IRVINE, CA—What has hurt the housing, office and retail arenas has helped the industrial and apartment sectors, which will continue to thrive, Auction.com‘s senior associate and economist Peter Muoio tells GlobeSt.com. Technology and the recession have both played their part in boosting these two commercial real estate sectors.
As GlobeSt.com reported recently, Muoio told us technology is causing office footprints to shrink, and yet tech companies are among the country’s strongest office occupiers. This dichotomy is creating some interesting dynamics in the sector nationwide. In addition, the technology and the recession have had negative impacts on housing and retail.
According to a recent Allen Matkins/UCLA Anderson Forecast commercial real estate survey, developers in the San Diego, Orange County and Los Angeles markets are viewing 2016 and 2016 positively and expect office markets in Southern California to be better in both rental and occupancy rates. However, developers in all three markets are cautious about new office-space development as demand catches up with supply. Fewer than 30% of the panel surveyed indicated plans to develop new office space by mid-2015.
But industrial is one sector that continues to improve, says Muoio. “We’ve seen a very strong recovery in trade, higher industrial production and increased orders, which is all good for the sector. Technology is helping industrial because retailers need fulfillment centers for online orders. The secular tailwind coming from technology is all positive. There’s not a lot of development taking place so far, but vacancies are starting to come down. We don’t see it yet, but for industrial, supply can come in quickly, so we’re starting to see if that develops.”
The Allen Matkins/UCLA Anderson forecast indicates there is a renewed sense that the rapid pace of growth in coastal California and the steady increase in imported goods will continue to create more industrial space requirements in the coming three years. This bright outlook in the Bay Area, Inland Empire, Los Angeles and Orange County markets will engender new construction to support the California industries, exports to Asia and Mexico and imported consumer goods.
Sentiment across markets in this sector has remained consistent for the past six months, according to Allen Matkins/UCLA Anderson. Since mid-2013, one half of the panel of developers surveyed started a project and fully 70% will begin one or more industrial space projects in the coming 12 months.
The apartment sector is the furthest along in the recovery cycle, says Muoio. “Multifamily is in phenomenal shape nationally with 4% vacancy, which is the lowest since 2000. Multifamily benefited from the great shift out of family ownership and into rental. Almost every multifamily market in the country is improving, with low vacancy and increasing rents. We continue to see healthy demand, and more and more we will see supply picking up over the coming months.”
We are likely approaching the low point in apartment vacancies, adds Muoio, although he does expect to see some vacancy improvement over the next year or two, “But not the level we’ve seen over the last few years. We will continue to churn out strong rent growth in strong markets.”