The UCLA Anderson Forecast held its second quarterly conference of 2014 and it was a good news/bad news outlook. In partnership with the UCLA Ziman Center for Real Estate, the special topic was “The Changing Landscape of Commercial Real Estate,” and included initial results from the Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.
David Shulman, Forecast senior economist, predicted that, although there are major pressures and sweeping changes at work in the commercial real estate sector, not all is bad. “We will see a rebound in commercial construction,” he told attendees. That being said, he noted factors such as e-commerce, disruptive technologies like rental site Airbnb, smaller space needs on a per worker basis and even the Panama Canal widening will cause deep challenges. “You’ll see pressure on rents across the entire [commercial real estate] system as more and more purchases go to e-commerce,” he said. “The fancy malls think they’re immune, but it’s not clear that’s true.”
Keynote speaker Lewis C. Horne, CBRE’s president for the Greater Los Angeles-Orange County Region, noted that his company had itself done a major restructuring of their office into an open-floor-plan workspace. Downsizing worker space would seem counterintuitive to the economics of the world's largest commercial real estate services firm, but he said the benefits are more than just rental savings. “I would do this [type of reorganizing] without the cost savings. We’re a better company because of it,” he said. He also expressed optimism for the region’s CRE prospects. “It’s a great time to be in Southern California and the Los Angeles area. We’ve never seen global investment the way we have today,” he said. “Four of the largest deals in downtown L.A. were from Asian investors.”
In fact, Forecast Economist William Yu echoed Horne’s optimism in his talk “From China to California: Trans-Pacific investment in Real Estate.” Noting the high purchase price to rental rate ratios in China, Yu said the economic logic to inflows of Chinese capital makes sense. “If I’m a Chinese investor, I should sell the condo in Shanghai and buy one in Westwood and collect the higher rent,” he said. Specifically, he said the Los Angeles area is an ideal place for Chinese real estate investment because of the depth and liquidity of the economy, the geographic location, large Asian communities and nice weather.
That focus on Asian investment in Los Angeles and greater California might be one reason for UCLA Anderson Forecast Senior Economist Jerry Nickelsburg’s optimism for the California economy. “In the United States, a few states are leading the recovery and California is one of them,” he said. “There are a few states with very, very sick labor forces.”
Those deep labor and economic issues affecting the U.S. economic outlook are more than just standard swings in historic trends, said Ed Leamer, Forecast director. “We’re in the midst of some deep secular changes,” he said, noting fundamental deviations from expected economic behavior. “It requires the attention of our national leadership to give us the medicine to cure the disease [outlined] here,” he said.
The quarterly conference culminated in a panel discussion featuring real estate industry representatives, who shared their thoughts and predictions for the commercial real estate sector.
For more on today’s event, which also featured a sneak peak at the upcoming Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey publishing in July 2014, visit the UCLA Anderson Forecast website.