Tipton John, partner at AllenMatkins and Jerry Nickelsburg, director and senior economist of UCLA Anderson Forecast
Commercial real estate experts and investors in California are preparing for a rebound but don’t expect it to come right away.
After polling a panel in the development and investment markets, law firm Allen Matkins and UCLA released a forecast for 2022 showing that the industry is gearing up for the next expansionary cycle. The survey was notably more optimistic than the last few years, even though construction activity is expected to slow down over the next 18 months.
The positive survey leapfrogs the prediction of a very weak economy through 2020 to one of faster growth thereafter. The survey indicated growth in office and industrial and some improvement in retail.
Industrial to remain red hot
The industrial market in California continues to be the hot spot for nonresidential commercial real estate development.
In spite of the trade dispute with China, the panels for Los Angeles and Orange County are looking at strong markets becoming even more lucrative by 2022. Industrial development hubs like the Inland Empire will continue to be so as the market in 2022 is predicted to be the same as today.
Last October, Ten-X Commercial predicted rents will rise by 16.7 percent and vacancies will tighten even more by 2022. Demand among potential tenants is strong enough that some landlords are choosing not to extend leases for smaller companies.
New age, new office
Previous surveys for office markets concluded that the peak had been reached, but the new survey shows a return to confidence for 2022.
After a predicted downturn in 2020, office space developers see a demand surge coming that will improve rental and occupancy rates. In Southern California, survey participants signaled in previous years that markets measured by occupancy and rental rates are going to improve marginally.
Several office projects will be completed or will start construction in Los Angeles by 2022, like Tribune Media Company’s 30-story tower that is set to include 534,000 square feet of office space, 107 condominiums and ground-floor retail.
Retail in an e-commerce world
Retail continues to be the weakest asset in commercial real estate, and general pessimism remains in Southern California. Though, it is not as uniform across panel members as in previous surveys. This is due to recently shrinking demand after the push for online shopping. Therefore, little new development has been occurring.