February 22, 2019

Where is SF Bay Area Commercial Real Estate Headed in 2019?

Essel Environmental Engineering looks at the big picture. We like to know what the year will bring for the commercial real estate industry in San Francisco and the Bay Area and hope to give you guys a preview of the industry and where it’s headed.

What’s Happening in California is Happening in the Bay Area

Since 2017, many in the California financial sector have been forecasting a decline in the real estate market, except the industrial real estate sector, for 2018 and 2019. Statistics since 2017 have shown this to be true. T Some of the main components causing this slowdown include an increasing cost of living throughout California, a continual increase in taxes (including property taxes), the continual increase in construction costs, the advent of new business competition and models, a growing need and use of extensive technology, and ever-changing investor and tenant expectations. These and a growing exodus of office businesses from the Bay Area are definitely redefining the commercial real estate  sector. In addition, we see more and more investors increasingly favoring newer business models and a tech-generated ecosystem. Companies are learning they need to realign business priorities and adapt to all these new demands. In order to win new customers and talent, as well as investment dollars, an attitude for change, new tech and business methods is essential. Even the Anderson School of Business at UCLA forecasts that office and retail construction is expected to slow, while industrial and multifamily real estate should continue to grow through 2018 and 2019. This we saw throughout 2018; and thus, expect to continue seeing throughout this whole year in the Bay Area.

In the Bay Area, Commercial Real Estate Means Industrial Real Estate

We should remember that the commercial sector hit a post-recession peak of $547 billion in transactions during 2015. But a continual decline has been seen since then and we believe, like many other experts, that it may hit a decline of as much as $414 billion during 2019. Still, it is a number well above the recorded 16-year average of $294 billion. What good news do we have for you? Unlike retail, office, and other commercial sectors, we predict industrial real estate sales to continue to grow throughout 2019. In fact, many have projected sales to rise by an average of 4 percent per year over the next three years. This will continue to rise if millennials move to the suburbs in large numbers and enter the office and retail workforce, while investors shift more toward redevelopment of parcels and structures already in place. Overall, we agree that continued economic expansion will occur, with moderate employment growth and with solid but cautionary performance throughout the California real estate industry, especially in the Bay Area.