Are we heading for a commercial real estate crash?

Most cities already have a glut of office space, especially when you consider the amount of construction still underway. Chicago leads the nation with 40.5 million square feet of vacant space, 18.9 million of which is under construction. Dallas isn't far behind, with 39.2 million square feet of vacant offices, 21.6 million of which is just going up. "There are still a lot of people putting money into bricks and mortar," notes Gregg Witt, a vice-president of Frain Camins & Swartchild, a Chicago real estate brokerage.

The national vacancy rate now stands at just over 16.3%, compared with about 6% five years ago. So why are builders still frantically putting up girders? Available credit, attractive interest rates, and special tax incentives have lured plenty of investors. With tax reform threatening to floor many of these incentives, investors feel their window of opportunity is closing. "Tax reform could change everything," says Philip Braverman, chief economist at Irving Securities Inc. "That's why people are rushing to bring buildings to completion."

Office buildings, like battleships, take about two years to complete. When the current crop is finished in 1987, developers are going to have plenty of trouble digging up tenants -- especially if a recession hits at the same time, as many economists expect. "By 1987, the commercial real estate market will be in deep trouble," Braverman predicts.

Here are the eight cities with the most vacant office space -- including offices under construction -- for the first half of 1985.

Total vacant

square footage Vacancy rate

City (in millions)

Chicago 40.5 17.3%

Dallas 39.2 23.1

Houston 38.1 26.2

Los Angeles 34.3 13.3

San Francisco 25.4 18.5

Atlanta 17.6 18.8

Denver 16.3 21.4

Boston 16.2 12.7

Source: The Office Network Inc., Houston