Years of optimism about Southern California's commercial real estate markets gave way to hints of pessimism for 2001 among panelists at a real estate conference last week.
Speakers by no means presented a doom-and-gloom forecast, and some suggested that certain aspects of the slowdown--as well as anticipated interest rate cuts--could produce benefits for the real estate industry.
But the gathering in Century City presented by Real Estate Conference Group featured more doubts and cautionary language than it has in any other January since the mid-1990s. Experts on office, industrial, retail and apartment properties repeatedly returned to two themes that arguably represent the biggest concerns of those in the industry: the slowing national economy and California's electric power problems.
Uncertainty about the two issues is bound to produce a more cautious attitude among real estate investors and financing sources.
"Our clients are generally nervous about the market," said Richard Pink, vice chairman of CB Richard Ellis Investors, who believes investors will look more toward "income-oriented properties" versus "value-added" properties bought with the goal of selling them later at a profit.
Economists including Jack Kyser of the Los Angeles County Economic Development Corp. said that regardless of whether the slowdown is a recession or merely a flattening of growth, the worst should be over in about six months and recovery should begin toward year's end.
"I don't think California can escape a national slowing," said Donald H. Straszheim, president of the Milken Institute.
Still, said economist Brad Williams of the California Legislative Analyst's Office, California's economy "is entering 2001 with more momentum than the rest of the country."
Office, industrial and apartment markets will remain healthy, experts said, because of the combination of sustained demand and a relatively restrained pace of new construction.
"The retail sector is the most at risk," Kyser said, a sentiment echoed by broker Mark Van Ness of Sperry Van Ness, who said slowing retail sales suggest that shopping center owners would be wise to negotiate lease extensions with healthy retailers and forget about "pushing for that last nickel" in rent hikes.
Those in the real estate business could reap some benefits from the economic changes, speakers said.
"Nasdaq's fall has turned a light on the real estate industry," said Jack Barthell, a partner at PricewaterhouseCoopers, who said pension funds and other institutions "look to re-balance" their portfolios by investing more in real estate.
The shakeout among dot-coms could benefit other technology firms by increasing the number of "knowledge workers" available, said Timothy Callahan, president and chief executive of Equity Office Properties Trust. At the height of the dot-com buildup, he said, many Equity Office technology tenants complained of a shortage of these skilled workers.
"Some of the softening may be good, because it may balance out some of the froth," Callahan said.