Q4 2021 Western Region Investment Sales Markets Predictions And Updates – Real Estate and Construction

United States:

Forecasts and updates of the investment markets for the fourth quarter of 2021 in the western region

December 02, 2021

Allen Matkins Leak Gamble Mallory & Natsis LLP

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Allen Matkins recently held the 14th Annual View from the Top along with several industry experts. One of the discussions, moderated by Allen Matkins partner Crystal Lofing, was about forecasting and updates in the western region from the investment side. Panelists included Eliott Trencher, senior vice president, chief investment officer, Kilroy Realty Corporation; Stephen W. Van Dusen, General Manager, San Francisco, Eastdil Secured; Kevin A. Shannon, co-head of US Capital Markets, Newmark; and Jonathan Lange, Vice President, Regional Property Manager, Boston Properties.

Five findings from the discussion are listed below:

1. THE HOT PRODUCTS AND MARKETS

The recovery from the dark days of the COVID-19 pandemic has seen clear winners and losers. Investors look for data points to make decisions, and the markets with the clearest data points are the markets with the best speed. Some of the hot markets now are Seattle, Bellevue, Burbank, UTC, and Sorrento Mesa. But each area has a different driver. Bellevue and Seattle, for example, are seeing an increase in jobs, leading to fierce competition for land to build specialized offices. On the other hand, UTC and Sorrento Mesa are seeing growth in the life sciences. Many who have worked from home are likely to return to a more traditional setting. The Class A product will benefit the most, and this is where most of the demand is.

2. SAN FRANCISCO AND SILICON VALLEY ARE WELL POSITIONED FOR RECREATION

Many technology companies in the Bay Area have seen record highs in stock prices and sales. The setting was robust. Official return dates have been postponed in most companies, but the number of employees in many offices continues to rise. This is of crucial importance for the performance of capital markets and capital profiles.

3. BE CAREFUL IN CONVERTING LIFE SCIENCE

The proportion of life science transactions in office transactions is twice as high as it was before the pandemic. And while blue chip companies are building their own buildings, it is faster and cheaper for other companies to buy and convert an existing building. With life sciences being such a hot commodity, it’s only natural that customers want their properties to be ready for renovation. However, factors such as ceiling height and floor loading are important factors in life science properties and some may not meet these requirements.

4. FOREIGN CAPITAL IS JUST A TOOL IN THE TOOLBOX

Capital partners are important, but not necessarily where they are. What is more important is how the strategy can be implemented most efficiently. So foreign capital is just a tool in the tool kit. If foreign investors prove successful in implementing the corporate strategy, these partnerships can be expanded. However, capital can also come from domestic investors or from the monetization of an existing asset. In fact, capital is not the main challenge in today’s marketplace. It’s about finding the right deals and the right investments with the right risk-return profile.

5. FORECAST FOR 2022

Panelists were asked about their predictions for 2022. Although no one has a crystal ball or can see into the future, their comments were instructive.

• Pre-pandemic trends in apartment buildings, industry, and life sciences will continue. The pandemic has only accelerated these trends.
• Interest rates will be higher than now, but still comparatively low.
• Low rise buildings are buying up fast in Southern California, and the trend is set to continue. Buyers are more interested in the land than the buildings because real estate is so expensive. Many of these buildings are likely to be demolished so that new buildings can be built.
• Construction costs will fall again and more capital will flow into basic development in the industry.
• More and more people will return to the office to be part of a team and to be more collaborative. The city center will be significantly more attractive in a year.
• When people return to the office there will be an inverse relationship to the changes in the life sciences. People have gone into the life sciences as a kind of safe haven, but when things return to pre-COVID-19 environments, many assets will remain office real estate.

All panelists were optimistic about the recovery from COVID-19 in the western region. A lot of capital will be available and the multi-family, office and life sciences space will continue to grow. Each large market has its own drivers and Class A products will benefit most from this growth. Nobody knows exactly what the future holds, but current trends point to a promising year.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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