Allen Matkins/UCLA Report

Optimism about the CRE sector in California has been strong enough, for long enough, that new development is expected to pick up this year, especially in the industrial sector. The outlook is also brightening for office and multi-family, the latter of which was included in the semiannual report for the first time.

The bottom line from the latest Allen Matkins /UCLA Anderson California Commercial Real Estate Survey seems to be this: Optimism about the CRE sector in the Golden State has been strong enough, for long enough, that new development is expected to pick up this year, especially in the industrial sector. The outlook is also brightening for office and multi-family, the latter of which was included in the semiannual report for the first time.

Now in its 11th edition, the report reflects developer sentiment about the next three years, considered the typical development cycle. The full report is available at www.uclaforecast.com.  “Since the end of the recession we have seen developer optimism spread to all of the markets and types of commercial space we survey, yet the new building potentially implied by that optimism has not yet come to fruition,” wrote Jerry Nickelsburg, senior economist with UCLA Anderson Forecast.

That now appears to be changing, however. Industrial occupancy rates are rising in most California markets, and in two of the six markets surveyed (Los Angeles and Orange County) they’re approaching 96 percent. The report found that 45 percent of the Southern California panel and 28 percent of the Bay Area panel are expecting to begin a new industrial development in the next 12 months.

These results come despite a decrease in developer sentiment during the past six months, a trend that the report lays to “nervousness over Europe and the potential impact that could have on manufacturing exports” and caution by importers with respect to the U.S. economy.  “The basic underlying economic forces in industrial markets,” according to the report, “are a growth in California manufacturing, a growth in exports and slow-to-no-growth in consumer goods imports through … California’s ports.”

On the office side, the survey covers six markets: San Francisco, Silicon Valley, San Diego, Orange County, the East Bay and Los Angeles. Optimism among survey participants is somewhat higher in the first three markets than in the rest, a pattern that correlates with job growth in office-using employment over the past three years. In both Southern California and the Bay Area, 16 percent of respondents said they or an associate that would begin one new project in the coming 12 months, while 9 percent said that they would begin more than one project.

For its inaugural venture into the multi-family market, the report surveyed developers in Los Angeles, San Francisco and Silicon Valley. Each panel was optimistic about the prospects for returns on multi-family housing in the next three years, and 70 percent of the panels or their associates plan to begin new multi-family projects in the next 12 months.

The San Francisco multi-family market has seen double-digit rent increases, vacancies below 4 percent, and a number of new building projects. Similarly, Los Angeles has vacancies below 2 percent in some submarkets. That is sparking new developments, notably in Downtown Los Angeles, Hollywood, Santa Monica and the newly opened Expo Line light corridor from Downtown to Culver City.

UCLA Anderson Forecast is produced under the auspices of the UCLA Anderson School of Management.  Law firm Allen Matkins has approximately 220 attorneys in four major California metro areas: Los Angeles, Orange County, San Francisco and San Diego. Real estate and commercial finance are among its core specialties.