California Commercial Real Estate Market Trends Hold Steady
Despite tax cuts and incentives, tariffs, higher interest rates, higher cap rates, and slowing employment growth, the outlook for California commercial real estate looks much the same as it did six months ago. Those were the key takeaways from the Summer/Fall 2018 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.
The latest survey confirmed that the apex of the market has been reached for this cycle. This is true in both the Bay Area and the three Southern California markets, where survey participants say that office rental rates are as high as they will be for the foreseeable future on an inflation-adjusted basis.
The industrial market data is better than ever before. The trend has improved for industrial in the East Bay, as its ports have benefited from the increased demand for online shopping, requiring distribution centers to serve Bay Area residents.
SoCal warehouse demand is predicted to be just as strong in the next three years, if not better than, today. Despite rising cap and interest rates, very low vacancy rates are driving the development of new projects in Los Angeles, Orange County, and the Inland Empire. Driving this demand is an increase in both imports and online shopping, which could potentially be disrupted by future trade wars.
Retail continues to be the weakest sector in commercial real estate. Developer expectations in the multifamily market have remained steady since the last report in January.
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