Robust job growth coupled with increased consumer confidence is fueling the construction demand for commercial office space, multifamily housing projects, and additional industrial warehousing space through 2017 in six major California markets. The outlook is based on the most recent Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey. The survey results are leading indicators of future commercial construction in California. 

An analysis of the three-year outlook for real estate development activity provides insights into new, not-yet-on-the-radar, building projects. 

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“The forecast is optimistic for commercial real estate once again, and is expected to remain solid for the next few years,” says Jerry Nickelsburg, adjunct professor of economics at UCLA Anderson School of Management and UCLA Anderson Forecast senior economist. “Developer sentiment in general is buoyed by a recovering economy, job market growth and increased imports through California ports.”

Commercial office space: Still hot for developers

In comparison to the last survey, conducted in May 2014, Southern California developers now are more bullish than in previous years. Forty-seven percent of panelists said they began projects in the last 12 months. Looking forward, 51 percent indicated they would begin a development in the next 12 months as compared with only 35 percent last May. 

The San Francisco Bay Area panel agreed that office space demand, though growing at a significant rate, is no longer outpacing construction. That panel also forecasts a potential easing of rental rates. Development momentum has shifted to the East Bay, as the expensive rental rates in San Francisco proper push some companies across the bay. 

Multifamily market: Sitting pretty on the San Francisco Bay 

With employment growth steadily increasing in California, housing demand is creating an increase in multifamily housing development. The San Francisco panel had the highest level of optimism regarding vacancy rates, rental rates and the overall multifamily market. 

Higher rents and occupancy rates reflect better returns, which is expected to stimulate multifamily construction in 2016 and beyond. While more units are expected to be delivered in 2015, developers do not anticipate an increase in the number of multifamily construction projects over the next 12 months. 

Industrial and warehouse space: Space needed for imports and product storage 

Signs of a recovering U.S. economy led to increased consumer confidence and spending during the second half of 2014. Imports from Asia and Mexico through California ports of entry are on the rise. At the same time, many brick-and-mortar retailers have experienced an increased number of online purchases, prompting a need for more storage and distribution space. As a result, positive sentiment continues for manufacturing and warehousing space markets, with 70 percent of the panelists planning to begin new projects during the next 12 months.