ALLEN MATKINS | UCLA ANDERSON FORECAST
Industrial Space Markets
ALLEN MATKINS | UCLA ANDERSON FORECAST
Driven by the rise of e-commerce, industrial space markets continue to be the outstanding performers in California, as has been shown in all the recent surveys (the May 2020 survey being the sole exception). In the latest Survey, overall sentiment about the coming three years for industrial has reached the highest level for a Winter Survey since 2015. This surge is being driven by a forecast of significant increases in demand outrunning planned and projected supply over the coming three years, and stems from the current surge in demand that has driven vacancy rates to astonishingly low levels.
ALLEN MATKINS | UCLA ANDERSON FORECAST
As the pandemic progressed over the last two years, the uncertainty of the future of office space has diminished. Companies have realized the value of having a team in-office for establishing culture, creating loyalty, inducing creativity, and the mentoring of young employees. This return to the office will come with a new flexibility of allowing employees to work in the office part-time, and will require a shifting of office space configurations to suit the post-pandemic work environment. The implication of these factors is that there will be a need for new office development consisting of the remodeling of existing offices, the building of satellite offices to limit employees’ commutes, and the creation of new mixed-use office complexes.
17.9
%
78.2
%
93.8
%
10%
15%
20%
35%
30%
25%
2022
Office Space Markets
ALLEN MATKINS | UCLA ANDERSON FORECAST
The Winter 2022 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey shows that the current recovery occurring from the recent pandemic-related economic recession has had a positive effect on all California commercial real estate sectors. This is in large part due to the fact that, unlike other past recessions, this last one was not characterized by downturns in the purchase of goods and slackening housing markets. The opposite in fact occurred, and this has led to a continued growth of multi-family housing development and industrial space construction since the last cycle, while the ongoing pessimism for retail and office construction has reversed, beginning a new growth period for both sectors.
Allen Matkins and UCLA Anderson Forecast have partnered to create a Commercial Real Estate Survey and Index to better predict future California commercial rental and vacancy rates. This tool surveys supply-side participants – commercial developers and financiers of commercial development – for insights into their markets. Through an analysis of the Index and the incorporation of the Index into other economic forecasting models, the Survey is designed to provide more accurate information on future office, industrial, retail, and multi-family space in major California geographical markets.
John M. Tipton
Partner, Real Estate
Allen Matkins
Here are the four key takeaways from the report:
A Need for
Post-Pandemic Office Remodeling Signals Newfound Market Optimism
Prolonged Retail Pessimism Finally Turns to Optimism
Industrial Optimism Continues to Grow, Reaching Highest Level in Years
Multi-Family Market Optimism Roars Back from Pandemic-Related Demand Drop
June '21
June '19
Dec '19
June '20
Despite the increased demand for single-family detached homes in the suburbs, a continued work-from-home culture, and falling rental rates, our multi-family panels are more bullish about the coming three years than they have been at any time since 2016. This is largely due to an anticipated return of younger workers to the city core as vaccines have allowed city amenities to come back online and downtown offices plan to welcome workers back.
Multi-Family Housing Markets
expect multi-family demand to grow faster than supply in next three years
72
%
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– Tim Hutter, Partner
Allen Matkins
It is hard to envision a scenario in which COVID-19 and its fallout could remedy the underlying housing affordability issues that California faced coming into 2020. In light of that ongoing concern, we expect demand for multi-family housing to continue to be high.
– Michael D. Kostecka
Partner
Allen Matkins
“Compared to a year ago, we’re definitely seeing more activity in the office market.”
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San Francisco
Orange County
East Bay
San Diego
Silicon Valley
BACK TO TOP
05%
– Alain M. R'bibo
Partner
Allen Matkins
“The industrial market one year ago was outpacing supply and that still holds true. There’s still a feverish pitch to bring industrial product to market.”
Dec '20
“A year ago the multi-family market was hot. Today, there’s just obscene amounts of possibilities.”
– Heather S. Riley
Partner
Allen Matkins
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X
– Barbara Emmons Perrier
Vice Chairman
CBRE
“Industrial developers in California are having to look further east and north to find land. Palm Springs, Palm Desert, Indio, Hesperia, and Victorville are all markets where industrial users will start to consider in the future.”
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X
– Anthony R. Burney
Partner
Allen Matkins
“The retail product types and assets that are thriving, and I think will continue to do so as we move forward into 2022 and beyond, are the neighborhood retail centers and neighborhood retail streets given a lot of people are working from home now.”
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X
– Christopher T. Roeder
Executive Managing Director
JLL
“I think that we’re going to see tenants willing to pay more and more for new construction because the health and wellness of their employees is more important than ever.”
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Winter 2020
Summer 2021
Summer 2020
Winter 2021
Past Surveys
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– Marc Renard
Executive Vice Chairman
Cushman & Wakefield
“Not withstanding the escalations in construction costs, increased raw materials, and supply shortages, multi-family development still represents one of the most compelling risk adjusted return investments.”
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30%
of panelists indicated that they will develop more than one new retail space project in the next 12 months
Over the course of the last four surveys, pessimism about retail occupancy and rental rates three years hence has declined, and in the latest Survey, pessimism turned to optimism in four of the markets surveyed, which all feature low unemployment rates. In these markets, a growth in income generates a growth in consumption, and therefore an increased demand for retail.
Retail Space Markets
ALLEN MATKINS | UCLA ANDERSON FORECAST
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– El Warner
Executive Vice President
Colliers
“This is the biggest shift that I’ve seen in retailer sentiment, investor sentiment, and developer sentiment in my 20-year career. The pandemic has proven that the retail asset class is resilient.”
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Industrial Space Demand/Supply
Growth in Southern California
(Three-year Horizon)
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