2015 U.S. and N. California ForecastMarch 3, 2015
DTZ hosted our annual State of Real Estate event in San Francisco again this year. Chief Economist, Kevin Thorpe, shared his research, data and forecast for 2015 both nationally and for Northern California.
Important Takeaways Nationally –
- Real GDP is growing at better than 3%
- Fundamentals of economy look good for continued growth
- Interest rates, though predicted to increase, are likely to stay where they are
- Job growth is at a 15 year high, with 93% of new jobs being permanent and full time
- P/E Ratios are much lower than in late 90s when the technology bubble burst
- There is no real correlation between global conflict and GDP growth in U.S.
In Northern California –
- San Francisco rents have increased 82% since 2010, but with only a 3.8% average since 1993 so it’s not outrageous
- Markets, while hot, are still normalizing
- Even though rents are high, the expense to rent office space is inexpensive relative to corporate profits – it is only .05% of corporate profits now compared to .13% in 1992
- Jobs are being created much faster than housing is available
- Housing affordability is a problem, creating net migration starting in 2013
- The tech sector is driving growth and is expanding
- Real tech products are being created that improve productivity and quality of life
What does this mean for you as an Intelligent Tenant?
- Since rents will continue to rise, corporate lease decisions should be looking out 3-4 years to take full advantage of the current real estate cycle.
- Watch for greater competition in the East Bay as companies who can migrate from San Francisco and San Jose flee for rent relief.
- Keep an eye on the Tech Pulse Index as an indicator of economic growth or contraction. It has historically provided a 3-5 month head start before a downturn and a 15 month lead prior to increase in growth.