California Multifamily Fundamentals Continue to be Strong: Allen Matkins-ULCA

Los Angeles—The Spring 2016 edition of the Allen Matkins-UCLA Anderson Forecast Commercial Real Estate Survey, which was released recently, finds that multifamily developer optimism is still prevalent in California. And for good reason: the optimism is largely a function of demand for multifamily housing that’s following job growth in the more densely populated regions of the Golden State.

The survey echoes an observation made recently by the Legislative Analysts Office that California housing is seriously underdeveloped. Moreover, household formation in many parts of the state is happening at a pace that’s faster than the pace of new building, so the fundamental dynamic isn’t going to change any time soon.

In fact, those positive fundamentals will be buttressed by employment growth statewide that’s forecast to come in at 2 percent annually over the next two years. Such growth will, however, be skewed toward to six major coastal communities in the state. Increased employment in those markets will translate directly into new household formation and demands for more housing.

The current economic expansion has also seen a shift in tastes from single-family housing into a more balanced mix between demand for single-family and for multifamily housing. Thus, even as overall residential construction is at depressed levels in California, Allen Matkins-UCLA reports, multifamily construction has rebounded sharply in recent years.

During the last year, the number of multifamily permits issued in the state per month has, in fact, returned to pre-recession levels. The forecast now is for higher rents and lower vacancy rates statewide, which will spur development. Over the next three years, the survey says, multifamily construction will be at a 25-year high.