California Office Market Awaits Recovery
While class A office asset prices in
California have climbed back to about 90 percent of their peak, rental and
occupancy rates still have a long way to go, according to the June 2011 Allen
Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey,
which tracks office and industrial activity in the state’s major markets.
“The easy money policy of the Fed
combined with a below normal equilibrium number of properties available has led
to a rapid price recovery,” while the underlying fundamentals of these assets
have shown little to no sign of improving, the report says. As a result, the
major gap in price and earning potential suggests either a bubble or a coming
recovery of fundamentals. Developers in these markets are cited as being
generally optimistic about construction market improvements in 2013 and 2014.
Southern California’s current office
market vacancy rates remain high with localized improvements in select markets
being achieved at the expense of nearby markets. The report characterizes the
current state as the “churn” before the overall market starts to improve. The
market’s continued weakness is attributed to overall economic conditions rather
than overbuilding in both Los Angeles and San Diego, according to the report.
Northern California’s conditions are more
favorable, mostly due to the active high-tech sector. A significant number new
leases and new construction projects in the San Francisco/Bay Area market have
shifted local developers’ view from optimistic to enthusiastic, the report says.