LOS ANGELES—New construction throughout California will remain strong through 2017, according to the latest commercial real estate survey conducted by UCLA Anderson and Allen Matkins, GlobeSt.com reports exclusively. The survey shows new construction growth in the office, multifamily and industrial markets during this time period.
“There are three drivers of this growth. First, you have sustained employment growth, which leads people to have confidence that there will be positive growth in the future,” John Tipton, real estate development partner at Allen Matkins, tells GlobeSt.com “Two, you have an extended period now with low interest rates, which simply makes the cost of building more affordable. Third, and this is really related to interest rates, when developers look at rates of return on real estate relative to putting money in a bank account or bond, it is a much more compelling story.”
The officemarket is finally beginning to pick up after the economic downturn. The survey shows that one half of the panel is planning to start office construction projects in the next 12 months. “You are seeing some speculative building, but not that much, says Tipton. “You are really seeing it mostly in the hottest markets right now, which are San Francisco and the Silicon Valley. There was no speculative building at all in these office markets until three years ago. “ In L.A. and Orange County, developers are expecting vacancy rates to be low due to strong demand in 2016 and 2017 as the economy continues to improve.
The industrial markets and multifamily markets have, of course, been very active throughout California, and the survey shows that this activity will continue to grow over the next three years. “When developers talk about a new project, they are looking three years hence for their return,” says Tipton, pointing out that the economic state three years from now is really what developers are looking at when they plan a project.
In the Bay area, 44% of the panel surveyed is planning to start multifamily projects in the coming year, while multifamily developers in the L.A. area see improving fundamentals as a reason to start new construction projects in this market. In the industrial survey, panelists had a bright outlook across California submarkets, including the Bay area, Orange County, L.A. and, of course, the Inland Empire. Of the panelists surveyed, 70% plan to launch an industrial project within the next 12 months. New industrial projects to recently break ground include the Hemlock Distribution Center in Fontana and the Malt Avenue Distribution Center in Los Angeles from REDA Bascom Ventures.