The offshoring of white-collar jobs to China and India has contributed to the struggles of the U.S. office market over the past few years — and the trend is expected to accelerate over the next five to 10 years, says Leanne Lachman, president of Lachman Associates LLC, a consulting firm serving institutional investors. Lachman’s remarks came Thursday at the 2004 Pension Real Estate Association (PREA) Spring Conference being held March 4 and 5 at the Palace Hotel in San Francisco.

Until recently, offshoring was confined to such industries as software programming and call center operations. Now the trend is rapidly moving thorough new business areas, including credit analyses, mortgage loan processing and patent filings, says Lachman. "Every kind of firm can offshore something, and more and more of them are doing it," she explains. "Even legal research is going abroad."

With tenants rushing to move more work overseas, building owners will feel the impact on demand through 2015. "Will we have a reasonable demand for office space in the near future?" Lachman asks. "My concern is that the answer is no — we can't depend on the creation of new office jobs" to fill the space available.

Lachman points to the current 17% vacancy rate, which accounts for about 620 million sq. ft. of the 3.6 billion sq. ft. of available space nationwide. The empty space won't be leased anytime soon, she says, thanks to the offshoring trend. "It's a market that is going to suffer," said Lachman, especially Class-A and Class-B office buildings in major markets.

The only U.S. metro office market that won't feel the full impact of offshoring will be Washington, D.C., which is underpinned largely by the ever-expanding employee count of the federal government, according to Lachman.

Other metro areas, including Boston, Chicago, New York and San Francisco, also will sidestep the full brunt of offshoring. "They're good for another 10 years because they serve as financial centers with work that can't be easily shipped elsewhere," Lachman says.

On the bright side, industrial property has fared better, in large part because of the growing demand of big-box retailers for well-located warehousing and distribution facilities. These super-retailers are shifting away from small, regional distribution centers to major market, 24-hour centers, notes panel member Edward Roski Jr., chairman and CEO of Majestic Management Co., which owns, manages and leases nearly 50 million sq. ft. of property. "Vacant [industrial] buildings have two to five tenants looking at them," said Roski. "Rents have stabilized, and the demand is increasing."