The office market seems to have rebounded, according to the Winter/Spring 2018 Office Survey from Allen Matkins and UCLA Anderson Forecast. The survey, which GlobeSt.com has obtain exclusively, shows a spike in optimism for the next three years and a more bullish attitude from investors—especially in the Northern California markets. We sat down with John Tipton, a partner at Allen Matkins, for an exclusive interview to talk about the shift in sentiment and what is driving it. Take a look below, and then watch the video with extra commentary from the experts involved in the survey.
GlobeSt.com: How has office sentiment changed since the last survey?
John Tipton: After the last survey, all of the markets except Los Angeles had either stayed negative, such as up north, or had gone negative, such as San Diego and Orange County. When you look at this survey, Los Angeles stayed positive, as it had all along, and Orange County and San Diego both bounced back to positive, pretty sharply. All of the Northern California markets became more optimistic, although in those cases they are reaching the 50-50 watershed separating optimism and pessimism.
GlobeSt.com: This is a notable and positive shift in sentiment. What is behind this change in sentiment?
Tipton: The UCLA economist Jerry Nickelsburg's analysis is that this is driven by the tax cut, which was passed by Congress toward the end of the year. Even though if you are a California homeowner or a high earner, you don't really like it that much, the tax cut had some pass through income provisions, so if you are a real estate investor, you do like it. The tax cut is favorable to commercial real estate, and that seems to be something that the investors took note of that made them more optimistic for the next three years.
GlobeSt.com: Northern California seems to be the focus of optimism in the survey. What is driving the renewed optimism in this market?
Tipton: First, you have the fact that Northern California led out of the great recession in 2008 through 2010, so it went positive earlier than any other market. Everything in the world is cyclical, keeping in mind that this survey asks what do you see three years out, not today or six months out. Northern California led in the resurgence, and then things were so good so early that the market turned more pessimistic first. As far as what changed, I think that it is that things go in cycles and now people looking three years out—with the benefits of the tax plan—are becoming bullish again.
GlobeSt.com: What is the outlook for the Southern California office markets?
Tipton: Los Angeles has—other one little blip in 2012—stayed positive throughout this cycle. It has really been the steady eddy in a good way for the office market. It didn't really have a bump from this tax plan, and to some degree seems to be because people are already investing. In San Diego and Orange County, which went below 50 for the first time in the last survey, there is a slowing of employment growth, land prices are steady to falling and people are saying that they are going to stay on the sidelines. Why would they become more optimistic? The factor there does seem to be the tax overhaul.
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Kelsi Maree Borland
