Wednesday, August 30, 2017

California Commercial Real Estate Forecasts Slower Growth Ahead

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

6 Reasons to Attend an Open House..Even if your not Buying a Home

Perusing online real estate listings can be nothing less than addictive. We've all spent time scouring the internet, ogling homes for sale that we don't intend—or can't afford—to buy. Because it's fun!
But would you ever hop in the car and go look at a house in person, even if you're not at all ready to make an offer?
Before you dismiss the idea, consider what you stand to gain by turning house hunting into an extracurricular activity.

Sure, it might seem nosy at first—and we're certainly not encouraging you to be a straight-up looky-loo. But regardless of whether buying or selling is in your near or distant future, there are many benefits to going to an open house.
Like what? We're glad you asked! Here are six solid reasons to hit up an open house next weekend.

Reason No. 1: Learn more about what you can afford

What you want to buy and what you can afford to buy are often two very different things.
Unfortunately, you don't always figure that out until you're deep in the process of house hunting, perhaps with your heart set on a dream home that will drain your finances and make you house-poor.
"Many first-time home buyers ask me to find them something that doesn't exist,” says Melissa Colabella, licensed real estate salesperson with Julia B. Fee Sotheby's International Realty, in Irvington, NY. “They are often shocked to learn that single-family homes do not even exist in their price range in their preferred neighborhoods.”
Attending open houses lets you get a grip on what you can realistically expect to find in your budget. Sure, you can enter a price range online on®—but remember that perusing online listings is only the first step of the process. Often, actual homes look quite different from their online photos, which can be focused on or touched up to show only the best parts of the property.

Reason No. 2: See the agent in action

Even if you don’t find your dream home, you might meet your dream agent. What better way to interview the candidates who could represent you on either side of the transaction than by seeing them in action, points out Realtor® Patrick Madigan, owner of Madigan Realty, in Raleigh, NC.
While most sellers interview multiple agents to find the best fit, he finds buyers rarely do—which can be a mistake.
“Open houses present a great opportunity to get multiple face-to-face appointments with potential agents, without having to set up a formal appointment to interview them,” he says.
Be alert to whether the agent engages you when you first come in or is too busy to acknowledge and help you. And come armed with a few insightful questions about the local market to see if the agent seems knowledgeable about more than just that one open house, Madigan suggests.

Reason No. 3: Check out the competition

Traffic at an open house can be a gauge for whether the sellers have found a sweet spot with their price, since a new listing should be attracting multiple visitors when priced correctly.
If you’re a buyer, the number of visitors can indicate how quickly you might need to pounce when you decide you’re ready. (And it can tell you how to price your own home to move fast if you’re selling.)
“Some markets will allow for you to have a few days to mull over your decision, but an open house with 34 visitors can indicate your offer needs to be submitted right away,” Colabella says.
You'll also get a face-to-face look at your competition. If you listen carefully, you might pick up some intel about the kind of buyer the seller is looking for. Even if you don't intend to buy this house, the info might come in handy down the road.

Reason No. 4: Get a feel for the neighborhood

If you’re looking in a new, largely unfamiliar community, browsing for a few months can tell you a lot about your potential neighbors. You’ll get a sense for who primarily lives there (e.g., families, retirees, or singles), whether the neighborhood is abuzz with block parties and other events, or if it's mostly quiet. Plus, you'll get the chance to meet other prospective buyers, and learn where they’re relocating from and what they’re looking for in their new community.
“Of course buyers come in every demographic, but sometimes the patterns are surprising,” Colabella says.

Reason No. 5: Learn more about your needs

“As first-time homeowners, we weren't sure yet what we were looking for exactly beyond the number of bedrooms and bathrooms," McGrath says. "The open houses helped us learn more about layouts and amenities we liked.”
In fact, you might be surprised by what you gravitate toward when you really look around, Colabella notes.
“Often buyers think they want charming, older homes but then decide newer construction better fits their needs," she says. "Or they start with houses and then switch to townhomes or condos after losing sleep over the concept of homeownership maintenance.”

Reason No. 6: Do some design recon

Wouldn’t you love to have someone give that designer touch to your house? Many homes for sale have been professionally staged or recently fixed up, so an open house can give you insight into the latest design trends. And since they’re often done on a budget, it can get those creative juices flowing for how you could incorporate wallet-friendly tricks to spruce up your space (like opening up your space with strategically placed mirrors).
And, if you’re preparing to sell your house, you can use open houses to pick up some staging tips of your own. Notice what you pay attention to and how little touches—such as fresh towels and empty closets—can make a big difference.

Tuesday, August 1, 2017

San Francisco Median Home Price Rises to $1.4 Million

Despite 2016’s general loss of inertia, Paragon Real Estate Group now reports that the price of a house in San Francisco is up to a median of $1.4 million in the first half of 2017.
Paragon economist Patrick Carlisle notes that in 1996 the same price was a mere $274,000, although according to the Bureau of Labor Statistics’ inflation formula that comes out to nearly $434,700 in today’s currency.
At the time that was double the national average. But in the first half of 2017 Paragon calculates the median price of a house in the United States as $240K, just less than one-sixth the SF price. (And also still less than the city’s median from 21 years ago.)

The St. Louis Federal Reserve presently marks the nationwide price of a house at just over $310K, so there is some room to debate the size of the gap.
But since even that more conservative estimate leaves SF real estate 4.5 times more expensive than the rest of the country, it’s an intimidating landscape no matter what.
Carlisle pegs the median in San Mateo County at $1.38 million, Marin County at $1.26 million, and Santa Clara County at $1.13 million.
Alameda County overall is $855K, while the city of Oakland comes out to $715K.
Solano County has the lowest median, according to Paragon, at $406K, 1.3 to 1.6 times the nationwide figure, depending on the estimate.
Breaking down prices by neighborhood in each county, the rankings go:

  • Pacific + Presidio Heights, SF: $6.18 million.
  • Atherton, San Mateo County: $4.85 million.
  • Los Altos Hill, Santa Clara County: $4.18 million.
  • Belvedere, Marin County: $3.7 million.
  • Piedmont, Alameda County: $2 million.
  • Alamo, Contra Costa County: $1.63 million.
  • Rockridge, Oakland: $1.52 million.
  • St Helena, Napa County: $1.36 million.
  • Healdsburg, Sonoma County: $864K.
  • Benician, Solano County: $625K.

Carlisle notes that although it’s less visibly pricey than many surrounding cities and less pricey than SF in particular, Oakland remains the city to watch out of the pack:
SF has had the highest compound annual rate since 1996: It is the epicenter of the Bay Area high-tech, bio-tech and fin-tech economic miracle.
But Oakland soars above all other markets in appreciation since 2011, because of a combination of factors: It is the closest affordable alternative to much higher SF prices; it is a lively, multi-cultural urban area appealing to high-tech workers; and its housing prices dropped an astounding 60% after the 2008 crash.

He adds, “We now recommend that all our clients go back in time to 1995 or 2011 and buy as many homes as possible.” If only it were that easy.