There were many doubts about the future of commercial real estate in California toward the end of the year. Early reports, however, offer evidence that California will continue to see conventional trends in the field. In fact, there are several factors in play that indicate that California commercial real estate may see a relatively successful 2017.
- Silicon Valley rebound
The Santa Clara county market fell last year, but this was expected as 2015 was a record year for CRE in the area. Leases for office space fell from a total of 10.3 million square feet in 2015 to a total of 8 million square feet in 2016. Reports suggest that companies are expected to complete new leases totaling 13.5 million square feet this year. Tenants are expected to absorb around 6 million square feet of space after considering the effects of spaces that are vacated or subleased – this would mean another record setting year for the county in 2017. In addition, tech powerhouses will continue to fuel Silicon Valley’s market. Apple’s new campus in Cupertino will bring their occupied office space to 3.9 million square feet, and Palo Alto Networks is expected to occupy 950,000 square feet in Santa Clara.
- Successful retail and industrial markets
The Winter/Spring 2017 Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey was released this month and indicated that these two large CRE markets will continue working in-sync to build each other up. Industrial markets are still blazing, particularly those in the warehouse segment. In addition, retail has been shifting away from distribution outlets as online retail continues to outshine brick and mortar stores. It may seem counterintuitive that increasing trends in online retail would yield positive results for CRE, but this increase will continue to fuel the demand for warehouse and manufacturing space. In addition, the report detailed that increases in spending power in the Bay Area and San Diego, as well as a general move towards experience-based retail, will bring growth to this area of CRE.
- California’s performance and demeanor
When considering that fate of California CRE, another important factor to consider is the state itself – California operates very differently from the rest of the country and may not be as affected by nationwide trends. Recent statements by Governor Jerry Brown regarding issues like climate change, healthcare, and immigration indicate that the state will continue to perform differently in many respects. Though there may still be fear and doubt regarding CRE throughout the country, California has always been an economic powerhouse. If the state were a separate country, it would have been the sixth largest economy in the world last year. It stands to reason that CRE will benefit from the success of the state overall.
Considering the modest performance of California commercial real estate in 2016, trends would imply that we will see an improved market in the year to come regardless of federal policy and funding alterations that are sure to come.