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California   /   January 27, 2021

Lisa Brown
By: Lisa Brown

Industrial Dominates, Multifamily is Mixed and Office is Pessimistic

The pandemic-related recession is having a mixed effect on California commercial real estate sectors, as this particular downturn is not characterized by a slackening in housing markets or a stock market crash. While office space markets are in a holding pattern and retail markets are on a downward trajectory, multifamily housing and industrial space remain in the growth portion of business cycles, according to the Winter 2021 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.

With the pandemic shifting the use of traditional office space, there is much uncertainty as to what the future of development in this sector will look like. Though panelists are confident about the growth in office demand between 2020 and 2023, they are pessimistic about the return on investment in new space now. Panelists believe that newly built space, in addition to that freed by companies reducing existing space, will outstrip any near-term increased demand for office space. This leads to the overall conclusion that the end of the latest office building boom is at hand, though there will be demand for office reconstruction and low-rise office building construction. Across the board, there is a wait-and-see sentiment in the office space market, and that portends a downturn in the rate of new development.

In the June 2020 survey, industrial space sentiment dropped slightly but was logical, given that the state was in the midst of a pandemic. However, vacancy rates have remained extremely low across all regions and sentiment about the coming three years has come roaring back to levels of optimism not seen for many years. The dramatic shift in buying habits to online shopping during the pandemic has most likely changed household purchasing for the unforeseen future.

Although panelists are very optimistic about the next three years, current building plans are only marginally greater than already ambitious pre-pandemic plans. Approximately 30% of the panelists indicate the recession will result in an increase in development.

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Lisa Brown has more than 30 years of experience in corporate communications and marketing management with organizations including Grubb & Ellis, Marcus & Millichap and NAIOP.
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