Economy Watch: Slowing Development in CA May Point to Nationwide Issue

Despite positive economic data like low unemployment and income increases, all property types are expected to see a construction slowdown in the Golden State, according to the recently released Allen Matkins/UCLA Anderson forecast.

California is something of a bellwether for the U.S. economy and for commercial real estate. Thus Golden State trends are important. According to the recently released Summer/Fall 2017 Allen Matkins/UCLA Anderson report, broad segments of the market will be slowing down in the coming years.

Though unemployment has dropped and income and spending are increasing, there’s an ebbing of market optimism about the future from developers, which should lead to a slowing of development, the report said.

Sector-wide development slowdown

For instance, developer sentiment for all northern California markets has been declining since at least June 2016, and the latest survey provides continued evidence of a downturn in the office market. The outlook in Los Angeles is decidedly more optimistic, although less so than two years ago. The difference between LA and the other California cities is Hollywood and Silicon Beach.

Sentiment about the next three years in California industrial markets has abated somewhat, but only because this has been the hottest market throughout the state in recent memory. E-commerce will continue to drive a hot market for warehouse space, just not quite as hot as before.

In virtually every retail market in California, panelists see 2020 as being a worse year for development than today, when we’ve already seen an increase in vacancies. The few retail development projects planned will most likely be redeveloping existing space or be a component of mixed-use projects, Allen Matkins/UCLA Anderson Forecast said.

In multifamily, it looked as though development at the mid- to high-end had reached a peak only six months ago, and that land and building prices had edged out lower-end projects. This still seems to be the case, at least for more modestly priced apartments. California continues to be a leader in job and income gains, and multifamily developers now see opportunities in new projects for the coming three years.

Video courtesy of The Summer/Fall 2017 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey