Waking up economy tentatively signals start of new CRE cycle, says Allen Matkins / UCLA Anderson

The Allen Matkins / UCLA Anderson survey summer 2021 forecast on commercial real estate in California, infographics and related content will be available for download at July 21, 2021, at 2:00 a.m. PDT.

Desktop developers report a bullish turn in the market

While the question “What is the future of the office building?” is always on the minds of anyone who owns or develops offices, it has become clear that the latest back-to-office activity makes our panelists less pessimistic. In Northern California, our panelists predict that, by 2024, demand will have grown at least as fast as new supply, in part because a third of panelists scaled back their plans for new developments. In Southern california, where the opinions of the panelists are similar, 40% have reduced their development plans for the next three years. While sentiment for the office sector in the most recent survey remains negative, it is becoming less and less so, and it looks like the sector has bottomed out and is ready for a possible recovery. The current lull in office construction may be short-lived as demand for office redevelopment, low-rise office buildings and job growth will increase over the coming year. The survey shows that developers are taking a less wait-and-see approach, signaling an early market turn. As workers return to the office, demand for the equipment-rich office is expected to push construction activity higher than sentiment suggests.

The pandemic fuels the continued growth of the industrial market

In recent years, industrial markets have experienced consistently high occupancy rates and superior rental rate growth. While the feeling in the june 2020 the survey dropped sharply, immediately rebounded and continued to improve. In the latest survey, general sentiment for the next three years reached its highest level since december 2015. In the North and Southern california, developer sentiment indicated that the current increase in rental rates will continue to exceed the inflation rate, and vacancy rates already low of 4% to 7% are expected to be even lower by 2024. the demand for industrial spaces induced by online shopping and the expected increase in the supply of this space.

Multifamily market optimism prevails despite pandemic disruptions

Despite the move to the suburbs and falling rental rates, panelists are optimistic for the next three years in the multi-family housing arena. Rental rates are expected to increase overall faster than the rate of inflation, and vacancy rates are expected to decline by 2024. This optimism is caused both by the reopening of city amenities that are attracting people to housing estates. apartments in town and the start of the return to the office. Multi-family housing near employment centers is, for many, an attractive alternative to long journeys from the outskirts of the suburbs.

The decline in rents over the past year has not had much of an impact on the actual level of construction for multi-family developers as they have fallen from very high levels. While nearly 70% of Southern california panelists will start one or more multi-family projects this year, the number is just under 50% for panelists from Northern California, where lower rents and higher vacancy rates in the Bay Area have panelists waiting to see how the return to the office translates into central city demand.

While still pessimistic, the outlook for retail is starting to rebound

After a continued decline in pessimism, retail could come back from the bottom of the cycle. The employment data reflects a rebound in retail employment, particularly in the interior regions of the Inland Empire and Sacramento. The Bay Area and the Coastline Southern california Regions, most affected by work-from-home orders, have seen substantial employment gains despite restrictions linked to the pandemic, but still need to go further.

The current opinion is that commercial properties will generate lower returns in 2024 compared to the end of 2021, but that does not mean the absence of strong targeted opportunities. New residential developments, whether multi-family or single-family, generally require local businesses. The booming real estate market will continue to generate this demand. While survey responses on the surface suggest a continued decline in new commercial property construction, the trend indicated a possible reversal and a new cycle starting before the end of 2024.

About the survey
The Allen Matkins / UCLA Anderson Forecast California Commercial Real Estate Survey and Index surveyed a panel of California real estate professionals in the development and investment markets, on various aspects of the commercial real estate market. The survey is designed to capture the nascent activity of commercial real estate developers. To achieve this goal, the panel examines markets in three years and construction conditions over the three-year period. The survey was initiated by Allen Matkins and UCLA Anderson Forecast in 2006, with the aim of improving the quality of current information and forecasts of commercial real estate.

About Allen Matkins
Allen Matkins, founded in 1977, is a Californialaw firm with more than 200 lawyers in four major metropolitan areas of California: Los Angeles, Orange County, San Diego and San Francisco. The company’s focus areas include real estate, construction, land use, environment and natural resources; companies and securities, real estate and trade finance, bankruptcy, restructuring, creditors’ rights, joint ventures and taxation; work and employment; and litigation, litigation, risk management and alternative dispute resolution in all of these areas. allenmatkins.com

About UCLA Anderson Predictions
UCLA Anderson Forecast is one of the most watched and most frequently cited economic outlook for California and the nation and was unique in predicting both the severity of the early 1990s recession in California and the strength of the state’s rebound since 1993. The Forecast was credited as the first major US economic forecasting group to call the 2001 recession and, in March 2020, he was the first to declare that the recession caused by the COVID-19 pandemic had already started. uclaforecast.com

About UCLA Anderson School of Management
UCLA Anderson School of Management is one of the world’s leading business schools, with faculty members recognized worldwide for their excellence in teaching and research in advancing managerial thinking. Situated in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a wide range of activities, UCLA Anderson MBA, Full-Employment MBA, Executive MBA, UCLA-NUS Executive MBA, Master of Engineering Financial, Master of Science in Business Analysis, doctoral and executive training programs embody Think Next philosophy. Each year, some 1,800 students are trained to become global leaders in researching the business models and community solutions of tomorrow. anderson.ucla.edu

Follow us @uclaanderson

Media contacts:
For UCLA Anderson:
Rebecca Trounson (310) 825-1348
[email protected]

Paul Feinberg (310) 794-1215
[email protected]

For Allen Matkins:
Gary Pike, AVR (415) 585-2100
[email protected]

SOURCE UCLA Anderson Forecast

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