Los Angeles Business Journal

Economic Forecasts See Signs of Recovery

By Deborah Crowe Wednesday, December 7, 2011

New reports from USC and UCLA economists forecast that California’s slowly recovering economy still faces a long road to rebuild from recession-era layoffs, mortgage foreclosures and the commercial real estate downturn.

USC’s Casden Southern California Industrial and Office Forecast, released Wednesday, said that slow job growth likely will translate into mixed market conditions for the region’s office and industrial property owners.

Office vacancies in Los Angeles County “should remain stable” over the next two years, according to the 10th annual forecast, but Class A asking rents are projected to decline 7.7 percent, while Class B space should decline 7.3 percent.

In the industrial market, the county’s industrial vacancy rate should decrease 0.4 percentage points to 2.7 percent over the next two years, while rents should increase 9.8 percent to 55 cents per square foot, the report said.

The Casden analysis of each area’s submarkets found lower vacancy rates in 11 of 17 office submarkets and 11 of 14 industrial submarkets this year. As for rental rates, four office submarkets and eight industrial submarkets experienced increases. Overall, declines were smaller than in the previous two years.

Tracey Seslen, the USC professor who wrote the report, warned that traffic at the Port of Long Beach is down and could adversely affect industrial rents in the South Bay. In addition, the unsteady European economy and growing U.S. debt crisis are undermining consumer confidence.

“Although Southern California is a long way from pre-crisis levels of economic health, the improved employment picture and profound turn around in the industrial market are signs of a slow recovery,” said Seslen in the report.

The quarterly UCLA Anderson Forecast also released Wednesday noted that payroll gains in September and October suggest a modest recovery is underway, and predicted job growth of 1.4 percent next year and 2.1 percent the following year.

But the gains still won’t be enough to push the state’s jobless rate – which was 11.7 percent in October – down to single digits until 2014, the report said.

“What is important …is that the last two months have yielded both job growth in excess of the U.S. rate and job growth which is widespread throughout the state,” said Senior Economist Jerry Nickelsburg in his report. “These data present the first solid indication that inland California has bottomed out and a recovery in the hardest hit regions of California has begun.”