February 10, 2020
The annual Allen Matkins/UCLA Anderson Winter Forecast is as much a year-forward motivational “must read” as it is a best practice analysis of California and a potential market environment three years out. The findings of the forecast rest on a foundation of world-class research, active professional input and an honest assessment from authors, who balance history to date and logical conclusions with unforeseen events buoyed to some required optimism.
So, when Connect Media had the opportunity to delve into a few identified trends with Allen Matkins Real Estate Chair John Tipton, following the release of the California Winter 2020 Forecast, the following questions offered a quick drill-down into some specific areas:
Q: Optimism is second nature for developers. Do market fundamentals support the conclusion that 2022 is the year where a plateaued market rises again?
A: The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Surveys seeks developer sentiment regarding marketplace conditions three years out from the date of the survey. Most economic forecasts predict a potential softening in the economy in late 2020 and 2021. Because our survey predicts development conditions three years out, our panelists are expressing optimism based on a re-energizing of certain markets following this potential downturn.
Q: Retail is predicted to be less likely than other asset classes to see marked growth, however, does that include the era of mixed use formats (both new development and existing project conversions) incorporating retail spaces in far larger projects?
A: Although our developer panels have consistently been less bullish on the retail asset class, panelists are seeing opportunities in the mixed-use and experiential retail development.
Q: The California multifamily sector seems to have an insatiable demand for new development to meet the state’s housing shortage. You mention materials and labor shortages as a real handicap in a otherwise healthy market, however, do you see the debate on affordable housing legislation as a potential growth inhibitor in California?
A: Rising material and labor costs will continue to be a limiting factor on multifamily developments that provide only marginal economic returns. Nevertheless, the passage of the rent control statute AB 1482 has lifted some of the market uncertainty regarding the ability to factor in rental rate increases. Risk capital is able to make decisions based on a known playing field, and invest accordingly.
Q: Is urban office space expected to fare better than suburban office space between now and 2022?
A: Although the survey does not specifically distinguish between the panelists’ bullishness on urban versus suburban development, the more urban office markets in our survey have generally maintained a stronger level of optimism.
Q: Industrial is the home of the ever growing “Screen-to-Door” economy, so do you see developers moving new projects into mature urban infill markets, or will the growth continue to be in the suburban/rural markets near transit but outside the major MSA markets?
A: Overall, industrial projects have been the most consistently optimistic of all asset classes in our survey in both urban and inland markets. One aspect of industrial that we are continuing to monitor, however, is the nascent development of multi-story, urban infill industrial projects that contain automation and robotics. These developments are most likely in the urban infill areas, where land costs are highest and large parcels are scarce.
Connect Los Angeles 2020 is coming up on March 26. It will bring together leading local, regional, and national developers, investors, owners, brokers, financiers and other major players for an afternoon of informative panel discussions, plus networking and cocktails. For more information, or to register, click here.
For comments, questions or concerns, please contact Chris Egger