According to a report from PricewaterhouseCoopers (PwC) based on responses from real estate investors, coupled with data from commercial real estate brokerages, we can expect a slowdown in rental growth in office and multifamily real estate markets and, with that, a downturn beginning this year.
The construction of new office space, the logic goes, will raise supply by about 6 percent and lead to excess space, putting "increased downward pressure on rent levels," Emily Pillars, a partner at PwC, told the Business Times.
PwC also forecasts that multifamily construction in San Francisco will soon come to exceed demand for it, slowing rental growth from 2015 to 2018. "While we are anticipating rental growth, it's not at the same strong levels it has over the past few years," Pillars said.
For a probably unnecessary refresher, this January we saw a record-high and nation-leading median rent of $3,410 for a 1 bedroom apartment in SF according to the real estate site Zumper. Class A office rent was $64.33 per square foot in the fourth quarter with vacancy of 6.7 percent according to Cushman & Wakefield.
Robert Sammons, regional research director at Cushman & Wakefield, predicts a slowdown but not a recession "due to a combination of the general ebb and flow of job growth along with an increase in new office product deliveries across the 2015 through 2018 period." Sammons draws a contrast to the dot-com crash of 2000 and 2001, but says "That’s not to discount the fact that there could likely be some contraction but I don’t see any serious downturn on the horizon — barring a global meltdown."
The argument for more vacancy occurring and driving a slowdown or downturn, though, doesn't hold water up with everyone. "Rental growth may be slowing, but our sense is vacancy is not necessarily going up," Colin Yasukochi, director of research and analysis at the commercial real estate company CBRE's San Francisco office, said.
In other words, while rents may not continue skyrocketing at the pace they have been, they likely aren't crashing. Maybe the better word for this is "plateau."