Real Estate Pros See Fundamentals Chasing Prices
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LOS ANGELES-Developers, capital sources and other commercial real estate professionals are optimistic that fundamentals will catch up with fast-rising prices, an Allen Matkins/UCLA Anderson survey of those commercial real estate sources shows. The survey “provides clues to current commercial real estate asset prices and a turnaround in the market,” according to an introduction to the survey results.
The Allen Matkins/UCLA Anderson report on the survey notes that, over the past 18 months class A commercial real estate values have increased to near peak levels. “The increase is not supported by the current rental and occupancy rates. This rise in asset prices is either an indicator of investor expectations of improving fundamentals over the next three to four years or the beginning of a new asset bubble,” the introduction says.
The survey found developer optimism increasing in major markets in California with respect to both vacancies and rents, an improvement that would, at least in part, justify higher asset prices. On a regional basis the survey showed the San Francisco and Silicon Valley office markets as the most likely to be the first to turn the corner with new commercial construction (watch a video on the Bay Area office market), with Los Angeles and San Diego not far behind. It reports an expected improvement in industrial markets correlated with the pattern of growth in manufacturing and particularly in Silicon Valley and Orange County.
Jerry Nickelsburg, senior economist, UCLA Anderson Forecast, commented: "Optimism with respect to office and industrial market fundamentals in 2013 and 2014, which first appeared a year ago, is an important precursor to the re-start of commercial construction." He added, “While the overall sluggishness of the general economic recovery will engender a slow recovery in commercial real estate as well, the prospects are improving.”
The full title of the survey is the Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project. It polled a panel of California real estate professionals in the office space and investment market, and asked a series of questions on various aspects of the commercial real estate market. It was initiated by Allen Matkins in 2006, to further the firm's desire to improve the quality and frequency of available market information and forecasts of commercial real estate. The Index is composed of a survey of commercial real estate developers in each of San Diego, Orange County, Los Angeles, the East Bay, San Francisco and Silicon Valley.
The survey is available here at the Allen Matkins web site.
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