SoCal Industrial And Multifamily Sees High Demand In Latest Forecast Survey
In Southern California, the industrial asset class remains hot. Retail is still spiraling down. Office is teetering along, while the multifamily asset class can’t keep up with the high demand for housing, according to the latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.
The latest biannual survey, released Wednesday, gets the sentiment of an anonymous panel of commercial real estate executives who are transacting deals and developing projects about what is in store for the office, multifamily, retail and industrial sectors in the next three years.
The Allen Matkins/UCLA Anderson Forecast has released a survey for the past 12 years.
"Depending on the kind of commercial real estate, there are opportunities but there are other parts of commercial real estate that are not doing so well," UCLA Anderson Forecast Director Jerry Nickelsburg said. "Commercial real estate is mixed at the moment with opportunities in some areas and not in others."
Despite working against the backdrop of the China-U.S. trade war, escalating construction costs, interest rate hikes and other uncertainties in the state's commercial real estate landscape, panelists continue to be bullish on the sector over the next three years.
Industrial remains the darling of the industry, especially in the Los Angeles, Orange County and Inland Empire markets. Panelists remain optimistic about all three SoCal industrial markets, citing the the growing demand of e-commerce, the ideal location of the ports of Los Angeles and Long Beach and warehouse demand.
The report states that panelists view these markets "as playing catch-up with demand, and the expectation is that this will continue through 2021." The Inland Empire shows the most demand.
"It is estimated that 15M SF of new industrial space is under construction in the Inland Empire, and that absorption will take it off the market rapidly," the report states. "Absent interruption in imports due to national trade policy, the industrial space market in Southern California ought to remain strong."
While the industrial sector remains hot, retail continues its decline. Panelists are pessimistic about the retail asset class, especially as customers change their shopping behavior to online.
Nationwide, there were 2,900 store closings in 2018. Since the last two surveys, internet sales have gone up 10% — double that of retail, according to the report.
Only 38% of those surveyed have started a retail project in the past year in Southern California.
"Vacancy rates are expected to continue through 2021," the report states.
While there is a general consensus that there is a glut of brick-and-mortar stores, developers adding a retail component to new housing, office and hospitality projects are providing a niche opportunity for this space, according to the report.
There is a general sentiment among the panelists that the office sector in Los Angeles and Orange County has weakened and may continue to weaken through 2021.
Although the office markets are relatively strong today, increasing inflation and vacancy rates are eroding office rental rates, the survey reports.
"We're now in the moderation part of the cycle," Nickelsburg said. "We are starting to see some softening in the development of office space in Los Angeles and in Orange County."
Strong demand for housing is driving the demand for multifamily projects in Los Angeles and Orange County.
Three-fourths of the panelists surveyed are planning new projects. Half of those are expecting to begin more than one multifamily development in the next three years.
"The panel’s expectations are that rental rates will continue to rise faster than inflation and that occupancy rates will remain high," the report states. "The implication is that even though job growth in Southern California is expected to slow, the building process will not keep up with the growth in demand."