In the six months since the last Commercial Real Estate Survey from Allen Matkins and UCLA Anderson Forecast, interest and cap rates have increased and a possible recession has become less of an immediate challenge. This Summer 2023 survey, one of two forecasts a year from these groups, reflects an overall cautious but optimistic tone regarding new home and related retail development, as well as industrial growth for California markets. If a recession occurs, it's expected to be milder in the state than for the rest of the country. 

Yet, challenges persist and include required equity percentages and investment return hurdle rates that are likely to rise over the next three years. The three-year mark is a significant benchmark since that's how long most new commercial projects take to be completed since they include the need for a business plan, preliminary architecture study, search for financial backing and finetuning of plans. Here's a snapshot of how the different sectors look:

Office markets. The return-to-office sentiment began to pick up last year but then waned to the point of becoming negative in eight markets surveyed. Participants responded that they expect rental and occupancy rates to weaken in the coming year and don't foresee a full recovery before the end of 2026. The bottom line may be less new office construction in the year ahead. Ongoing remote work has affected the state's Central Business Districts.