Unusual Economic Recession Shows Mixed CRE Outlook through 2023

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In this time of uncertainty I like to turn to trusted resources for information. No better source of information then my alma mater UCLA. The Winter 2021 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey includes interesting forecasts. I’m re-posting this update so that people can be more educated about their real estate and financial decisions.

Current Recession Creates More Challenges for Retail

During the previous economic expansion, retail faced an uphill battle. The current recession tripled down on that struggle. First, the loss of household income and the shelter-in-place policies reduced current demand for brick-and-mortar retail. Second, the inability to physically frequent many retail establishments created a new set of online shoppers. And third, increases in the savings rate on the part of households in response to the recession portends less individual consumption. This all results in more marginal properties not finding tenants who are willing to pay sufficient rent. The current pessimistic view among panelists is that retail properties will be generating significantly lower, if any, returns in 2023 compared to the end of 2020. Overall, the level of new retail property construction is expected to significantly decline from 2020 through 2023; and some existing space, lacking sufficient demand, will be converted to other uses.

Multi-Family Market Sentiment Continues to Be Mixed

Multi-family market expectations have improved in Silicon Valley, Orange County, and San Diego, while in the other markets surveyed, panelists do not see 2023 as having higher occupancy and rental rates compared to today. The markets that have not seen improved sentiment are either urban areas that have had dramatic declines in rental rates because of an exodus to more suburban areas (San Francisco and Los Angeles) or are generally home to more lower-income workers (the East Bay and Sacramento regions), hard hit by the recession. Overall, though the pandemic has changed the nature of the demand for apartments — both geographically and in their footprint — multi-family development is still expected to grow in California as the economy rebounds and housing demand grows again.