Office Developers Gear Up for Strong 2022

Office development sentiment is up. The newest installment of the Allen Matkins-UCLA Anderson Forecast Commercial Real Estate Survey, office developers throughout California are confident about delivering new office product in 2022. This is an improvement in office development sentiment from the last survey six months ago, and a sign that developers expect any economic issues to have happened and ended by mid-2022.

“This is when it is really important to remember that this is a three-year lookout. We were asking the panelists to tell us their outlook for June 2022,” John Tipton, a partner at Allen Matkins, tells GlobeSt.com. “The UCLA Anderson Forecast predicts a slowdown in 2020 and then a pick-up. This survey shows that people think that in 2022 we will be past the rough patch. Office is perhaps the paradigm case of that.”

Orange County is the only market in California with a pessimistic outlook on new office development, with only 47% of respondents holding a positive outlook on new office development with a delivery in 2022. More than half of developers in the other markets surveyed, Los Angeles, San Diego, San Francisco, Silicon Valley and East Bay, have a positive outlook on new office development. “We have not seen a lot of overbuilding in California. Development has stayed at a relatively moderate pace, and so we are not in a place where we have a lot of excess vacancy,” says Tipton. “Because of the reasonable pace of growth, office is following the prototypical recession-recovery model. We have seen this trend of optimism going down and now it is back up again for 2022.”

California is currently operating at historically low unemployment rates, which has created fierce competition for new talent. As a result, office developers are focusing on creating high quality, amenitized spaces. “Everyone is going into a more amenitized space concept,” says Tipton. “I have so many clients now that are getting into that space. Space demands aren’t going up, but common areas and amenities are really growing. Owners are understanding that there is a demand for this type of space in the marketplace.”

While there is low unemployment today, Tipton also notes that new entry into the job market will also help to create growth and demand for more office space. “Generally speaking, there is population growth, and that is relevant here,” says Tipton. “Developers view rental rates as going up more rapidly than inflation, but they are mixed on improvements in occupancy rates. However, occupancy rates are good in the office market right now.”

Take a look at the video to hear more comments about office development activity.