Speakers and Mihaylo leaders at the commercial real estate event on Jan. 29. From left to right, Jim Sullivan of Green Street Advisors; Chris Graham of JP Morgan; Michael LaCour-Little, director of the Mihaylo Real Estate and Land Use Institute; Pat Donahue of the Donahue Schriber Realty Group; Anil Puri, dean of the Mihaylo College of Business and Economics; and Allen Staff of Bank of America and Merrill Lynch.
Mihaylo’s Real Estate and Land Use Institute presented its annual industry outlook for the Southern California commercial real estate market on Jan. 29. The event featured a panel discussion with some of the top names in the industry.
The commercial real estate market in Southern California was hard-hit by the broader real estate downturn that accompanied the Great Recession of the late 2000s. Yet by 2014, vacancy rates had fallen to their lowest level since 2008 and the market was experiencing slow, but steady, recovery.
Mihaylo’s Real Estate and Land Use Institute held its annual commercial real estate forum on Jan. 29 at the Westin South Coast Plaza in Costa Mesa. This event, cosponsored by Bank of America and Merrill Lynch, was entitled “Commercial Real Estate Outlook 2015: Clear Sailing or Pending Volatility.” The event featured a panel discussion with Allen Staff, the Orange County president of Bank of America; Jim Sullivan, managing director at Green Street Advisors; Pat Donahue, chairman and CEO of the Donahue Schriber Realty Group; and Chris Graham of JP Morgan Chase.
Donahue noted that the outlook for the real estate industry is, as always, uncertain. “Volatility is the way of the world going forward,” he said. “The speed of information creates more volatility.”
Staff is cautiously optimistic about 2015. “Generally speaking, the trend is positive,” he said, though with caution about the long-term outlook.
“The macroeconomic environment is not great, but good enough for real estate,” says Sullivan, adding that “operating fundamentals are good to great.” He notes that supply growth is near historical lows in most property types, which provides an opportunity for further growth. He is also optimistic about the demand for U.S. real estate from foreign investors, which is forcing prices higher. “Real estate in the United States is becoming the safety deposit box of the world, with respect to capital.”
“It is a great time to be an owner, but it is not a good time to be a developer,” says Donahue, noting that many retail companies are downsizing.
Donahue notes how the real estate industry has become increasingly capital-intensive, in a move away from speculative developments. The ease in availability of data during the last 20 years has made capital decisions the basis of the industry, says Sullivan.
The panelists noted a number of possible headwinds that could derail the industry’s recovery. Graham notes that supply in some markets is based on major technology employers, particularly in Seattle and the Silicon Valley. While not necessarily worrisome, it could signal unstable real estate markets, depending on company performance. “Do these companies need all this space?” he questions. Loss of capital discipline, including speculative development, could be a concern, as could possible rises in interest rates, particularly if not accompanied by strong economic growth, notes Sullivan. Still, there is general optimism on the market’s performance.
The entire discussion can be viewed online in this YouTube video.
The Real Estate and Land Use Institute is the CSU system’s real estate and urban land use education center. Its Mihaylo branch, founded in 1996, offers a real estate program for business students planning a career in the industry. The institute also provides scholarships and oversees the CSUF Real Estate Association, a student club offering networking opportunities and events related to real estate careers. For more information on the institute, visit them at SGMH 5163, call them at 657-278-4125 or visit them online.