Silicon Valley and Bay Area Developers optimistic about Office and Industrial Market Outlook

Posted on 6 February, 2014 by Cliff Goodwin

A unique long range survey of Californian building trends has rated Silicon Valley as the most “optimistic” for office development.


The twice-yearly report — compiled by law firm Allen Matkins and the University of California Los Angeles — questions construction and development companies about their outlook for the next three years, providing a better insight into development that’s “not yet on the radar”. And this was the first time since 2007 that America’s leading independent economic forecast found a positive outlook across all West Coast market sectors.

Previous Anderson Forecast Commercial Real Estate Survey’s have indicated that a 50 per cent optimism level about future business and expansion was the norm. This year the forecast found Silicon Valley developer sentiment hovering around 73 per cent, the highest in California.

Over in San Francisco’s Bay Area, a little further north, just over half of developers questioned confirming they would be starting one or more new projects within the next year.

Bay Area sentiment in the industrial developer, covering manufacturing and warehousing, declined slightly to about 60 per cent, but “the bottom line for industrial space in California is one of strongly positive developer sentiment,” the report notes.

In last year’s summer survey, 67 per cent of Bay Area industrial developers said they expected to begin new projects in the next year. That number has fallen to just 25 per cent in this winter’s survey, a plunge the forecast attributes to the fact that many projects have now started.

Worries about the Fiscal Cliff and national economic policy on the demand side and a sense that sufficient building work was underway to keep vacancy rates at or above current levels in 2016 persisted throughout last summer.

In the latest survey “these concerns have subsided and the sentiment with respect to vacancy rates moved solidly into the optimistic range. Our ability to predict the real estate markets helps us make better business decisions,” said John Tipton, a partner at Allen Matkins.

“Understanding the timing of markets is critically important to our decisions. Because of long lead times for real estate development, general economic conditions, such as job and income growth, are not always in phase with the real estate business cycle.”

Although the survey is still relatively new and there is not enough data for rigorous statistical analysis, Tipton was confident about its statistically based forecasts.

“Because we question commercial developers and financiers for insights into their particular markets, the survey and the resulting Index provide a measure of the commercial real estate supply-side participants’ view of current and future conditions. Since participants make investment actions based upon these views, it provides a leading indicator of changing supply conditions,” he added.

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