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Allen Matkins/UCLA Anderson Forecast California CRE Survey Confirms a Stalled Office Market, but Reveals Optimism in other Sectors

While office outlook turns decidedly negative, industrial growth is fueled by electric vehicle booms, housing demand keeps multifamily strong, and retail vacancies create opportunities

LOS ANGELES, Aug. 2, 2023 /PRNewswire/ — The 2023 Summer Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey (“The 2023 Summer Forecast” or “the Forecast”) released today reveals that ongoing volatility in capital markets is creating new opportunities in commercial real estate. While sentiment on the office market turned decidedly negative compared to optimism in the sector a year prior, bright spots have emerged across the other market segments, with interest expressed in new development investments despite macroeconomic headwinds.

The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey is a bi-annual survey that polls a panel of California’s real estate professionals to project a three-year ahead outlook for commercial real estate and the macroeconomic trends impacting industry participants across the multifamily, office, retail and industrial markets.

“While the direction of office usage remains uncertain, the 2023 Summer Forecast indicates that there is a light at the end of the tunnel for other real property asset classes, creating cautious optimism among industry participants,” said Allen Matkins partner John Tipton. “As interest and cap rates rise, we are working with many clients looking to navigate new development and investment opportunities, and engaging market- and sector-specific partners to capitalize on existing market conditions.”

Download the Summer 2023 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey, along with supporting materials, here. Embargo date is Wednesday, August 2, at 2:00 a.m. PDT.

Industrial growth fueled by the electric vehicle industry

While growth in the industrial sector is expected to normalize, the 2023 Summer Forecast shows the highest level of planned industrial development since the Great Recession in 2008 and 2009. According to the Forecast, 91% of Northern California panelists and 78% of Southern California panelists are planning new developments in the coming year.

A key driver of industrial’s persistent growth and new development is the rising demand for electric vehicles (“EV”) and the corresponding need for EV infrastructure. With California’s zero-emissions requirement for all new vehicles sold in the state by 2035 and tax credits provided by the Inflation Reduction Act to incentivize EV-ownership, EV-related tenants, such as charging providers, are seeking industrial space, particularly in in-fill markets.

“While consumer spending and reliance on e-commerce has softened amid inflation, the boom in electric vehicle use has maintained momentum and kept demand for this commercial real estate sector strong,” said Allen Matkins partner Barry Epstein. “As we expect to see an increase in electric vehicle-related tenants in industrial buildings, Allen Matkins has formed a taskforce dedicated to guiding our clients on new regulation, land use laws and opportunities that arise in the industrial arena.”

Multifamily outlook is bullish, but market-specific

All respondents to the 2023 Summer Forecast are bullish on California’s multifamily market, with significant new development expected in the coming years to keep up with red-hot demand. According to the survey, 55% of panelists will begin one or more new multifamily project in the next year. This is an optimistic outlook despite softening rents in some regions and remaining high interest rates.

Sentiment varies by market, with more optimism in Southern California compared to Northern California. In Los Angeles, the Inland Empire and Orange County, panelists expect multifamily vacancy rates to remain low while rental rates increase more rapidly than inflation in the coming years. In contrast, vacancy rates are expected to rise in Northern California, particularly in the Bay Area, as the region’s primary industries are the most compatible with remote work.

“Volatility in the commercial and office markets provides conversion and redevelopment opportunities for developers. A new state law, Assembly Bill 2011, provides for the by-right – no CEQA – approval of mixed-income multifamily housing projects on qualifying properties where office, retail, and/or parking is a principally permitted use, subject to specified requirements,” said Allen Matkins partner Caroline Guibert Chase. “However, the feedback that we have received from owners of vintage office buildings is that the conversion of those buildings to residential use is generally financially infeasible due to design constraints and regulatory requirements.”

Retail vacancies create new opportunities

Developers remain on the sidelines with regards to retail. While the 2023 Summer Forecast projects a new development cycle before mid-2026, the number of new developments planned for the coming 12 months represents a decline from that reported as planned in the 2022 Summer Survey. This is particularly true in Northern California, where developers remain most pessimistic about the sector.

The sector has experienced record bankruptcies and store closings in the past year, sparking competition for vacant space among growing retailers seeking expansion opportunities.

“This year has produced more national retail bankruptcies than any time since the height of the pandemic, creating an environment in which there is a lot of vacant space for opportunistic and growing retailers to take advantage of available real estate, and in many cases, very strong markets,” said Ivan Gold, Of Counsel at Allen Matkins.

Office development stalls

The 2023 Summer Forecast shows that outlook on the office sector is resoundingly negative as respondents anticipate that both rental and occupancy rates will weaken in the coming year. As such, no significant office development is expected before the end of 2026. In Northern California, just 14% of the Forecast’s respondents have plans to start a new office project in the next 12 months, and there are no plans for new office development among the Forecast’s Southern California respondents. This sentiment is a steep decline from projections earlier this year, where 20% of respondents in Northern California and 29% of respondents in Southern California were planning new office developments.

“Ongoing remote work has significantly impacted California central business districts, including downtown Los Angeles and San Francisco, causing office vacancies to spike,” said Allen Matkins partner Alain R’bibo. “Looking ahead, expect prospective tenants to be selective and focus on quality. Landlords seeking to fill existing buildings should expect to make significant investments in amenities and modern features to increase not only occupancy, but also utilization.”

About the Survey

The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index polled a panel of California real estate professionals in the development and investment markets, on various aspects of the commercial real estate market. The survey is designed to capture incipient activity by commercial real estate developers. To achieve this goal, the panel looks at the markets three years in the future and building conditions over the three-year period. The survey was initiated by Allen Matkins and the UCLA Anderson Forecast in 2006, in furtherance of their interest in improving the quality of current information and forecasts of commercial real estate.

About Allen Matkins

Allen Matkins, a law firm with more than 225 attorneys, was founded with deep roots in real estate that has leveraged that foundation to grow and build prominent litigation, corporate, tax, labor and employment, land use, and environmental practices allowing us to partner with clients across myriad industries and markets. For more than 45 years, Allen Matkins has worked with clients drawn to us by our reputation for market leading solutions, pragmatism, exemplary quality, approachability, and our unparalleled network of contacts and connections in business and government. For more information about Allen Matkins please visit

About UCLA Anderson Forecast

UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993. The Forecast was credited as the first major U.S. economic forecasting group to call the recession of 2001 and, in March 2020, it was the first to declare that the recession caused by the COVID-19 pandemic had already begun.

About UCLA Anderson School of Management

UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson’s MBA, Fully Employed MBA, Executive MBA, UCLA-NUS Executive MBA, Master of Financial Engineering, Master of Science in Business Analytics, doctoral and executive education programs embody the school’s Think in the Next ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow.
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Paul Feinberg (310) 717-8163
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UCLA Anderson School of Management

SOURCE UCLA Anderson Forecast

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