Although the economy is predicted to slow in 2020, developers’ views on most California commercial real estate in 2022 are optimistic, and they reflect an eagerness to get in on the ground floor of the next commercial real estate expansionary cycle, according to a UCLA economic forecast released Wednesday.
The biannual Winter 2020 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey projects a three-year-ahead outlook for California’s commercial real estate industry and forecasts potential opportunities and challenges impacting the office, multi-family, retail, and industrial sectors.
Overall, survey panelists for each market, with the exception of retail, predict that 2022 will be as good or better than 2019, according to a statement accompanying the survey. Panelists are optimistic about industrial and multi-family projects, while office markets are neutral, and retail space sentiment remains generally pessimistic.
While recent surveys indicated that the peak of the office market had been reached in the current cycle, the latest survey indicates a beginning of a return to confidence by 2022. For the East Bay, Orange County, and San Diego, the panelists were optimistic that rental rates would increase faster than inflation while vacancy rates would be lower than Wednesday.
In the San Francisco, Silicon Valley, and Los Angeles markets, this optimism is confined to rental rates, with only a slight decline in occupancy. These views are consistent with the perspective of most economists that the California economy will return to faster growth in 2022, and will generate new jobs requiring additional office space.
With the industrial market currently dominated by warehouses serving continued growth in e-commerce, survey panelists don’t see the red-hot industrial market pulling back any time between now and 2022. Activity throughout Northern California and the Inland Empire is expected to remain at the same level of strength as Wednesday, while the Los Angeles market is projected to continue to improve. The improvement is due to a shortage of space close to the ports and a sense that the current downturn in trade is temporary.
An expansion of the Los Angeles industrial market will ultimately be driven by the implementation of multi-story edifices with productivity enhanced by robotics and new technologies to manage the high-rise warehouses, according to the statement. While the timing of these technologies is still unknown, they are expected to help drive Los Angeles industrial property values when rolled out in the years to come.
While the last survey saw a glimmer of hope for a moderate retail rebound, sentiment in this space has returned to pessimism –panelists have given retail its lowest values since this survey began collecting retail predictions four years ago. This pessimism is likely fueled by the constant shift to online shopping and the weaker-than-expected start to the 2019 holiday shopping season. A weakness in the demand for the revitalization of existing retail space is also driving this pessimism.
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