ATLANTA — The near-term outlook for the economy and the commercial real estate industry remains "bleak," says Thomas Bell, CEO of Atlanta-based Cousins Properties, who doesn’t expect a substantial recovery in the nation’s office sector until late 2004 or early 2005.

"I think that a third-quarter [economic] recovery in 2003 is a myth,"said Bell, speaking before several hundred attendees at the Urban Land Institute’s 2003 Real Estate Trends Conference for the Atlanta region held at Cobb Galleria on Tuesday. "We’ll be lucky to see a real recovery in the fourth quarter and more likely the first quarter of 2004."

And because commercial real estate tends to lag the broader economy by six to 12 months, that means the office sector won’t perk up anytime soon, Bell believes. "My recommendation for anyone in the office sector is to keep your space leased."

The threat of war has led to indecision and uncertainty in Corporate America, Bells says, which is bad news for the commercial real estate market because it stymies leasing activity.

A diversified real estate investment trust traded on the New York Stock Exchange under the symbol CUZ, Cousins knows firsthand how difficult the office market is these days. The company’s three primary office markets — Atlanta, San Francisco and Austin, Texas — also have the dubious distinction of having among the highest Class-A vacancy rates in the country, in excess of 20%. In its Beige Book, a periodic report of economic trends, The Federal Reserve Board has identified those markets as among the most distressed nationally.

Cousins, which has an office portfolio of more than 13 million sq. ft., is developing Congress at Fourth, a 33-story, 525,000 sq. ft. speculative office building in Austin. The $137 million project is scheduled for completion in the fourth quarter of this year, but was only 17% leased as of late December 2002. The travails of Congress at Fourth underscore the difficulty of a tough leasing environment. On Wednesday, Cousins’ stock price closed at a little more than $25 a share, down from its 52-week high of $27.32.

Given the tough development climate in the office sector, Bell said he is surprised that prospective buyers continue to pay high prices for office product. "Vacancy rates are up, job creation is down and asset prices are up, so go figure that one out," said Bell. "Ultimately it’s got to end."

Also headlining ULI’s opening session was Jack Guynn, president and CEO of the Federal Reserve Bank of Atlanta, who emphasizes that the economy is growing, albeit slowly. Guynn believes the U.S. economy has demonstrated an amazing resiliency, posting five consecutive quarters of GDP growth despite terrorist attacks, higher energy prices and the threat of war in the Middle East.

From a historical perspective, the Southeast has experienced a dramatic shift economically over the past few decades, according to Guynn. Many lower-paying jobs in the apparel and textile industries have moved overseas while higher paying manufacturing jobs in the auto industry have migrated from the north to the south. Guynn says that while Atlanta has suffered a high degree of exposure to weakness in the telecom sector, resulting in a large number of layoffs, he believes the telecom industry ultimately will play a vital role in the U.S. economy in the years ahead.