Find out what market influencers are dictating the future of commercial real estate in California.
If California were an independent nation, it would have the seventh largest economy in the world. It currently enjoys an economic growth rate that exceeds those of Japan and Germany, and the major industries fueling its economy are vast. From a massive agricultural operation in Central California to Silicon Valley’s tech industry in the north and even better, commercial space in the Golden State is at a premium.
Interestingly, the forces shaping the future of California’s commercial real estate market are both familiar and brand new. Below, we’ll look at four market trends we anticipate will shape California’s CRE market in the next few years:
If you are focused on the Los Angeles market, you can read our most recent market report here.
1. Shortage of Supply
California’s CRE market has always been tight, and indicators say it is only getting tighter. Southern California, in particular, is running out of land on which to build commercial structure, and some analysts estimate that 98% of Southern California’s commercial spaces are currently occupied. Compounding this shortage and the ensuing spike in prices is the slow rate at which new supply is coming to market and overall lack of construction in the region.
Bejamin Osgood talks about this further in his analysis of why the Bay Area is not going to ‘pop’.
2. Foreign Investment
In today’s rocky political climate, California remains a safe-haven for foreign investors. The technology industry alone attracts billions of dollars in foreign investment each year. In CBRE’s latest Global Investors Intentions Survey, Los Angeles was ranked the number one city in the world in regard to anticipated foreign CRE investment in 2017.
Interestingly, not all foreign dollars will be spent on commercial real estate within California’s large urban centers. Strong growth in the industrial sector has spurred foreign investors to purchase warehousing space in smaller areas located along major transportation routes. In 2015, for example, Bakersfield, California (which sits alongside the Interstate 5 freeway) was identified as one of the hottest secondary markets in the nation for foreign CRE investment.
3. Legalization of Marijuana
In November 2016, California voters approved a measure legalizing the recreational use of marijuana — a move that will likely have a tremendous impact on industrial warehouse spaces, which are already at a premium in the state. In fact, the rise of industrial cannabis production has already had an immediate impact on bare land zoned for industrial use. Within just two weeks of the November vote, the price of such land in one southern California community skyrocketed from $50,000 to $300,000 per acre.
There is also a potential influence on the retail market. As Michael Lagazo outlined, SoCal Retail is undergoing somewhat of a reinvention
4. A Shift Away from Traditional Office Space
The overwhelming theme in California commercial real estate is the overall shortage of commercial property, with a pronounced lack of office space. Considered alongside the technological advances already transforming American workspaces, many employers are shifting their attitudes toward remote workers and allowing employees to work from home. Not only does this arrangement facilitate major overhead savings, but new digital tools make it possible to continue operations seamlessly outside of a traditional office environment. Meanwhile, employees who are granted to freedom to work remotely report increased satisfaction with their jobs. An added bonus? Fewer cars clogging California’s perpetually congested roadways.
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