Forecasting the California real estate scene is a bit like forecasting the weather, according to Stuart Gabriel, director of the University of Southern California's Lusk Center for Real Estate. In Southern California, both are easy, Gabriel said as he presented the annual Casden Real Estate Economics Forecast last month. With nearly year-round sun, meteorologists have little variety to report. And while a stormy national economy brews, the region's real estate market remains remarkably steady, moderated by a strong, diverse economy; a shortage of buildable land and persistent population growth - fed in part by the region's good weather. Northern California, on the other hand, is experienciing a more volatile climate climate, making both economic and meteorologic predictions diffivult. Optimists hope the region's economy has reached bottom and confidence is rising that demand for space in the Bay Area and Silicon Valley will return. There are larger forces at work on the state's real estate markets, however. There's the historically low interest rates following 12 consecutive Federal Reserve rate cuts since Jan. 2001, which will keep pushing investors to real estate as a safe harbor from the "Enronization of capital markets." Most expect interest rates to remain stable. But George Smith, chairman of George Smith Partners, Inc. and speaker at the Real Estate Conference Group's upcoming 2003 forecast, cautions against trying to predict interest rates. People go with their gut when they forecast interest rates, he said, and the general feeling now is that, unless there is a significant shock to the economy that no one can foresee, rates will stay in the range they are in today. Many forecasters predict a full-fledged recovery next year, but that prediction sounds strangely similar to last year's. And like the weather, these forecasts can quickly change for the worse. The state faces an estimated $34.8 billion budget deficit this year. Jack Kyser, chief economist for the Los Angeles Economic Development Corp. and a speaker at next week's IREM/BOMA real estate forecast, worries that Sacramento may do something to damage the state's long-term economic growth. State legislators could split the tax rolls and take commercial real estate out from behind the protection of Proposition 13, for example. "It's been proposed before," Kyser said. "Given what's going on with the state's budget, all bets are off." The phrase "all bets are off" seems to be a favorite among forecasters this year as the nation faces the possibility of a protracted war with Iraq. So, while the 2003 outlook is pretty sunny in California, uncertainly looms like storm clouds on the horizon. This issue kicks off a month-long series of forecasts exploring the major property types and markets throughout the state based on the views of industry experts and top decision-makers and the latest statistics available. Following this week's forecast of the Los Angeles, San Diego, Orange County, Inland Empire, Ventura, Sacramento, Silicon Valley and Bay Area office markets, the Jan. 13 issue will explore retail and hospitality in these markets. The Jan. 20 issue will focus on the state's industrial and institutional outlook, followed by a multifamily forecast on Jan. 27. By the end of the month, the CREJ intends to have provided readers with the most comprehensive outlook available of the state's commercial real estate industry in 2003.
