Winter 2023 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey: Outlook on Office Sector Weakens
The commercial real estate industry in California is facing a challenging outlook as the recently released Winter 2023 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey reveals a shift towards uncertainty and caution among developers, owners, and investors. The survey, which polls a panel of real estate professionals across various asset classes, highlights a less-than-confident sentiment in the office sector as rental and occupancy rates continue to weaken.
This change in sentiment marks a departure from the optimism seen a year ago, as the industry grapples with rising interest rates, declining valuations, and economic uncertainty. The survey indicates a contraction in new commercial development across most asset classes, with office development taking a hit as companies navigate the impacts of the pandemic on work-from-home trends.
According to the survey, office development is on the sidelines as confidence wanes in the market’s rebound potential. While there was initial optimism for new office developments in 2022, the high interest rate environment has impacted market fundamentals, leading to a decrease in planned projects for 2023. Office landlords are advised to actively engage with tenants to drive demand and enhance asset value in a challenging market.
On the other hand, the multi-family market is experiencing a wave of housing demand, particularly in suburban areas, as residents seek affordable, transit-oriented options. New state laws are also opening up opportunities for multi-family development, with inland regions seeing growth in logistics and infrastructure construction.
Industrial real estate remains a strong performer, driven by e-commerce growth, although the survey predicts a slight decrease in development over the next three years. Retail, on the other hand, is showing signs of recovery, with new housing developments and a return to office contributing to increased demand in metropolitan areas.
Overall, the commercial real estate industry in California is facing a period of uncertainty and change, with industry professionals advised to adapt to the evolving market conditions. The findings of the Winter 2023 survey underscore the importance of proactive engagement and strategic planning to navigate the challenges and capture opportunities in a shifting landscape.