California commercial real estate outlook is mixed

Ongoing uncertainty dampens office market sentiment

The pandemic has re-emerged in the office market, reversing a once optimistic trajectory given the continued delays of many employees returning to the workplace, the results show. Investor resistance rooted in pandemic-fueled uncertainty about the near-term economic outlook contributed to a slowdown in Southern California, with a more neutral outlook in the northern part of the state, analysts found. . Sentiment regarding development remains slightly optimistic in the Bay Area – “…although there are no plans in place yet to increase the rate of development,” according to the survey.

The prevailing sentiment is that pessimism will evaporate as companies increasingly put plans in place to bring their workforce back into offices, which could lead to a need for new office development, according to investigation.

“This is the area where there is still the most uncertainty,” Tipton conceded. “Before the pandemic hit, you already had companies doing several things: one was a little more careful with their space, and in some cases downsizing, but you also had more common equipment – places where people gather and work together and be collaborative – so that was a general shift in office design. The pandemic is hitting and several things are coming out of it. One was, damn it, maybe people don’t want to be on top of each other as much as they used to. Second, you have that so many people have been working remotely, at least in part, for so long and damn it, it actually seems to be working pretty well for existing employees who know what they’re doing and are now doing their jobs elsewhere. But you also have the fact that as things go, when you’re trying to bring in new talent, it’s very difficult if there’s all kinds of collaborative work, to learn the culture of the place and get to know people.

Multi-year optimism continues for a growing industrial market

At the other end of the spectrum is the industrial market, which has seen consistently high occupancy rates and superior rate growth in recent years, according to the survey. Such optimism continues with the latest CRE study, Tipton noted. The sector’s success is attributable to rapid industrial development that barely follows absorption – leaving strong demand for additional supply.

Consistently high occupancy rates and superior rental rate growth kept optimism high for all industrial markets, according to the survey results. The current survey predicts more or less the same thing – that large future increases in demand will exceed expected and projected supply for 2025. This view of an even tighter market stems in part from the fact that demand over the years has pushed vacancy rates to surprisingly low levels, analysts have found.

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