limited service hotels are reported to be overbuilt in a 

number of markets in the Southeast and Southwest.14 

Annualized expenditures for new construction of all 

hotel types were $12.1 billion as of May 2001, falling to 

the lowest level since 1996.15 

The multifamily sector has experienced robust construction and equally strong absorption in recent years 

as new household formation, the driver for apartment 

demand, continues to increase. Annualized construction 

expenditures of $25.5 billion as of May 2001 were at the 

highest level since 1989.16 Despite the relative equilibrium between supply and demand for apartments in most 

markets, vacancy increases and rent declines are occurring in some locations. This decline has been most acute 

14 Kozel, Peter P. June 18, 2001. “U.S. Commercial Property Markets 

in a Slowing Economy: Implications for CMBS Credit Performance.” 

Standard and Poor’s Structured Finance. 

15 Data provided to Haver Analytics by U.S. Bureau of the Census. 

16 Ibid. 

Kansas City Regional Outlook 13 Third Quarter 2001 
In Focus This Quarter
 

in the more concentrated high-tech markets, such as San 

Francisco, where reported average rental rates dropped 

8.1 percent between the end of March and the end of 

May 2001.17 

Despite a slowing economy, the retail sector has performed reasonably well, as consumers maintain relatively high spending levels. Many of the store closings 

in 2000 and 2001 have been absorbed by new tenants as 

landlords have acted quickly to avoid letting vacant 

space linger. Meanwhile, robust construction has continued, with total expenditures in 2000 of $52.6 billion 

and an annualized level of $52.2 billion as of May 2001. 

Each of these two years’ expenditure levels exceeds all 

previous years’ retail construction amounts since data 

were first gathered in 1964.18 

Taking note of the robust level of retail construction 

activity, a recent Moody’s article finds that the nation’s 

mall retail and “power center”19 space grew by 3.3 percent in 2000, while population growth expanded by 

only 1.2 percent. The article raises concerns for potential excess supply of retail space resulting from a construction rate that is almost triple the population 

growth rate.20 A negative consequence of the high 

rate of retail construction is found in a recent 

Standard and Poor’s study. This article points out that 

most of the retail mortgages (held in commercial 

mortgage-backed pools of assets) that defaulted during 2000 did so because of competition from new 

retail establishments.21 

Implications for Insured Institutions 

Office vacancy rates during the first half of 2001 

increased at an unprecedented rate. What does this 

mean for insured institutions? On the one hand, at mid2001 vacancy rates remained below their 20-year average. Yet the speed of the increase and the number of 

17 Associated Press, News in Brief from the San Francisco Bay Area,
 

June 13, 2001.
 

18 Data provided to Haver Analytics by U.S. Bureau of the Census.
 

19 According to the Urban Land Institute, a power center is a community shopping center in which at least 75 to 90 percent of the selling
 

space is devoted to multiple off-price anchors and a discount department store or warehouse club. It is the “power” of its anchors that
 

gives the center its name. 


20 Sally Gordon, op. cit.
 

21 Kozel, Peter P. April 20, 2001. “Outlook for Property Markets in a
 

Slower-Growing Economy and the Implications for CMBS Credit
 

Performance.” Standard & Poor’s Structured Finance.
 

metropolitan areas that have experienced softening 

make this a trend that deserves the close attention of 

insured institutions, especially those with significant 

concentrations in commercial real estate and construction lending. 

Financial indicators of real estate credit quality in banking remain favorable, with losses and delinquencies 

trending up modestly from minimal levels. Noncurrent 

construction and development (C&D) loans as of March 

31, 2001, remain at a relatively low .92 percent of all 

outstanding C&D loans. (Noncurrent C&D loans as a 

percentage of all C&D loans averaged .93 percent for 

the past five year-ends.) Similarly, noncurrent CRE 

loans22 as of March 31, 2001, were .82 percent of all 

CRE loans, a level consistent with the average for this 

ratio of 1.08 percent for the past five year-ends. Chargeoff ratios at March 31, 2001, for both C&D and CRE 

loans were each at .02 percent and remain below the 

averages of .05 percent for each for the past five yearends. These favorable numbers are the legacy of a 

strong economic expansion, whereas current economic 

events suggest the potential for future deterioration in 

credit quality. 

The outlook for commercial real estate credit quality 

depends on the depth and duration of the current economic slowdown and on the risk management practices 

of each institution. In this regard, as signs of increasing 

risk materialize in conjunction with a declining economy, lenders appear to be managing risks prudently and 

avoiding speculative lending.23 Anecdotal information 

suggests that borrowers are pressed to obtain higher 

prelease commitment levels in order to gain loan 

approvals. In addition, lenders are requiring more upfront equity.24,25 

The importance of risk management practices is magnified by the heightened lending concentrations currently prevailing at some banks. Institutions with 

elevated concentrations in CRE and C&D lending have 

been more likely to experience significant problems 

during times of economic stress (for further details, 

22 CRE loans are nonfarm, nonresidential loans secured by real estate.
 23 Speculative construction lending is defined as a loan not accompanied by a meaningful presale, prelease, or take-out commitment. 


24 “Capital Is Still Plentiful for Right Projects.” Midwest Real Estate
 

News. July 2001. Vol. 17, No. 7. 
 25 Further information on bank underwriting practices can be found in
 

Federal Deposit Insurance Corporation, Division of Research and
 

Statistics, Report on Underwriting Practices, http://www.fdic.gov/
 

bank/analytical/report/index.html.
 

Kansas City Regional Outlook 14 Third Quarter 2001 
In Focus This Quarter
 

see History of the Eighties26). As shown in Chart 5, the 

percentage of insured institutions with commercial real 

estate loan concentrations between 200 and 400 percent of capital is higher now than it was in the late 

1980s. However, there are relatively fewer institutions 

at the highest concentration level, in excess of 500 

percent of capital. In fact, fewer than 1 percent of 

insured institutions are at this level. A similar story 

holds true for construction loans, as the increasing 

concentrations are in the range of 100 to 300 percent of 

capital (see Chart 6). 

There are a number of issues for construction lenders 

and commercial real estate lenders to consider going 

forward. Because uncovered loans (C&D loans made 

without assurances of a firm take-out commitment) 

tend to be higher-risk, an important part of managing 

the risk in construction lending has traditionally been 

the lender’s ability to obtain a take-out commitment. 

Sources of take-outs for C&D loans include other 

insured institutions, pension funds, foreign investors, 

and life insurance companies, along with public-market 

real estate investment trusts (REITs) and conventional 

mortgage-backed securities (CMBSs). Anecdotal 

reports indicate that shifts in market sentiment in 

recent months have resulted in lowered investments in 

REITs and consequently less available capital for 

REITs to purchase real estate.27 Insured institutions 

CHART 5 

Concentrations of Commercial Real Estate
 

Loans between 200 and 400 Percent of
 

Capital Are Higher Now than in the Late 1980s
 

0 

2 

4 

6 

8 

10 

12 

14 

16 

18 

20

Percentage of Insured Institutions

FDIC-insured institutions 

with commercial real estate 

loans-to-equity capital 

greater than: 

’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 

300 percent 

400 percent 

500 percent 

200 percent 

Sources: Bank Call Reports, Thrift Financial Reports (Research Information 

System, FDIC) 

26 Federal Deposit Insurance Corporation. History of the Eighties— 

Lessons for the Future, Vol. 1: An Examination of the Banking Crises 

of the 1980s and Early 1990s, Chapters 9 and 10. 1997. Washington, 

DC: FDIC. http://www.fdic.gov/bank/historical/history/index.html. 27 Smith, Ray A. August 1, 2001. “Property Held by Public Firms 

Drops.” The Wall Street Journal. 

CHART 6 

Concentrations of Construction Loans 

Have Moved Higher in Recent Years 

Sources: Bank Call Reports, Thrift Financial Reports (Research Information 

System, FDIC) Percentage of Insured Institutions 

’84 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00

FDIC-insured institutions with real 

estate construction loans-to-equity 

capital greater than: 300 percent 

200 percent 

400 percent 

100 percent 

0 

2 

4 

6 

8 

10 

12 

14 

may face increased challenges to convert construction 

and development loans into permanent loans should the 

reported REIT situation become a trend and other 

sources of permanent capital become less available to 

purchase C&D loans. 

Monitoring economic trends in general, and local real 

estate trends in particular, becomes even more important during a time of rapid change in market conditions. For example, reliance on appraisals based on 

outdated or top-of-market assumptions can result in a 

divergence between expected and realized collateral 

values or cash flows. Similarly, while preleasing commitments offer significant risk-reduction benefits to 

lenders, during a time of weakening economic conditions there is at least the possibility that a prospective 

tenant will be unable to honor a lease obligation, as 

has been the case with some firms in the high-tech 

sector in recent months. 

Conclusion 

Office market trends cannot, of course, be considered in 

isolation. The recent softening in office markets is a 

symptom of a slowing economy coupled with a rapid 

decline in the fortunes of some high-tech firms. Considered in this broader context, the challenge for insured 

institutions is simply to ensure that risk-management 

strategies are in place that will succeed under a more 

challenging economic environment. 

Thomas A. Murray 

Senior Financial Analyst 

Kansas City Regional Outlook 15 Third Quarter 2001 
In Focus This Quarter
 

TABLE 2 

Office Market and Banking Data on 53 Metropolitan Areas 

MEDIAN HIGH-TECH OFFICE 

2ND BASIS C&D AS AS SPACE 

QUARTER POINT COUNT OF PERCENTAGE PERCENTAGE UNDER 

2001 INCREASE COMMUNITY OF TIER 1 OF TOTAL CONST/ 

METROPOLITAN OFFICE FROM YEAR BANKS WITH CAPITAL AT MARKET STOCK AT 

STATISTICAL AREA VACANCY END 2000 C&D LOANS 3/31/2001 

(%) 

EMPLOYMENT 

(%) 

12/31/2000 

(%) 

ALBUQUERQUE 11.6 –110 9 61.0 6.8 2.0 

ATLANTA 9.8 170 76 172.2 3.8 6.1 

AUSTIN 11.8 680 20 53.4 10.1 9.6 

BALTIMORE 8.9 60 60 22.8 3.6 6.3 

BOSTON 8.7 480 100 24.1 8.2 5.6 

CHARLOTTE 9.0 40 20 48.5 1.7 8.9 

CHICAGO 8.9 130 225 33.5 4.5 4.9 

CINCINNATI 10.1 100 58 32.6 3.1 6.0 

CLEVELAND 13.6 40 16 34.8 3.0 0.8 

COLUMBUS, OH 16.9 350 20 22.4 3.1 5.1 

DALLAS 16.4 110 75 84.5 6.5 3.9 

DENVER 12.7 370 45 70.4 5.2 4.9 

DETROIT 12.0 160 28 35.2 3.1 2.8 

FT. LAUDERDALE 12.8 310 13 19.1 2.7 10.2 

FT. WORTH 16.4 130 36 71.8 3.4 0.7 

FRESNO 14.4 20 5 196.0 0.9 0.8 

HARTFORD 14.0 150 11 25.2 3.5 0.0 

HONOLULU 12.6 –190 3 11.4 0.9 0.0 

HOUSTON 13.6 60 48 65.8 3.1 0.8 

INDIANAPOLIS 15.8 120 21 29.6 3.3 1.4 

JACKSONVILLE 11.7 –20 11 65.2 1.8 3.4 

KANSAS CITY 15.9 490 86 70.8 2.7 1.3 

LAS VEGAS 14.5 290 19 117.7 1.5 7.3 

LONG ISLAND 10.9 190 6 19.1 5.3 1.8 

LOS ANGELES 14.1 150 62 35.4 3.7 2.0 

MIAMI 10.5 310 26 28.1 1.8 9.2 

MINNEAPOLIS 10.8 20 119 44.0 6.0 5.7 

NASHVILLE 12.8 230 20 78.4 1.2 2.0 

NEW YORK 5.1 230 34 10.5 2.4 1.4 

NORTHERN NEW JERSEY 10.9 360 66 15.0 5.6 6.9 

OAKLAND 9.3 630 12 120.0 6.5 7.9 

OKLAHOMA CITY 20.3 20 44 57.8 2.6 0.5 

ORANGE COUNTY 14.7 330 14 34.5 6.4 3.9 

ORLANDO 13.1 110 23 72.1 2.3 8.1 

PHILADELPHIA 10.7 80 68 22.1 4.5 3.2 

PHOENIX 16.9 440 27 114.2 4.7 6.5 

PORTLAND, OR 9.9 280 14 118.8 6.6 6.7 

RIVERSIDE 14.4 –100 18 143.5 1.6 0.3 

SACRAMENTO 6.6 70 11 106.9 3.9 5.6 

SALT LAKE CITY 15.3 280 14 111.7 4.5 4.1 

Kansas City Regional Outlook 16 Third Quarter 2001 
In Focus This Quarter
 

TABLE 2 (CONTINUED) 

Office Market and Banking Data on 53 Metropolitan Areas 

MEDIAN HIGH-TECH OFFICE 

2ND BASIS C&D AS AS SPACE 

QUARTER POINT COUNT OF PERCENTAGE PERCENTAGE UNDER 

2001 INCREASE COMMUNITY OF TIER 1 OF TOTAL CONST/ 

METROPOLITAN OFFICE FROM YEAR­ BANKS WITH CAPITAL AT MARKET STOCK AT 

STATISTICAL AREA VACANCY END 2000 C&D LOANS 3/31/2001 EMPLOYMENT 12/31/2000 

(%) (%) (%) 

SAN DIEGO 9.7 350 21 57.5 6.6 4.9 

SAN FRANCISCO 10.3 620 21 69.0 8.3 9.7 

SAN JOSE 8.1 680 5 174.5 27.4 7.5 

SEATTLE 9.4 500 30 77.1 6.6 9.0 

ST. LOUIS 10.1 –80 80 40.4 2.6 4.8 

STAMFORD 11.2 290 10 43.5 5.6 2.6 

TAMPA 14.8 70 33 40.0 4.2 2.7 

TUCSON 8.8 100 3 178.4 4.4 4.8 

VENTURA 14.2 270 8 49.7 5.4 14.2 

WASHINGTON, DC 7.8 390 61 51.1 7.8 6.3 

WILMINGTON, DE 10.4 420 12 28.4 3.8 1.6 

W. PALM BEACH 12.2 160 18 37.2 2.3 4.8 

WESTCHESTER 12.5 120 4 19.5 12.3 2.1 

NATION 10.8 250 (1) 3,801 (1) 40.1 (2) 4.8 (2) 4.5 

Notes: Only community banks with construction loans are included in this table. Community banks are institutions
 

with assets less than $1 billion. Noncommunity banks are excluded because their lending activities are likely to
 

span a larger area than the MSA in which they are headquartered.
 

Sources: Torto Wheaton Research; Bank and Thrift Call Reports, FDIC Research Information System data;
 

Economy.com, Inc.
 

1. Only community banks with construction loans and located within a MSA are included in these figures. 

2. Percentages shown are the averages for the 53 metropolitan areas. 

Kansas City Regional Outlook 17 Third Quarter 2001 


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