LOS ANGELES-A slight increase in confidence among developers across commercial real estate submarkets in California is evident. According to the latest Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey, developer confidence has increased a bit since the survey was last conducted in June 2013.
The biannual survey projects a three-year-ahead outlook for the state's commercial real estate industry and forecasts potential opportunities and challenges affecting the office, industrial and multifamily sectors. The November 2013 results show a positive outlook across all markets for the first time since the survey's inception in 2007.
Clear economic improvement is generating new opportunities for profitable investment in office and industrial space across the state. According to surveyed industry leaders, developers in all areas (with the exception of the Bay Area's industrial markets) expect to accelerate development activity, tightening the commercial real estate supply.
The increased optimism in many sectors can be tied to job growth in California, especially along the coast, where jobs are being generated at a faster rate than the national average. The current expansion of employment is expected to continue into 2016.
The outlook on the three main CRE asset classes is positive, according to the survey. Office space is tightening, job growth is accelerating and 70% of those surveyed in Southern California indicated that they would start one or more projects within the next 12 months.
The industrial markets are also looking strong, with manufacturing and warehousing facilities on a high, exports to Asia and Mexico and imports from Asia robust. With the emergence of the Eurozone and Japan from their recessions and the economic growth in China, there is an increased volume of trade through Southern California ports in particular, which may create an increased demand for warehouse space.
The multifamily sector also remains robust, with prospects for returns on multifamily housing investments in San Francisco and the Silicon Valley during the coming years looking promising. All surveyed panelists in those markets, where occupancy rates are above 97% and rental rates are among the highest in the nation, indicated that they would begin projects within the next 12 months. About 65% of those surveyed in Los Angeles, where occupancy and rental rates are similar to those in Northern California, could begin new developments in the coming year. Though construction permits for multifamily units have been rising significantly through November 2013, with an increase of 19.6% in L.A., a 18.2% rise in San Francisco and an uptick of 44.2% in San Jose, there may not be enough multifamily housing in late 2016 to affect the rise in rental and occupancy rates.
To view video highlights of the Allen Matkins/UCLA Anderson Forecast report, click here.
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