Pessimism in California commercial real estate giving way to cautious optimism

A mood of optimism is evident in the California commercial real estate industry, despite the mixed economic signals of the past sixth months, according to the latest Allen Matkins/UCLA Anderson Forecast commercial real estate survey. The survey polled a panel of industry professionals on their views of how the market will change over the coming three years.

In an essay titled “California Office and Industrial Markets: A Recovery Begins,” Jerry Nickelsburg, a senior economist with the UCLA Anderson Forecast, writes that despite recent events, including the U.S. economy nearly stalling, with GDP growth below 2 percent, and shaky confidence in the various stock markets, the industry’s cautious optimism is driven by steady employment gains in coastal California.
Those gains, Nickelsburg says, have been seen primarily among users of office space, particularly in health care and professional, technical and scientific services, as well as among users of industrial space, including the export-related sectors and manufacturing.

The survey looked at the state of commercial real estate in seven California regions: Los Angeles, Orange County, San Diego, San Francisco, the East Bay, Silicon Valley and the Inland Empire.
The economists found that in the Los Angeles and San Diego office markets, vacancy rates are dropping, albeit by an insignificant amoung, but those surveyed remained highly optimistic. In the Bay Area, San Francisco developer sentiment was unaffected by slower economic growth during the last two quarters of 2011, and in the East Bay, sentiment remained optimistic, though slightly less so, with respect to rental rates. With regard to industrial space, the Bay Area professionals surveye were most optimistic about Silicon Valley and least optimistic about San Francisco.

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