Bull Market Remains In Los Angeles And Orange County Commercial Real Estate

With President Donald Trump’s new tax reform, a healthy gross domestic product and continued job growth, industry executives remain bullish for the years to come in the Los Angeles and Orange County commercial real estate market, according to the latest Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey.

The biannual survey, released Wednesday, is given to an anonymous panel of commercial real estate executives and attempts to predict a three-year outlook for the state’s office, multifamily, retail and industrial industry.

According to the latest survey the panel is optimistic about the state’s office, multifamily and industrial markets. The panel is pessimistic about the future of retail, Allen Matkins Operating Partner John Tipton said.   

Tipton said the rise of e-commerce and the abundant retail supply has hurt the industry. In turn, the traditional retail strips and malls are shifting to adding more restaurants, entertainment and experiential themes to lure visitors.

“There’s an awful lot of retail that got built up over the years,” Tipton said. “It’s so darn easy to buy things online now … I think there’s a fundamental shift going on. No one is saying retail is going away but if you look at the supply-and-demand equation, people are just not bullish on building any new retail.”

Panelists were more optimistic about office, multifamily and industrial, especially in the Los Angeles and Orange County markets.

In Los Angeles, the rise of gaming and tech jobs that have flooded Silicon Beach and entertainment such as video streaming companies in Hollywood is driving the office market, Tipton said.

He said panelists believe there will be robust demand for office space in Los Angeles in the years to come. 

In Orange County, after a slight drop in 2016, the local office market has rebounded. Tipton said Orange County’s diverse mixture of jobs will drive demand with panelists believing that rental rates would increase and vacancy rates decline by 2020.

The industrial sector for Los Angeles and Orange counties is on the rise with many panelists saying they have plans to start new industrial projects. 

Tipton said the rise of imports from Asia and e-commerce are driving the demand for industrial space across Southern California. He said panelists are optimistic and forecast that industrial space will have higher rental rates in the coming years than today.

“When you think of industrial space, you have manufacturing space and distribution spaces, and when you think about all the distribution warehouses that are being used for e-commerce, it’s a real growth area,” Tipton said.

Panelists have remained optimistic with respect to the multifamily market in the past five years but are even more so after Trump’s recent tax reform. 

Tipton said the tax plan, especially for residents who live in expensive California, has made homeownership a little less attractive because of the limits on tax breaks.

“That makes homeownership marginally less attractive in California and therefore means rental housing is more attractive,” Tipton said. 

Tipton said job growth in Los Angeles and Orange counties is also driving the demand for multifamily.

About two-thirds of the panelists, he said, plan to develop multifamily housing in Northern and Southern California.

The only issues are acquiring land and construction costs. It is getting more expensive to build, Tipton said.

“The question here is can the job and economic growth keep up with the rising cost of maintaining the optimistic balance of the panelist,” he said.

Tipton said overall, the real estate community has become more bullish and expects the industry to continue to grow for the next three years.