Statewide demand from industries including technology, advertising, media and information services is generating continued optimism among commercial real estate professionals, according to the latest twice-yearly survey by the law firm Allen Matkins and UCLA Anderson Forecast.
Researchers said respondents’ three-year outlook for San Diego and five other regions remains strong in part due to falling property vacancy rates, rising employment and new household formation. California construction activity has risen to its highest level since 2001, fueled by factors including high demand and low financing rates.
“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, in a statement following the release of survey results.
“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 commercial real estate building cycle,” said Nickelsburg, who is also senior economist at the Anderson school’s forecast center.
The survey, conducted every six months, polls a panel of California real estate professionals in the development and investment markets, and is designed to capture pending potential future activity by commercial real estate developers.
In Southern California, panelists were “very optimistic” about office rental rates’ ability to rise higher than the rate of inflation, with none expecting the market to weaken over the next three years. However, researchers said optimism was slightly lower than in the previous survey, possibly because office-using employment has yet to return to pre-recession levels in finance, insurance, legal and accounting services.
Researchers said 40 percent of Southern California panelists stated that they expect to begin at least one new office project in the next 12 months. That compared with 23 percent who said they began one or more new developments over the past 12 months.
San Diego and other Southern California markets saw similar optimism in the multifamily, industrial and retail property sectors. Consistent with survey results, UCLA Anderson Forecast expects that multifamily construction statewide will achieve a 25-year high during the next three years, due to rising demand for apartments amid low current supply.