California’s investors and developers of commercial property just can’t fight this feeling anymore: the real estate market for office and industrial spaces will soon see better days before you know it. And that’s a good thing not only for them, but for the whole recovery.

The optimism coming from that camp of the industry is according to the last California Commercial Real Estate Survey issued by the Allen Matkins/UCLA Anderson Forecast. The report surveys commercial investors and developers in major Bay Area and southern California hubs for their insider’s view of current and future commercial real estate trends and predictions of future rental vacancy rates. The survey postulates the turn for optimism is due to enthusiasm in the asset markets.

The survey index figures for both rental and vacancy rates increased steadily for markets in Los Angeles, San Diego, Orange County, the Silicon Valley, East Bay and San Francisco over the period from December 2008 to June 2011. Reasons for high vacancy rates in all of the markets are either due to the economic downtown or overbuilding. [For more information on the survey’s findings, see the Allen Matkins/UCLA Anderson Forecast Commercial Real Estate Survey.]

If California continues to follow this pattern, the survey forecasts commercial real estate will escape its present rut and see higher rent rates and lower vacancy rates by 2013.

first tuesday take: The gospel of optimism is certainly a warm and fuzzy mood enhancer and essential to innovation within any industry, but in no way is it a primary indicator for the real estate market.

The Allen Matkins/UCLA Anderson Forecast survey is highly questionable on two points: the source of the data and the application of the data.

The source of the survey’s data is a group of commercial real estate investors and developers in California, individuals the survey identifies as the “supply-side participants” of the real estate market. Based on their responses, an Office Market Index was created to demonstrate their levels of optimism, or in other words, a “Sentiment Index.”

Boy howdy, forget about numbers and hard facts. This survey says we can make economic predictions based on the feelings of suppliers (note, those are highly-educated and well-informed feelings, of course).

Though optimism is a good attitude for the little train that could, it is not a litmus test for the recovery. Users are more in control of this market than suppliers. The survey would be better positioned by analyzing how many existing vacancies and negative equity commercial properties exist in California, as well as what is being done by owners and lenders to manage those properties and loans. [For more information on how commercial real estate is faring, see the July 2011 first tuesday article, Lenders fight dirty for commercial MBBs.]

An even more important issue to be considered is employment – jobs – since office and industrial spaces will continue to be vacant and will only fill up as more jobs are added to California’s economy. Another recent Anderson forecast predicted a higher job growth rate than we have set here at first tuesday – the forecast predicted a full recovery to the December 2007 employment peak by mid-2014 while we estimate 2016 – so their jobs estimate may be the reason their “feelings” can afford to be so optimistic. [For more information on the Anderson forecast for California job growth, see the June 2011 first tuesday article, It’s all happening in the city, eventually.]

It is perfectly rational to consult investors and developers for their insights into the market. They are after all, key players in the game. But researchers must be wary of the overeager attitudes of investors and developers (and real estate agents) in conversations about their market, and be realistic and practical in the use of the conclusions they glean from them. A good attitude is not enough basis to make a smart real estate decision. [For more information on prudent investor conduct, see the May 2011 first tuesday article, Another prod at novice real estate investors.]

Perhaps, if all Californians think positive and happy thoughts for the next six months, we can actually get this recovery going. Just a thought.

RE: “UCLA: Is new real estate bubble brewing?” from the OC Register