Allen Matkins/UCLA Anderson California CRE Forecast Reveals Tariff Uncertainty and Rising Costs are Stalling Over a Third of California CRE Projects

LOS ANGELES--(BUSINESS WIRE)--With tariff uncertainty reshaping global trade, the Summer 2025 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey reveals ripple effects cascading throughout California’s commercial real estate (CRE) landscape. According to the latest survey results, more than a third (36%) of developers are delaying or canceling CRE projects, citing increased construction costs and global trade tensions as key concerns.

Additionally, 85% of respondents now hold a more cautious outlook on new California developments due to tariffs and supply chain disruptions and 44% of developers expect distress levels in CRE capital markets to rise over the next year. These findings underscore how developers, investors, and tenants are recalibrating in the face of escalating costs, geopolitical uncertainty, and evolving demand patterns.

“Tariffs and lack of clarity on trade policies are certainly top of mind for real estate investors and developers as we head into the second half of the year,” said Spencer B. Kallick, partner at Allen Matkins. “This uncertainty is leading real estate developers and investors to think long-term about their development plans and shift their focus to opportunities and sectors that show resilience, particularly those aligned with e-commerce, logistics, and residential.”

Industrial moves forward driven by e-commerce

Despite market volatility and rising construction costs, the industrial sector remains resilient. Market sentiment in Northern California continues to improve, with 60% of respondents expecting industrial demand to outpace supply. E-commerce has re-emerged as the primary driver of industrial development, with 41% of respondents citing it as their top growth driver, overtaking demand for data centers, AI and digital infrastructure.

However, the pace of new construction paints a mixed picture. Only 19% of respondents expect more than one new industrial development project in the region over the next year, a significant decline from 50% in the Winter Survey. In Southern California, similar sentiments are shared, with just 31% of respondents expecting more than one project to break ground, down from 54% previously. These findings reflect how land scarcity in Southern California and regulatory challenges such as zoning regulations can impact the development pipeline, making long-term planning essential for development and investment opportunities.

“The industrial market is holding strong with a particular focus on non-infill areas, such as Banning/Beaumont and the high and low desert areas in the Inland Empire, as well as the Santa Clarita Valley and east Ventura County,” said Paige Gosney, partner, Allen Matkins. “There is a level of price discrepancy between buyers and sellers as the parties try to determine the market’s ‘sweet spot’ but reason for optimism is — and remains — high.”

Multifamily holds steady

Multifamily development, while slowing, remains marked by steady demand and declining vacancies across key California markets. In San Francisco, 86% of respondents expect vacancies to decline, up significantly from 58% in the last survey while 60% of respondents in San Diego and 53% in Los Angeles foresee further tightening in rental supply driven by a number of factors, including continued AI growth, tight housing inventory, and the Los Angeles wildfires.

“Obviously, the biggest question in multifamily housing is how to take advantage of the recent CEQA reform bills — the response to the state’s efforts should start showing up in future surveys,” said Heather Riley, partner Allen Matkins. “In the meantime, and as the housing crisis continues, our clients are looking for any solutions that will help them bring units online as quickly as possible. Demand continues to outpace supply across the state, especially for highly amenitized rental product that offers work from home space. Despite rising costs, our clients are actively looking to build at a rate we have not seen in years.”

Office recovery continues amid shifting demand

In the office sector, sentiment continues to vary by region. Northern California is showing signs of recovery, driven by the gradual return-to-office trends and renewed leasing activity in central tech hubs. Developer interest in new office space has climbed to 17%, up significantly from just 5% in the Summer 2024 forecast.

Additionally, 61% of respondents in Northern California believe demand will outpace supply. San Francisco and Silicon Valley are seeing improvements in vacancy rates, with 85% and 65% of respondents, respectively, expecting continued declines, pointing to increased leasing momentum in prime, well-located properties.

Southern California’s office market, on the other hand, continues to face uncertainty. Forty-five percent of respondents believe supply will exceed demand, though 42% remain optimistic that demand could still grow faster, particularly as return-to-office trends and tech sector expansion regain momentum.

New office development remains limited, with only 4% of Northern California respondents and 5% of Southern California respondents expecting new office projects this year.

“After a prolonged period of uncertainty, the office market sentiment is starting to turn a corner — albeit slowly,” said Julie Hoffman, partner, Allen Matkins. “Developers are testing the waters again, especially in Northern California, where vacancy rates and rental rates seem to have stabilized. But broad-based recovery is still a few years out.”

Retail marked by resiliency and adaptability

The retail sector continues to demonstrate resilience and adaptability, with demand being driven by mixed-use and community-focused development projects.

Specialty retail within existing districts is now the top driver of new development, cited by 38% of respondents, while just 7.5% pointed to stand-alone, big-box retail as a leading factor.

Vacancy rates are stabilizing across major metros. In San Francisco, 78% of respondents expect retail vacancies to either stay the same or decrease, while 74% expect the same in Los Angeles.

While rental growth remains positive overall, the pace varies across different regions. Markets such as San Francisco, Silicon Valley, and Sacramento are projected to see stronger-than-expected rent growth, while areas like Los Angeles, Orange County, and the Inland Empire are seeing more modest projections, with Los Angeles expected to lag below inflation level.

“The retail outlook continues to remain stable as a whole, with San Diego, Orange County, the Inland Empire, parts of Los Angeles, Silicon Valley, and the East Bay expected to outperform San Francisco and Sacramento,” said Brian Michel, partner, Allen Matkins.

Learn more

To download the full Summer 2025 Allen Matkins/UCLA Anderson Forecast, click here.

About the Survey

The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index polled a panel of California real estate professionals in the development and investment markets, on various aspects of the commercial real estate market. The survey is designed to capture incipient activity by commercial real estate developers. To achieve this goal, the panel looks at the markets three years in the future, and building conditions over the three-year period. The survey was initiated by Allen Matkins and the UCLA Anderson Forecast in 2006, in furtherance of their interest in improving the quality of current information and forecasts of commercial real estate.

About Allen Matkins

Allen Matkins, a law firm with more than 270 attorneys, was founded with deep roots in real estate and has leveraged that foundation to grow and build prominent litigation, corporate, tax, labor and employment, land use, and environmental practices allowing us to partner with clients across myriad industries and markets. For more than 45 years, Allen Matkins has worked with clients drawn to us by our reputation for market leading solutions, pragmatism, exemplary quality, approachability, and our unparalleled network of contacts and connections in business and government. For more information about Allen Matkins please visit www.allenmatkins.com.

About UCLA Anderson Forecast

UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993. The Forecast was credited as the first major U.S. economic forecasting group to call the recession of 2001 and, in March 2020, it was the first to declare that the recession caused by the COVID-19 pandemic had already begun. uclaforecast.com

About UCLA Anderson School of Management

UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson’s MBA, Fully Employed MBA, Executive MBA, UCLA-NUS Executive MBA, Master of Financial Engineering, Master of Science in Business Analytics, doctoral and executive education programs embody the school’s Think in the Next ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow.

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