Our 2019 Predictions for Commercial Real Estate

February 11th, 2019 at 11:00 am

With the recent debut of our Commercial Division website, we thought this would be a good time to take a look at what’s ahead in the commercial sector for 2019, as well as a look back at 2018. So we turned to Jim Miller, a Commercial Senior Associate in our San Diego Central office with more than 13 years of specializing in commercial properties.

Here’s his perspective on the trends that will shape commercial activity in Southern California this year.

New year, same trends

Developers have been coming out of the woodwork, especially multi-family developers, and Jim predicts that will continue through 2019. There’s a big push for that across the country. Developers around the U.S tell Jim they are doing a lot of student housing. One of Jim’s clients has three acres near San Diego State University that’s zoned pretty favorably for student housing and is worth about $20 million with three or four developers from across the country going after this property. He expects that kind of developer activity will continue in 2019.

But Jim also says developers are backing out of some of the bigger projects, like the former San Diego main post office, which is 300,000 square feet. One big developer put in a letter of intent but just backed out a few weeks ago. The given reason was steel tariffs, but Jim suspects that the monumental task of tearing down a large building and shipping it to a dump played a part in the decision. Jim thinks that other developers see a project that has been abandoned and assume they can’t tackle it either.

Say goodbye to…

Jim thinks the buying up of multi-family properties will slow down until there’s better inventory in desirable neighborhoods.

“I ran into a nice multi-family property about a year ago owned by a couple in their 80s who said they can’t afford to pay the taxes on it, so they can’t afford to sell it. So they’re just sitting on it. I think we’ll see more of that because it’s so hard to go from selling multi-family and then start acquiring office space.”

For example, Jim says there are 2 million square feet of office space in downtown San Diego ZIP code 92101, and there’s only a 10 percent vacancy rate.

New trend predictions

Hospitality trends: A lot of people are looking into the hospitality industry, not just in San Diego County but also up the coast and in popular cities, and Jim thinks that is going to pick up in 2019. He says there are some good opportunities in Phoenix and Las Vegas to buy hotels and upgrade them, plus some older properties in Mission Valley in San Diego that people are starting to either rehab or tear down and start over.

Office space trends: The economy is strong right now, so businesses are looking for new office spaces, and with millennials now the largest generation in the workforce, it is changing how businesses operate. For the younger crowd, going into an executive suite can be attractive with free coffee, beer on tap, gyms, and other amenities. However, office space in the downtown San Diego ZIP code doesn’t make sense when you’ve got contiguous floors empty.

Warehouse trends: An increased demand for online shopping creates a demand for distribution centers to fulfill orders. Some big players have come into the county, like Amazon and FedEx, who want to be closer to their customers. So they’re buying big distribution warehouses. But Jim has seen some huge office-plus-warehouse complexes that are just dark.

Agriculture/cannabis trends: Everyone is trying to capitalize on this market, but it can be a volatile one. Some cities confine it to certain areas, so a majority of properties zoned for cannabis have already been purchased and are in use. Out-of-town growers do venture further away from cities where there’s more land available, such as in East County San Diego.*

Cities and counties with the highest percentage of commercial clients

Communities becoming more or less commercial-oriented

San Diego County: San Diego, Chula Vista, National City, and San Marcos all seem to be moving some of their bigger properties. The larger beach cities like Del Mar, Solana Beach, and Imperial Beach, just don’t have much commercial real estate to begin with.

Orange County: Irvine, Laguna Beach, and Newport Beach have a steady stream of commercial activity with plenty of office and industrial spaces listed right now.

Los Angeles County: In general, Los Angeles County always has commercial activity given it’s a hot spot for international investors. Beverly Hills, Calabasas, Pasadena, Santa Monica, and Studio City have a lot of industrial, multi-family, and retail property being listed, leased, and sold right now. Since Los Angeles is a big hub for both national and international businesses, there is usually plenty of commercial activity going on here.

Ventura County: Though Ventura has low commercial activity, there are large parcels of land with potential for agricultural and vineyard use listed.

Santa Barbara County: Montecito, Santa Ynez Valley, and Santa Barbara have a steady amount of commercial activity with a lot of retail and office spaces with some industrial property listed and sold.

What are the demographics that define typical commercial clients?

Jim does a lot of business with the international community, his biggest client being Turkish and he has tried to do some business with Chinese investors.

Our Commercial Division reports that most commercial business done in San Diego is through local clients and that Los Angeles sees more international buyers and sellers. San Diego is growing, though, and they predict that in the future more international investors will set their eyes on San Diego too.

*Broker and agent do not guarantee land may be used for intended purpose. Cannabis cultivation and sales is currently prohibited under certain federal laws. Broker recommends buyer seek legal counsel prior to purchasing commercial property intended for cannabis cultivation and/or cannabis sales.