"The industrial sector is showing stronger signs of recovery across the board," said Tracey Seslen, Ph.D., and co-author of the Casden Forecast. "The strong Chinese and Indian economies, combined with the weakened U.S. dollar, have increased demand for U.S. manufactured goods and greatly increased port traffic." Seslen noted that a 16.9-percent increase in port traffic over last year will help stabilize and in some areas, increase industrial rents in the Southern California region. However, the data present a far different outlook for the office market, notes Richard K. Green, Ph.D., director of the USC Lusk Center and co-author of the Casden Forecast. "The office sector will remain depressed as long as unemployment levels remain high," Green said. "Clouding the office forecast is a shift in the traditional workplace. Today, cubicles are the norm and concepts such as telecommuting, 'hoteling' and office-sharing are becoming more common and having an increasing impact on demand for office space. As a result, the office market may not see rent increases until the overall economy improves." Overall, the report, which analyzes data through the third quarter of 2010, shows a modest recovery in Southern California over the last year. However, a modest recovery remains disappointing in the aftermath of the worst year for the economy in nearly 70 years. The best that could be said, according to the report, is that the economy stopped getting worse. The annual Casden Real Estate Economics Forecast analyzes economic data, provided by Grubb & Ellis, on rents, vacancies, and transactions for office and industrial markets in Los Angeles, Orange, Riverside and San Bernardino counties. The forecast's key findings include:
- Los Angeles County Forecast
- Continued job losses would cause a continued increase in office vacancies and decrease in rents, with no stabilization until 2012.
- With the nation's largest port and tightest industrial market, industrial rents are expected to increase by 10.5 percent over the next two years.
- The Inland Empire may enjoy the ripple effect as companies seek less expensive alternatives.
- Los Angeles remains one of the tightest industrial market in the country, with a 3.3 percent vacancy rate. Even with the approximately 250,000 square feet of industrial space currently under construction, rents are expected to rise in the next two quarters.
- Orange County Forecast
- Though Orange County added 14,200 jobs, the office market will continue to struggle.
- In 2011, rents are expected to decline more than 12.9 percent for Class A buildings and 10.3 percent for Class B.
- In spite of the area's overall improvement, the office vacancy rate hovered at 20.7 percent; thus, renters will continue to be able to lock in favorable rates.
- Increased demand for industrial space will cause vacancy rates to fall 2.1 percentage points over the next two years.
- Inland Empire Forecast
- The Inland Empire office market will continue to experience moderate increases in vacancy rates and decreases in rents.
- An exception is the Ontario Airport area, which showed 105,000 square feet of positive absorption as companies seek locations near transportation arteries.
- With the affordable pricing, many owner/user entities are now jumping into the market as companies seek to lock in industrial space.
- While over 2.2 million square feet of industrial space came on line last year, the increase in demand for industrial space will push rents a much as 6.6 percent higher.