San Diego's office vacancy continued its downward trend in the first quarter of 2017, closing at 14.4%. Tenants recorded 457,000 square feet of positive net absorption (occupancy growth) in Q1, the 11th consecutive quarter of net growth. Meanwhile, class-A office occupancy set a 10-year first-quarter high with 212,000 square feet of positive net absorption. Overall industrial vacancy stood at 5.1% at the close of the first quarter of 2017, with the market recording 182,000 square feet of positive net absorption, the 23rd consecutive quarter of industrial expansion.

Job growth is an important contributor to a healthy commercial real estate market. San Diego's unemployment rate dropped to 4.2% in March 2017, while local unemployment has been sub-5% since August 2016.

In Orange County, after the first quarter, the “wait and see” period has come and gone. Better-than-expected optimism post-election and low volatility in the market should result in an uptick in investment activity in Orange County toward the later part of the second quarter or into the third quarter. Orange County wasn't exempt from the national trend of a slower pace of investment sales across the U. at the start of the year; however, we are tracking a number of key assets that are being positioned for the sales market that will change this.

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GlobeSt.com: What affect do you think the president's policies will have on the market over the next several months?

C&W: Very little has changed with regard to policy around real estate: 1031 exchange remains intact, and with both strong consumer confidence and employment growth, all indicators suggest that market fundamentals remain strong.

We expect some version of fiscal stimulus (tax cuts, spending increases) will be enacted, resulting in continued economic growth. Many investors are encouraged by the overall prospects, yet are in “a wait-and-see” mode of if and when any changes will materialize while preparing to modify their investment strategies as needed.

Shifts in monetary policy might also impact investment markets since the Fed is likely to continue to raise interest rates. If long-term interest rates increase further in anticipation of stronger economic growth and Fed tightening, this would likely cause a rise in cap rates. Nevertheless, sale values are expected to remain strong, especially in larger-sized class-A product types.

GlobeSt.com: How do you think the markets will change over the next year due to Trump's policies?

C&W: In Orange County, the office and industrial sectors will see the least impact due to policies; however, particular attention should be paid to the retail sector. Regardless of whether e-commerce or brick-and-mortar, both would be similarly affected if the border adjustable tax were implemented. Profound change to imports and exports taxation trickle down to consumers and that trickle down to commercial real estate and how decisions are made moving forward by retailers. In short, tax policy could impact the retail sector most, and trade policy changes would have the greatest impact on the industrial sector.

In San Diego, we don't anticipate any major changes over the next six months. San Diego's unemployment rate has been below 5% since August of 2016 and dropped to 4.2% in March 2017. Even a full fiscal-stimulus package would not change the reality that the US, including San Diego, is nearing full employment, which will ultimately slow job growth and demand.

Trump's pre-election promises included boosting spending on the US military. According to the San Diego Regional EDC, San Diego's defense industry accounts for 20% of gross regional product and is home to the largest concentration of military assets in the world and the largest federal military workforce in the country. Jobs supported as a result of defense spending include uniformed military, federal government employees and defense contractors, as well as employees in healthcare, engineering, construction, hospitality and tourism. As a result, certainly any increase in military spending will positively affect San Diego's economy, employment and demand for commercial real estate.

The life-sciences industry in San Diego accounts for $32 billion or 15% of San Diego's economy, driving demand for R&D and office space. The initial Trump Administration budget proposed reducing federal spending for biomedical research by 18%, but the final numbers will be determined by Congress as it goes through the budget process, which will take several months. The budget process will have to be monitored closely to determine the impact on the local economy.

Statnews.com reported the National Institutes of Health will get a $2-billion funding boost over the next five months under the latest budget resolution passed by Congress. The NIH is the largest single public underwriter of biomedical research in the US. Last year, the NIH provided about $850 million to more than 90 institutes in San Diego County.

Needless to say, any cuts in funding would affect San Diego life-science industry. The funding for NIH is among the top concerns among life-science companies. Life-science inventory accounts for nearly 19 million square feet of space countywide, representing 8% of office and industrial inventory, and recorded a 6% vacancy as of Q1 2017.

San Diego's commercial-investment market volume reached $7.7 billion in 2016 for transactions $5 million and greater, a decrease of 2.5% compared to 2015. Office and multifamily transactions have been leading the way for the last four years, compared to industrial and retail.

Demand for top products in major western markets such as San Diego and Orange County will remain strong with a lot of capital chasing such properties. We anticipate a healthy second half of the year with a mini wave of deals expected to come to market in the next couple of months.

GlobeSt.com: What else should our readers know about this topic?

C&W: We live in a complex and dynamic economic and political environment. We expect 2017 and 2018 to be continued strong years for these two Southern California commercial real estate markets. The probability of recession is at a cyclical low. More of the concern lies in the occupancy options and rental costs for tenants in these market conditions.