June 12, 2014
UCLA Anderson Forecast Examines Trends In Commercial Real Estate, Economy Across California, U.S.
Industry experts, economists discuss impact of Chinese investments, e-commerce and more
LOS ANGELES (June 12, 2014) -- In addition to the quarterly U.S. and California economic forecasts, today's UCLA Anderson Forecast conference analyzed the "The Changing Landscape of Commercial Real Estate," and the outlook was mixed.
UCLA Anderson Forecast Senior Economist David Shulman spoke about the disruptive technologies that are undermining tenant demand across the nation. In the case of commercial real estate, the disruptions are coming from surging e-commerce sales (which currently account for about 6.25 percent of U.S. retail sales), high mall-vacancy rates (about 11 percent among strip malls) and the downsizing of office space required per worker due to technology - which in turn makes much of the existing office stock obsolete due to HVAC and other compliance issues.
In his keynote address, Lewis C. Horne, president of CBRE's Greater Los Angeles-Orange County Region, shared how CBRE drastically improved efficiency and variety (types of work spaces) by redesigning their L.A. office. The new, First Well-certified office features open workspaces, sit-stand desks, new technologies to promote mobility and fewer file cabinets and paper.
"People don't want to be treated like machines," Horne said. "Our most important asset by far is not the real estate, it's the people in the real estate."
Horne also talked about millennials returning to urban centers where the jobs and "coolness factor" are, and about the influx of global investments into downtown Los Angeles.
"It's a great time to be in Southern California and in the Los Angeles area.... We have never seen global investment the way we have today," he said, noting that four of the largest transactions that occurred in downtown L.A. in the last year were by Asian investors.
Economist William Yu predicted more Chinese investors will turn to U.S. markets in the long run, now that the real estate bubble in China has started to deflate. Los Angeles, in particular, is an attractive destination in which to invest because of its depth and liquidity, geographic location, large Asian communities and nice weather. Los Angeles also has the second largest share (7.3 percent) of the wealthiest U.S. households.
Conference speakers also zeroed in on the latest housing trends. For instance, a shift in demand away from ownership and toward rental is fueling the demand for multi-family units, with construction expected to boom nationwide to more than 400,000 new units in 2015 and 2016, explained Shulman. In California, while home sales have been flat, foreclosures have plummeted to less than 7 percent of the market, while home prices continue to soar, according to Senior Economist Jerry Nickelsburg.
When it comes to jobs, however, California is helping drive the nation's economic recovery, with 2.1 percent non-farm payroll growth in 2014 and a growing labor force (about 128,000 new workers this year), Nickelsburg said. UCLA Anderson Forecast Director Ed Leamer painted a different picture for national job creation, with payrolls currently about 21 million jobs (16 percent) below trend.
"We're in a world of hurt," Leamer said. "Getting Americans back to work is critical for a viable democracy."
He also pointed to shifting demographics that will soon affect the U.S. economy - mainly, a marked decrease in the growth rate of the working-age population (25-64). By 2020, he predicts, there will be fewer than 500,000 new workers in the economy, compared to historical peaks of more than two million new workers, which will lead to slower GDP growth and a near-collapse of household formation in 2023.
The quarterly conference culminated in a panel discussion featuring real estate industry representatives, who shared their thoughts and predictions on everything from Airbnb's impact on the hotel industry to e-commerce. Michael Schall, president and CEO of Essex Property Trust, said that, despite Airbnb's growth (current market cap of $10 billion), business users are more likely to remain loyal to hotel brands and their incentives, such as points programs.
Timur Tecimer, president and CEO of Overton Moore Properties, observed that e-commerce companies are willing to pay high rents for specialized properties to be "in-close" and able to offer customers same-day delivery. He noted, for instance, Amazon Fresh, which recently signed a new lease in Inglewood, Calif., at $20 to $30 per square foot. Tecimer said he expects more e-commerce companies to settle in the L.A. market.
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.
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. More recently, the Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast at http://uclaforecast.com.
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, Global Executive MBA for Asia Pacific, Global Executive MBA for the Americas, Master of Financial Engineering, 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. Follow UCLA Anderson on Twitter at http://twitter.com/UCLAAnderson or on Facebook at http://www.facebook.com/uclaanderson.Contact Information
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