The latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey shows that despite the recent uncertainty in the stock market, increasing cap rates, and slower economic growth, developers’ views on California commercial real estate markets have not changed much from six months ago.

The biannual survey projects a three-year-ahead outlook for California’s commercial real estate industry and forecasts potential opportunities and challenges affecting the office, multifamily, retail, and industrial sectors.

Following the trends of the past two years, industrial space remains hot despite the economy’s fluctuations, multifamily housing remains strong in most markets, office has reached its peak, and retail markets continue to struggle.

Office space market sentiment weakens. As previous analyses of the office market have predicted, the latest survey has confirmed that the apex of the market has been reached for this cycle. This is true in both the Bay Area and the three Southern California markets, where survey participants say that office rental rates are as high as they will be for the foreseeable future on an inflation-adjusted basis. 

Online sales keep retail development on a decline. The current survey extends the recent stretch of pessimism about future retail markets—panelists indicate that occupancy rates are expected to continue to deteriorate through 2021. This has occurred in spite of good job growth, rising incomes, and more than 3 percent gross domestic product (GDP) growth. While new retail for housing, office, and hospitality projects provides niche opportunities in this space, there is just too much capital in brick-and-mortar retail. 

Fueled by e-commerce and imports, industrial remains hot. Of the three major nonresidential real estate markets, industrial space is the only market still trending upward. This is caused by the same online shopping trends that are hurting the retail market, as well as a continued increase in imports. In 2019, real personal income growth in California is expected to hold up and support the current industrial space expansion, which is dominated by warehousing and distribution centers.