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January 2009 Quarterly Forecast
> Commercial Real Estate Survey Results, Levan Efremidze, Economist, UCLA Anderson Forecast
The Allen Matkins/UCLA Anderson Forecast Survey Project now includes a survey panel for each of the three Bay Area markets. The survey is designed to measure panel’s expectations of office market conditions three years from now. The November survey results show a general pessimism on the part of the panel for occupancy and rental rates in the Bay Area. There were not any stark differences between the panel’s view of the East Bay and that of San Francisco and Silicon Valley.
The recent declines in finance and professional business services sectors in East Bay are the sources of the weak demand conditions in office space market. Vacancy rates have reached 18% and inflation adjusted rental rates are falling. These changes are driven by the softening demand, rather than by the supply side developments. Supply additions have been moderate since the 2001 recession and will stay below the historic average for next few years. Our statistical model for the East Bay, which supplements the survey results, forecasts further decreases in occupancy rates, while inflation adjusted rental rates are predicted to stay flat. In this regard our model and the survey panel foresee similar conditions in the near term.
Based on the survey results and the models for all Bay Area districts, the San Francisco market will start a recovery in late 2010, Silicon Valley will be the next in 2011, and the East Bay market will turnaround after 2012. The next survey will be conducted in May 2009 and will give us a glimpse on office market expectations for 2012.
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