CRE outlook: Green light for CRE projects to stay on in 2024
Developmental projects, whether they be for housing or commercial, are expected to continue full steam ahead in 2024 even as many developers and businesses will continue to remain cautious.
Building and construction were expected to take a back seat in 2023, as economic headwinds from a regional banking crisis, to overseas issues and even continued fallout from COVID dominated the early year headlines.
Surprisingly though, the Central Coast CRE market remained “reasonably active” in 2023 said Michael Manchak, a commercial real estate expert in the region.
“Despite the caution that’s out there, and there is a lot of it, projects are still moving forward. Some projects are taking longer, and some people have paused projects, but they’re still moving through the entitlement process, mostly,” Manchak said.
“The momentum has not stalled for many businesses that are looking for new locations, looking to expand, and that’s throughout the tri-counties, as well as for developers wanting to build projects.”
The reason for that, Manchak said, is many don’t want to lose capital and talent while stalling on projects.
“There’s also the idea that the Central Coast is more blessed than cursed when it comes to commercial real estate. We don’t see the highs and the lows that a lot of other markets see throughout the nation, even in California,” Manchak said.
“With less inventory of residential and commercial real estate, I think we’ve got builders and investors that see the region as a special place and a solid place to invest, albeit more expensive.”
For the past couple of years especially, the idea of California businesses and leaders leaving the state to settle down in other parts of the country where the cost of leaving cheaper was a popular topic.
But Manchak said a lot of those projects in places like Texas, Idaho, and Montana are actually the ones stalling out.
“It might be more expensive and a bit more challenging to build here but people are seeing this state became more of a better value once again,” Manchak said.
“The key here is that it comes down to value and not what is easier and cheaper to develop.”
The need for housing will also be a continued topic across the Central Coast in 2024.
“It is the most unprecedented time in the residential development field in that state. The counties and the cities can’t just ignore the state’s demands. Now, these projects can be forced to be built. And I think the cities and the counties know that and they are realizing we do need more housing,” Manchak said.
One idea for more housing in Santa Barbara County for example is to reimagine the Paseo Nuevo shopping mall into roughly 500 apartments.
A similar proposal
“Any project where there’s new construction being built is going to help, we just need units at this point,” Michael Lopus, a senior associate at Radius, told the Business Times on Jan. 2.
“If they get an opportunity to build these newer, nicer units, some individuals will move up, which gives someone an opportunity to backfill what they have left behind.”
Overall Lopus, who mainly focuses on multifamily, expects there to be more deal activity in 2024.
“Interest rates coming down a little bit last year, after being at the all-time highs, which kind of slowed down our market will kind of loosen things up a little bit so I think you’ll see more transactions here in this next year,” Lopus said.
“2022 was a banner year and I don’t expect to see those numbers but in multifamily last year we saw around 16 properties in South Santa Barbara County trade hands… I would say we will see more than that this year.”
In regards to office space in the tri-county area, Dylan Ward, a partner at Hayes Commercial Group, told the Business Times he expects companies to continue rightsizing their footprint in 2024.
“That usually means downsizing and moving to better quality,” he said.
“Most companies are going to continue to use office space and simply reduce their square footage and go to the higher quality and better-located properties.”
In regards to home sales, Ward said he expects the trend of fewer transactions at higher dollar volumes to continue to stay down in 2024 until interest rates continue dropping.
“I do think sales in the $5 million range will continue to be okay,” he said.