Countdown: Three Years Left In This Cycle

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LOS ANGELES—According to the Allen Matkins and UCLA Anderson Forecast, the California commercial real estate market has a solid three years of growth remaining in the cycle. The market is currently running at its highest levels since 2001, with low cap rates, soaring demand and job growth helping to drive the market.

“Everyone thinks that three more years is a very viable length of this cycle, and I get that impression because a lot of people are starting to look at their next cycle deals,” Tony Natsis, a partner at Allen Matkins, tells GlobeSt.com. “So, people that are buying unentitled property are starting to say that it is a next-cycle project, and that means 2020 or 2019. The feeling is that this cycle still has 2015, 2016 and 2017, which will be pretty robust. The cycle won't be 2018, 2019 and certainly not 2020. People are also buying existing assets that have a lot of lease roll over in time for the next cycle. In 2008 and 2009, everyone thought this is going to be miserable—but some people thought, no this is the time to buy, let's make it happen, and they got out in front of everybody. Now, everyone is talking about the next cycle so that they can be prepared out of the gate. I have been doing this for 30 years, and this is the first time that people are starting to talk about the next cycle.”

In response to the survey, Allen Matkins interviewed a bevy of industry experts to get a first-hand take on the market. In the video below, which GlobeSt.com has obtained exclusively, these experts agree that the market is poised for growth over the next three years.

The UCLA Anderson forecast, which is released annually, looks at each market sector individually, examining seven of the state's leading markets. In the commercial office space sector, the report found decreasing vacancy rates, driven largely by tech, advertising, media and information companies. Southern California participants in the survey were especially bullish, with 40% saying that they expected to begin at least one new project in the next 12 months.

In multifamily, new construction is continuing to climb in every market surveyed, with housing shortages being one of the major drivers.  A majority of the participants in the survey—74%—began a project in the last 12 months and an even higher percentage admitted that they planned to start a new project in the next six months. However, in Orange County, San Diego, Los Angeles, San Francisco and Silicon Valley, participants said that expect no decrease in vacancy rates.

Participants in the industrial sector survey were also incredibly optimistic, with 68% planning new projects this year and next year. Developers were particularly confident about the Inland Empire market.

Finally, retail will continue to prosper, especially in the Los Angeles, Orange County and San Diego markets. Nearly 70% of the participants in the survey are planning new projects over the next 12 months.

The below infographic shows illustrates developer insights in each market reviewed.

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