SAN FRANCISCO—With the State of California facing one of itsdriest years on record, earlier this year Governor Jerry Brownproclaimed a State of Emergency directing state officials to takeall necessary actions to prepare for severe drought conditions. Theproclamation noted that California's water supply had dipped to“alarming levels” presenting “urgent problems.”

While the present drought has significant statewide economicimplications, those implications are most commonly correlated toCalifornia's agricultural industries. The Public Policy Instituteof California reports that large cuts in crop acreage will beunavoidable, with some farmers forced to cut back on high revenuefruit, vegetable, and nut crops.

For the commercial real estate industry, thedrought also has significant economic implications. Withoutcertainty in water supply, the ability of commercial real estatedevelopment to contribute to a region's economic activity andfiscal health (through construction and permanent job growth, taxrevenues, and long term business operations) may, and likely will,be limited.