Office Developer Sentiment Falls Across California

Developer sentiment for office product is weakening throughout California. According to the latest Commercial Markets California sentiment survey from Allen Matkins and UCLA Anderson Forecast, which GlobeSt.com have received exclusively, office sentiment is both down compared to six months ago and negative, meaning that less than half of respondents have a positive three-year outlook of the market, in six California markets reviewed. Los Angeles and San Francisco faired best, with 49.79% and 48.89% of respondents holding a positive three-year outlook for office development.

“We have had an incredible run in office, but the sentiment has come down. When you look at the sentiment of our panelists, they think that vacancy is going to be higher in three years from now, and we have an uptick in inflation,” John M. Tipton, partner at Allen Matkins, tells GlobeSt.com. “Cap rates have also compressed about as far as they are going to compress. When you look three years down the road, the market may be a bit weaker than it is currently.” Watch the panelists comments here.

While the sentiment report was negative across markets, the panelists in the video above sound more hopeful, showing there is a gap between the current fundamentals and a more psychological sense of the years ahead. “People can’t help but look at their past experience and project what they feel like might happen in the future,” says Tipton. “We have been approaching economic expansion now for 9 years. You have major tax cuts in 2017 that has trickled through the economy, and so there are some people saying that the cycle has to end; they don’t go on forever.”