Natsis Advises Keep a Lid on Pessimism, Relax

The latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey was released this week. Connect Media’s Dennis Kaiser asked Allen Matkins’ Anton Natsis to share his insights about what the findings reveal.

Q: What are the bright spots in California’s #CRE sector?

A: The good is the strength of the multifamily and industrial sectors. That’s nice because we always want multifamily to do well since it is a sign of consumer wellness that people are seeking out housing. When industrial does well, it is a sign of consumer growth also, which drives construction. Those are two good indicators of the state of economy in California

The handwriting is on the wall for retail that isn’t creative or a lifestyle experience, as it will be replaced. E-commerce has taken over. Face it, people are ordering or delivering online, they just don’t want to do anything anymore. They use Uber or Amazon, and that’s not going to stop.

Traditional retail is in trouble, though not the new generation of retail such as Santa Monica Main Place or Caruso’s centers. Traditional retail must restructure or be repositioned into more of a consumer experience That’s not necessarily a bad thing from a pure economic perspective, unless you own a bunch of traditional retail.

One thing that sort of stuck out to me in the 2016 Survey was the pessimism about the development market in San Francisco and the Silicon Valley. I think that’s sort of misplaced. I don’t think that the sector is doing bad at all. There’s a lot of activity, lots of out-of-the-ground projects and a lot of developers that want to build that won’t.

Pessimism is a function of way too much optimism that’s carried the day since 2012 through 2015. Then projects preleased before they got out of the ground and now it is taking a bit longer. But historically, the market is still moving quickly. There’s sill massive growth in the tech industry and good employment. It is a bit of a red herring. Time will tell about the development cycle, especially in San Francisco.

Q: What are the biggest concerns facing #CRE sector?

A: What alarms me about the general economy? Not anything. It is doing well, relatively speaking. We’re still in our nice little California bubble. The rest of country has real problems. The survey shows California is relatively optimistic compared to the fears in the U.S. and world economy.

Q: How will these trends impact the future in the state?

A: From a leasing perspective, where there’s ground-up or existing product, we need to be more patient. It is not going to be as it was in 2012-2015. We’re still in an era of productivity leasing-wise, just not like 2015. But we must be patient and understand the fundamentals are still strong – though not as great as when the massive uptick occurred. So, relax!

In 2012, when the market started to take off, people wanted to know how long it would last – and we had just gotten started. People always worry a good market is going to end. But those on their game, on solid fundamentals and not overleveraged, aren’t asking.

Companies that traditionally execute well, have a capital source, aren’t borrowing a lot, have weathered a few cycles – those are fine and doing well. Those that are pessimistic and are more worried tend to be those more around the fringes, not mainstream players. In fact, I’m seeing the best players making next cycle moves, so they make sure not to miss it.

Back in 2007, Sam Zell said, ‘we don’t have an economic crisis, we have a confidence crisis.’ Pessimism is contagious. My one takeaway from the survey is to keep a lid on pessimism, it only spurs more pessimism.

For comments, questions or concerns, please contact Dennis Kaiser