Office demise ‘greatly exaggerated’: UCLA Anderson

Think offices and shops are never coming back? California developers and investors think otherwise.

Negative outlooks for California’s office and retail markets have turned optimistic, academics from the UCLA Anderson Forecast and law firm Allen Matkins said in a recent survey.

Development and construction of new office and retail properties is expected to pick up through 2024, according to the survey, which polled commercial developers and financiers across the state in December.

The survey is a stark contrast to messaging from analysts, developers and industry professionals over the last two years — some of whom declared the office market all but dead.

In Southern California, developers and investors are generally optimistic that office vacancy rates will dip over the next three years, with most particularly bullish on San Diego and Orange County.

Those surveyed were also significantly more optimistic about rising office lease rates over the next three years in Southern California, the survey showed.

Northern California is set to get the most new office development over the next year, the report said, with almost 50 percent of developers surveyed in planning on new projects in the area in 2021, compared to less than 15 percent in 2020.

These regions aren’t only expected to get more office space – the survey also points to prospects for a rebound of retail.

Low unemployment rates in San Diego, Orange County and key markets in Northern California – including Silicon Valley and the East Bay – have pushed developers and investors to be optimistic about the retail market in these areas, given higher incomes lead to more shopping.

“It is not back to where it was pre-pandemic, but the trend is in that direction,” according to the survey, referring to the retail market across California.

Developers were less optimistic about the retail markets in Los Angeles and San Francisco, in part because of reliance on international tourism and conventions for significant amounts of spending.

The survey’s findings are in line with recent comments from billionaire investor Sam Zell, who said he believes demand for office space will recover from the effects of the pandemic before retail.

Though developers are excited about the return of the office and retail sectors, commercial real estate investors are still spending the majority of their cash on industrial and multifamily properties across the country.

Investors spent $315 billion on multifamily properties and $160 billion on industrial assets in 2021, compared to $136 billion on offices and $74 billion on retail, according to CBRE.