The outlook for commercial real estate in San Diego this year is mixed, with high demand for new warehouse and office space offset by challenges in other sectors.
That was the forecast delivered Tuesday by economist Lynn Reaser, who told commercial real estate professionals that she sees a “fair outlook for the overall industry.”
Reaser, who directs the Fermanian Business & Economic Institute at Point Loma Nazarene University, offered a grade for each sector of commercial real estate in 2019:
- Industrial: A-
- Office: B
- Retail: B-
- Multi-family: B-
- Hospitality: C-
“This is a relatively optimistic forecast,” she told the CREW San Diego, the local chapter of the Commercial Real Estate Wome Network. “If you look for windows of opportunity, 2019 will turn out to be a good year for all of you.”
Reaser said the demand for warehousing is being driven by surging growth in e-commerce, with companies seeking to move inventory as close to consumers as possible. But e-commerce is having a negative impact on demand for retail space.
Growth in local hiring is boosting office demand, she said, but the hospitality sector is weighed down by uncertainty over expansion of the downtown convention center, and multi-family suffers from government regulation and neighborhood opposition.
“It’s really hard to get multi-family projects through,” she said, despite the housing shortage in San Diego.
Reaser make her forecast for commercial real estate in the context of the larger national and world economies. She sees economic growth slowing in 2019, but no recession in the United States, with the San Diego area something of a standout.
She predicted 20,000 new jobs locally in 2019 and a “soft landing” in the San Diego housing market with 2 percent appreciation in price.
“It still looks like a pretty good economy for the coming year in San Diego,” she said.
However, she noted that a major potential problem is China and the United States failing to reach an agreement on trade, leading to a full trade war that would sap global growth. She gave that outcome a 30 percent probability.
Reaser advised real estate companies to secure credit lines, expect their lenders to require a higher capitalization rate, and prepare a contingency budget for a possible economic downturn.