Wednesday, September 20, 2017
Wednesday, August 30, 2017
California may be easing into a soft landing with signs of “ebbing optimism” among developers on the three-year outlook for the state’s commercial and multifamily real estate markets.
The new Summer/Fall 2017 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey indicates slower growth ahead in office, retail, and industrial. One of the goals of the survey, which is now in its tenth year, is to address “turning points” in the market, says Jerry Nickelsburg, director of the UCLA Anderson Forecast. “What is significant about the latest survey is that we are now seeing the turning points in most aspects of commercial real estate in California,” he says.
The survey asks respondents where they think rental rates and vacancies will be three years from now. After hitting “rock bottom” in late 2009, the U.S. economy has been moving forward with steady growth for the past seven years, says John Tipton, a real estate partner at Allen Matkins. “So, it is not surprising to see some of the confidence waning,” he says. “Where it gets to be a little more concerning is where you have this more persistent pessimism.”
In the office market, for example, Silicon Valley, San Francisco, and the East Bay led the office market out of the recession. Those markets jumped out as the hottest and fastest-recovering markets. Now all three are below 50 on the survey’s sentiment index, which is the “neutral” line between pessimism and optimism. Orange County and San Diego also saw survey sentiment dip below 50. “That leads one to believe that there could be a little bit more of a correction on the horizon,” notes Tipton.
The bright spot in office is Los Angeles, where things have not only remained positive, at 57.5, but there also has been a slight increase in the amount of optimism as compared with the last survey that published in December. Multifamily also saw an uptick in sentiment as compared with the last survey that was published in December. So, it is important to note that sentiment is not cooling across the board, Tipton adds.
Multifamily has been one of the two sectors of the survey, industrial being the other, that has consistently recorded positive sentiment. However, there was a sharp drop in multifamily sentiment in the December 2016 survey. The view at that time was that the market had been so hot for so long that it was natural that growth was slowing and sentiment was cooling, notes Tipton.
However, the results of this survey show that sentiment has rebounded, particularly in Silicon Valley and San Francisco, where sentiment dropped to nearly 40. Some factors contributing to the reversal in sentiment include strong employment growth and income gains, both of which support demand for rental housing. In every market, developers are optimistic about the course of rental and occupancy rates for the next three years, and three-fourths of survey respondents said they plan to start a new project in the coming year, with over one-half of them starting more than one project.
Office Sentiment Is Mixed
The outlook for office is continuing to trend lower. The office sentiment index has dropped from highs near 80 to below 50. The index went below 50 for San Francisco two years ago, and below 50 for Silicon Valley and the East Bay in June 2016. Despite healthy unemployment levels that are now at 4.4 percent, panelists are concerned that occupancies will not be able to maintain current levels and that rents will not be able to keep up with inflation.
Respondents are more bullish on the outlook for Los Angeles. Downtown L.A. in particular is in the midst of a building boom. In contrast, survey results highlighted some potential warning signs in the Bay Area where sentiment remains at a low of 38.85. However, some industry experts are more confident that the market still has good growth potential.
Eighteen months ago, the San Francisco office market saw a pause in demand. Companies started shedding space, the sublease market picked up, and rents have been flat for 18 to 24 months, notes Meade N. Boutwell, a senior vice president, brokerage services, at CBRE in San Francisco. In part, that was a cooling of a six-year hot streak, adds Boutwell. “At this moment in time, demand is strong and even getting a little stronger,” he says.
San Francisco also has a cap on its development pipeline that has been in place for some 30-plus years. That cap tends to keep new supply in check. “Essentially, we have reached that cap and the supply is going to be very restricted going forward,” says Boutwell. That cap also could create some additional upward pressure on rents, he adds.
Push/Pull Continues in Retail and Industrial
Industrial has benefited from the disruptive impact that e-commerce is having on the retail sector, with more companies focused on the delivery of retail goods bought online. However, both retail and industrial saw cooling of sentiment in the current survey. Developer sentiment is trending negative, at or below an index level of 50 for Silicon Valley, East Bay, San Francisco, and the Inland Empire, while developers are more positive about opportunities in Orange County, Los Angeles, and San Diego.
The interpretation of those results from the UCLA economists is that even though there has been a pullback in sentiment regarding the industrial outlook, it may indicate a shift from a “white hot” market to a “red hot” market. The majority of survey respondents (87 percent) started new projects last year and all said they will be active with existing or new projects this year. Part of that cooling sentiment may be influenced by the fact that there is some natural constraint on new supply. There are not a lot of industrial areas to develop in urban areas, such as Los Angeles or San Francisco, as compared with other markets like the Inland Empire, notes Tipton.
The other side of the e-commerce coin is retail, which continues to struggle with increased competition and changing omni-channel business models. Those surveyed are bracing for a retail sector that will look worse in 2020 than it does today. In fact, sentiment across all six California markets declined in the most recent survey, with a high rating of neutral, or 50, in Silicon Valley, and with Orange County on the low end with sentiment dropping to 38.7.
One of the takeaways from this survey is that sentiment is cooling, which is not unexpected after seven years of growth. However, there are still challenges and opportunities in the California commercial real estate market, notes Tipton. “A rising or falling tide does affect all boats, but at the end of the day, when you are making investment decisions, you are trying to look at a specific location,” he says. “It’s not like buying a stock. You are literally looking at this street corner, this product type, and making those investment decisions.”
Wednesday, August 23, 2017
Reason No. 1: Learn more about what you can afford
Reason No. 2: See the agent in action
Reason No. 3: Check out the competition
Reason No. 4: Get a feel for the neighborhood
Reason No. 5: Learn more about your needs
Reason No. 6: Do some design recon
Tuesday, August 1, 2017
Sunday, July 9, 2017
Since 2012, Bay Area home prices have increased an average of 72%, based on market research conducted by Paragon Real Estate Group. It cited dwindling affordability as a symptom of an overheating market.
The median Bay Area home price hit a record $755,000 in May, the third consecutive monthly record, according to the data analytics firm CoreLogic. However, there was a slight decrease in home prices between April and May.
Median home prices rose 3.1% in Alameda County between May 2016 and May 2017, but declined 1.1% between April and May of this year, according to CoreLogic. In Contra Costa County, home prices rose 6.5% between May 2016 and May 2017 but declined 0.7% between April and May of this year.
“We started seeing the latest round of price increases beginning in 2012,” said housing policy expert Carol Galante, faculty director of the Terner Center for Housing Innovation at UC Berkeley. “It’s moderated a tad in San Francisco, which has brought on some more supply of housing; but in the East Bay prices haven’t moderated at all because there’s not much new supply of housing.”
Other areas becoming more competitive than Bay Area
It’s no secret that the Bay Area’s housing price boom and crisis in housing affordability is largely due to decades of job creation exceeding development of new housing, said Jordan Levine, senior economist at the California Association of Realtors, who sees regions centering on Austin, Denver, Portland and Seattle as becoming economically more competitive than the Bay Area.
Galante said there are concerns that the current real estate boom risks making the Bay Area’s economy unsustainable. As more people are priced out of the local housing market, they will move further and further afield, or jobs will leave the Bay Area and the region will suffer economically, she said.
There may come a day when major tech employers seeking to attract talent will say enough is enough with housing costs in the Bay Area and decide to relocate elsewhere, potentially changing the economic dynamics of the region from growth to a downward cycle, she said.
Levine agrees with that assessment: “It’s going to be a tough sell if you want companies to keep creating jobs in the Bay Area if housing remains unaffordable.”
There are examples of this happening to a small degree already. Zapier, an apps integration company headquartered in Mountain View, offered its employees up to $10,000 in relocation reimbursements if they moved out of the Bay Area.
Galante doesn’t think, however, there will be a real estate collapse like there was after the dotcom crash of the 1990s and the recession of 2008, with their massive job losses.
There has been some recent slowdown in new tech jobs, but the local tech economy is still thriving, driven by Google and Facebook, she added.
“I can’t say how this boom will end, but I don’t think it will be a total crash like 2008,” said Galante.
Real estate booms and busts are cyclical but people often have an exaggerated notion about how long each will last, according to an updated report released in June by Paragon, which tracks housing market cycles in the Bay Area. But it doesn’t work that way.
In the aftermath of a real estate “bubble popping” (or market adjustment), the recovery period typically lasts five to seven years before the next downturn. “We are currently about five years into the current recovery, which started in early 2012,” the Paragon report said.
Predicting timing of cycles extremely difficult
It is still extremely difficult to predict with any accuracy when different parts of the cycle will begin or end. Market adjustments are not always necessarily devastating crashes, but sometimes can be more like air being released from an over-inflated tire.
Typically, housing at the lowest price range in less affluent neighborhoods experiences the greatest price appreciation and biggest price declines — during booms and busts. This year the market for more moderate priced housing remains “quite hot” with prices continuing to appreciate quickly, while the prices paid for more expensive homes have plateaued, according to the Paragon data. Prices for condos have declined.
If business as usual continues, the Bay Area faces a further hollowing out of its middle-income residents, continuing increases in home prices, larger household sizes for the less wealthy, more long-distance commuters, and more residents who live on investment incomes, rather than wages, according to the Association of Bay Area Governments (ABAG).
With the population of the Bay Area projected to reach 9.5 million by 2040, new housing construction needs to return to levels of production not seen since the 1980s to support the best scenario of sustained economic growth with new job creation and affordable housing, according to the Regional Forecast for Plan Bay Area 2040, a report produced by ABAG.
Monday, July 3, 2017
“The housing market has now gone 24 months in a row seeing inventory drop on a yearly basis, the longest streak in over two decades," said Javier Vivas, manager of economic research at realtor.com, in a statement. The shortage is hitting even more markets, he added—8 out of every 10 have fewer homes for sale now than this time last year.
June 2017 Hot List:
|Rank (June)||20 Hottest Markets||Rank (May)||Rank Change|
|2||San Francisco, CA||2||0|
|8||Colorado Springs, CO||6||-2|
|9||San Jose, CA||7||-2|
|10||San Diego, CA||16||6|
|13||Grand Rapids, MI||13||0|
|16||Fort Wayne, IN||11||-5|
|17||Santa Rosa, CA||19||2|
|19||Yuba City, CA||21||2|
And that shortage is reflected in how fast homes are snapped up. Properties in June spend a median 60 days on the market—the same level as May, but five days faster than in June 2016.