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Trends in California commercial real estate

If your business designs, supplies or builds new commercial property in California, prepare for a distinct upturn in work volume – if it hasn’t happened already – based on the most recent Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey. That’s perhaps the most significant current trend in California commercial real estate, according to the UCLA Anderson Forecast, a leading indicator of future commercial activity in California based on input from commercial real estate developers on new building projects.

Most markets in California should see an increase in new commercial real estate development through at least 2017, according to the survey researchers.

“The optimism about 2017… is an important indicator of both the probability of new additions of new stock being started over the next two years and of opportunities for new investment in multi-family, office and industrial space,” said Jerry Nickelsburg, senior economist with UCLA Anderson Forecast. “This optimism, supported by job and income growth on the demand side and a lack of sufficient building on the supply side, reflects what we expect to be another good run of building in the California non-residential space.”

Even if your business is not directly involved in the building trades, you should take note of the state’s commercial real estate building boom for its potential effects on your business. For example:

  • Potentially higher property rental rates – Developers’ willingness to begin new office space development indicates a belief that demand is catching up to or has equaled supply in certain markets, according to the UCLA Anderson Forecast. As commercial occupancy rates increase, previously cautious property owners may be more willing to increase rental rates.

    Tip: Business tenants may want to investigate locking into current rental rates now, before rates increase, or investigating the potential long-term cost advantages of occupying new properties as they are completed.
  • Multi-family housing demand remains strong – Due to high demand for housing, the Bay Area is leading the state in new multi-family housing construction, according to the UCLA Anderson Forecast. In the Los Angeles market, where little new multi-family housing has been built since 2006, a healthier job market and income growth is driving renewed interest in developers building new multi-family properties. Businesses that are within walking distance of quality housing might particularly benefit, according to a recent study that found that “walkable” urban locations appreciate faster than more remote car-dependent locations.

    Tip: Consider spaces near new multi-family housing if you’re thinking of changing or adding locations. It may help you attract and retain workers, especially younger workers. Retailers may benefit from a built-in customer base.
  • High growth potential in industrial sector – Rapid growth in coastal California and increased imported goods translates to strong demand for industrial real estate – especially in the Bay Area, Inland Empire, Los Angeles and Orange County markets, according to the UCLA Anderson Forecast. Seventy percent of California developers surveyed said they plan to begin one or more industrial space projects by the end of 2015.

    Tip: Growth in the industrial sector is good news if your business has been constrained by a lack of sufficient and/or suitable industrial space. But you may want to start looking before your competition does for first choice of the best spots.

Turn to us for input

As an experienced and active lender in California commercial real estate, California Bank & Trust stands ready to assist you with your commercial real estate needs and inquiries. Please contact us for assistance.

 
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The information contained herein may not represent the views and opinions of California Bank & Trust, a division of ZB, N.A. or its affiliates. It is presented for general informational purposes only and does not constitute tax, legal or business advice.
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