Development Clawing Its Way Back
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|We've had three years of slight optimism. A shovel here. A knowing glance of a lease there. Now, developers are confident enough about how their world will look in 2015 to begin projects, according to the new Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey. (Which is much better than paying $3.99/min on a psychic hotline.)|
|The semi-annual survey asks developers and those who finance them about rental rates and occupancies three years from now (which is about the length of a development life cycle). The survey found growing optimism throughout California’s office, industrial, and multifamily markets. The report points to “an increased willingness to go forward with new development” within the next 12 months, according to UCLA Anderson Forecast senior economist Jerry Nickelsburg. For video highlights of the report, click here.|
|Developers are filling their pipelines, according to Allen Matkins partner Tony Natsis. He tells us developers are buying dirt with or without entitlements, properties with existing improvements that will be torn down and re-entitled, or prepackaged development deals with a lease and entitlements already in place. (That last one we call that the TV dinner method.) He expects to see a lot of this in Silicon Valley, driven in no small part by the explosion of the social media, entertainment, tech, and light science industries. The recent state jobs report may have been disappointing, but it doesn’t reflect the growth in companies like Google in places like Mountain View. “That’s in its own little bubble.” To see what the survey says about Bay Area office development, click here.|
|The most encouraging findings came from a new survey of multifamily developers. Allen Matkins partner John Tipton says the growth is in markets with high property values and substantial job gains, “especially for younger workers who prefer to rent apartments in urban areas.” That’s helped San Francisco rents to increase by double-digit rates while vacancies fell below 4%, spurring projects like the Park Merced, Treasure Island, and Hunter’s Point developments. To learn what large percentage of the participants plan to launch new multifamily projects in the next year, click here.|
|The survey also found optimism in the San Francisco and East Bay industrial markets, though somewhat weaker than the previous survey in December. Meanwhile, Silicon Valley was less optimistic about rental rates but just as enthusiastic about occupancies, pointing to a slight increase in expectations about competition from new construction. To see what’s driving industrial developer sentiment in California, click here.|