California real estate professionals believe that the ongoing commercial property boom is showing signs of slowing, according to a new survey by UCLA. The outlook for retail and office product is especially grim, while sentiment remains relatively favorable toward the industrial and multi-family markets.
The survey, taken by commercial real estate industry leaders last month, “provides the first indication of a topping out in office and retail markets,” said Jerry Nickelsburg, adjunct professor of economics at UCLA Anderson School of Management.
In each of the markets surveyed by ULCA — Los Angeles, Orange County, San Diego, San Francisco, the East Bay and Silicon Valley — office developer sentiment has declined since its peak in 2014, as developers become more pessimistic about the growth of real rental rates and vacancy rates, the report shows. There was also a significant fall off in sentiment with respect to the retail market, according to the report, dubbed the Allen Matkins/UCLA Anderson Forecast – California Commercial Real Estate Survey.
“Brick and mortar retail isn’t going away, but online and e-commerce has caused many traditional retail formats to reinvent themselves,” said Rhonda Diaz Caldewey, managing director at Cushman & Wakefield.
Meanwhile, sentiment about the industrial market remains relatively steady across all markets.
“The basic underlying economic forces driving the demand for industrial space in California are manufacturing, the export of goods to Asia and Mexico…and, of increasing importance, e-commerce,” according to the survey. “Retail’s bane is industrial’s gain.”
Indeed, online shopping seems to be having an upside for industrial real estate investment trusts, according to a recent report.
Thanks to the rapid growth of e-commerce, shares of industrial REITs rose 17.3 percent this year — compared to 6 percent for all equity REITs and 1.7 percent for the S&P 500, according to Green Street Advisors.