Economy Watch: Golden State Real Estate’s Golden

The Allen Matkins-UCLA Anderson Forecast Commercial Real Estate Survey Spring 2016, which was released recently, is full of good news for California CRE developers. That’s because California, which has the largest state economy in the country—with a gross state product of more than $2.4 trillion in 2015, or an economy about the size of Italy or Brazil—is producing jobs again and thus demand for most kinds of real estate.

In fact, as the state’s employment picture improves toward full-employment, the lack of supply in office space, housing, and industrial space portends continued rental and occupancy rate increases according to the survey, which measures developer sentiment. In the office market, for instance, developer sentiment remained positive in four out of six of the state’s regions examined by Allen Matkins-UCLA and actually improved in two: San Francisco and the East Bay markets.

In the state’s multifamily markets, developer optimism also remains strong. The anticipation among survey respondents is that Silicon Valley, San Diego and San Francisco will all see their multifamily markets tighten in the next three years; Los Angeles and Orange County will tighten somewhat, but not quite as much, since there’s a lot of new apartments especially under way in Los Angeles, which will ease some of the region’s current shortfall in housing units.

On the industrial side, optimism continues to be manifest in new buildings, though in the Inland Empire, a rush to build new space has now given rise to the idea that vacancies will increase over the next three years—but the rate will be up from very low to less so. Looking ahead, 75 percent of both SoCal and Bay Area industrial developers are planning one or more new projects this year. Last year, two-thirds of them started new developments.