What’s in Store for Real Estate: The Next Eight Months

Author: Sharon Berman | April 21, 2014

Real estate is always a hot topic, especially in California. What does the future hold? Here are some notable predictions gleaned from a presentation given to a group of real estate professionals by Richard K. Green, PhD, Director of USC’s Lusk Center for Real Estate.

     • Business and Office Space:

In general, Dr. Green believes that the outlook for office buildings is not good. The number of office workers in the United States peaked in 2007, and despite the subsequent economic recovery, demands for space per employee have actually decreased over time, with tall office buildings set to see high vacancy rates. There are also fewer workers in the domestic tech industry now than there were 10 years ago, as the majority of that work – the midlevel jobs, rather than the high-end or creative positions – continues to be outsourced due to lower salary demands from workers overseas.

Despite this overall flatness in the office market, there is one area that is showing decent growth: professional services, such as top accounting or law firms. However, these firms still want less office space per person.

     • Retail:

Retail sales have been steadily recovering, but shopping centers are still lagging due to the popularity of online sales. The United States has more retail space per capita than anywhere else in the world, and yet the big online retailers are grabbing the lion’s share of the market, largely because the brick-and-mortar giants that are intended to anchor real-world shopping centers are often poorly managed.

Additionally, much like the Depression-era penny-pinchers before them, a generation of Americans has grown up during the recession – and it remains to be seen exactly how much of an impact that will have on their future spending habits. The effects of such economic hardship could be long-lasting, if not permanent. However, while middle market stores are struggling, luxury retailers are positioned to grow, as the very wealthy continue to prosper.

     • Hospitality and Hotel Space:

Dr. Green pointed out that air travel is a reliable indicator of how the hotel market can be expected to perform. At the moment, the U.S. is enjoying near-record volumes of air passengers. He cites the new TSA pre-check option as one factor driving this increase in air travel, and expects the trend to continue in the foreseeable future.

     • Housing:

According to Dr. Green, housing always leads market recovery, and despite the fact that many young people – the “boomerang generation” – have elected to move back in with their parents out of economic necessity, eventually these people will be on their own and need housing. Yet as the general population waits longer to marry, there will be greater demand for condos and apartments in urban areas rather than sprawling ranch houses in the suburbs. Another notable trend is that many older people will be able to stay in their houses as they age rather than moving to an assisted living facility due to innovations in medical technology. Dr. Green also pointed out that California is second only to Hawaii in terms of how difficult it is to build new housing, largely because of entitlements – and that the high price of housing in the state reflects that fact.

Despite these difficulties, Dr. Green also remarked upon the fact that his students at USC are more entrepreneurial than anywhere else in the country. The real estate market may be in flux, but there will always be demand for both housing and commercial space in California.

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