Real Estate: High Demand, Short Supplies
A Good Sign for Rental Properties, Too
San Diego’s slow recovery from the early 1990s recession is expected to help the county’s real estate and construction industries through the current national economic slowdown, several business leaders said.
That’s because there’s still tremendous demand for new houses, office, industrial space, and the stores to serve a growing population, according to Bill Davidson, president of Davidson Communities in Del Mar.
Other executives echoed his comments as well.
“It looks like a lack of available land and high land prices are kind of stifling people from putting up enough spec buildings to keep up with the demand and that will mean rents will keep rising,” said Rich Byer, president of Bycor General Contractors. “2001 won’t be as good as 2000, but it should be a pretty decent year for most people because San Diego’s economy is still pretty good.”
Their view is the one shared by most real estate and construction executives sampled in the 11th Annual San Diego Business Journal/DeLoitte & Touche Economic Outlook Survey. Of the 48 survey respondents in the building industries, 35 foresaw the national business economy would remain about the same, nine thought it would be worse and four saw it as better.
They also expect the California and San Diego economies will be about the same this year as last. They also predicted their industry doing about the same this year as last year, with 28, or 58 percent, seeing about the same amount of activity.
Peter Lasensky, CEO of Peterbuilt Construction Corp., said his company has been seeing a lot of office and industrial tenants who are looking to expand into new space, but may be having trouble finding it.
“I see a very strong market here this coming year, at least for the first two quarters,” Lasensky said.
The short supply of buildings in all categories should drive up prices this year, said Mark Riedy, a professor of real estate finance at the University of San Diego.
He predicted, however, that single-family residences in the $600,000+ range would be tougher to sell, as move-up buyers may not have the stock market wealth they had in previous years to help pay for purchases.
“Commercial property prices should be in pretty good shape just because of supply and demand, but energy costs are a great unknown” Riedy said. “Even if you have a fully leased shopping center, if energy costs drive some of your smaller tenants out of business you have at least a short-term problem.”
Lower loan interest rates should offset energy costs as property owners refinance, Riedy said.
While construction should be pretty active this year, there still isn’t enough being built, he added.
“The long lead times in residential construction caused by regulatory issues and government review really add unnecessary risks and costs to residential construction themselves,” Riedy said. “They also cause timing problems for the builders because when builders could see a good market opportunity, they might be stifled by time delays in getting their project approved and encounter a slower market.”
Lenders are becoming more cautious in their loan underwriting for construction projects and that adds to the processing times as well, he said.