Latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey: California Market Booming Again

Steady Optimism Bolstered by Flourishing Technology and Media Industries, Job and Income Growth

August 12, 2015 04:00 AM Eastern Daylight Time 

LOS ANGELES--(BUSINESS WIRE)--Commercial construction activity in California has risen to its highest level since 2001. Available financing, low cap rates, an increasingly high demand from technology, advertising, media and information companies, and a shortage of multi-family housing have sparked the industry boom. The outlook for the next three years, based on the most recent Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey, is for continued growth in commercial property development. The Survey, examining seven of the state's major markets, is a leading indicator of future commercial construction. The analysis of the three-year outlook for real estate development activity provides insights to new, not yet on the radar, building projects.

“Continued optimism in this Survey is supported by job and income growth and a lack of sufficient building supply”

“Continued optimism in this Survey is supported by job and income growth and a lack of sufficient building supply,” said Jerry Nickelsburg, adjunct professor of economics at UCLA Anderson School of Management and senior economist with the UCLA Anderson Forecast. “While the outlook remains positive through 2018 with no weakening in occupancy rates, a few of the survey panel participants did express slight caution with regard to this next stage of the CRE building cycle.”

The 2015 Summer/Fall Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and related videos are available for download here.

View the 2015 Spring Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey infographic here.

Commercial Office Space: Decreasing Vacancy Rates, Low Unemployment Drive Demand

The Survey's overall outlook for the office market in each of the six markets surveyed in this sector remains strong, due in part to falling vacancy rates and an overall positive outlook for the economy. Technology, advertising, media and information companies are the new driving force for this positive sentiment, as the recovery of service-provider companies, such as accounting, finance, insurance and legal has remained tepid. None of the Survey participants foresee rental or occupancy rate weakness through 2018.

Over the next 12 months, 40 percent of the Southern California Panelists stated they expect to begin at least one new project. This compares to the 23 percent that began one or more new developments over the past 12 months.

Similarly, the Bay Area panels expressed optimism, but the panel had some concerns with respect to rental and vacancy rates. For some of the panelists, though far from a majority, current new construction is sufficient to meet what they perceive to be future demand. Therefore, they do not expect future rental or vacancy rates in these markets to be either better or worse than today. In the December 2014 Survey, only 39 percent of the panelists reported plans for a new development project in the following 12 months. In the current Survey, the percentage rose to 67 percent of the participants.

Multi-Family Residential: Development Remains Strong in All Markets

Multi-family developer optimism remains strong in each of the five regions surveyed, and is reflected by the fact that 74 percent of the panelists started a new project within the past year and even more are expecting to begin new projects in the coming six months. This positive view of the future of multi-family housing is expected to continue as job growth in California will continue to be skewed towards these five coastal communities. Increased employment translates directly into new household formation and additional demands for housing. The Orange County and San Diego County markets were added to the most recent Survey, and as with the previously surveyed markets – Los Angeles, San Francisco and Silicon Valley – the new survey panels expect no decrease in vacancy rates over the next three years.

The story of the current economic expansion has been a shift in tastes from single-family housing to a balanced mix between single-family and multi-family housing. Though overall residential construction has remained at depressed levels in the state, multi-family construction has rebounded sharply. The forecast for higher rents and continued low vacancy rates should induce a further increase in multi-family construction. The UCLA Anderson Forecast, consistent with the Survey, expects that multi-family construction will achieve a 25-year high during the next three years.

Industrial and Warehouse Space: Outlook Remains Steady But Strong

The current Survey of industrial space developers indicates little change in sentiment over the last year. The optimism expressed continues to be manifested in new building, particularly in the Inland Empire. In the current survey 68 percent of the panel are planning one or more new industrial projects in Southern California between June 2015 and June 2016.

While the sentiment is unchanged at strongly optimistic, there is clearly a continued strengthening in the Southern California industrial space market. This is due in part to post labor dispute, increased imports through the San Pedro Bay Ports and more generally to the increase of consumer spending and the increased use of retail distribution centers. The expectation of the panels is for Southern California industrial space markets to remain hot for at least the next three years.

<-- Back