A new forecast of the three-year outlook for CRE in California paints a generally optimistic portrait of the state of the industry. Industrial and retail appear to be in relatively good shape, and prospects for multifamily are brighter in the southern portion of the state. But there's a fly in the ointment. Unsurprisingly, it's the office sector.

The forecast indicates that one in five office owners and operators in California is ready to throw in the towel and move to convert existing office buildings to other uses like multifamily, industrial or retail within the next three years. In Northern California, no new office developments are reportedly planned, and in Southern California the number of respondents planning them has shrunk from 29% in 1Q23 to 17% this year.

"The findings underscore the industry's growing lack of conviction in this sector," reported the winter issue of the biannual CRE Forecast Survey conducted by the law firm Allen Matkins and UCLA Anderson. It cited the usual causes: high interest rates, declining valuations and ongoing remote work. Recovery is not expected until late 2026.