The Summer 2026 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey finds that California’s commercial real estate market is stabilizing as developers adapt to a prolonged higher-rate environment. While financing costs, construction expenses and broader economic uncertainty continue to constrain new development, respondents remain optimistic about the long-term outlook for needs-based sectors, including multifamily, industrial and neighborhood-serving retail.
The Summer 2026 survey points to improving market fundamentals across much of California, particularly in the industrial and multifamily sectors, while office experiences a bifurcated recovery after several years of limited development. Rather than signaling a broad market rebound, respondents describe an increasingly selective investment environment where projects must meet higher underwriting standards before moving forward. The shift is largely driven by interest rate expectations. While 61% of respondents in the Winter 2026 survey said anticipated rate cuts made them more optimistic about development, sentiment has now reversed, with 64% now saying today’s interest rate environment has made them more cautious about pursuing new projects.
“California’s commercial real estate market hasn’t stopped moving, but it has become much more selective,” said Spencer B. Kallick, partner at Allen Matkins. “With developers now assuming that higher rates are here to stay, it’s fundamentally changing how projects are evaluated. Those who remain disciplined about where they deploy capital, focusing on sectors with durable demand and underwriting conservatively, will be best positioned to capitalize on the next phase of the market.”
Housing shortage channels capital into multifamily
California’s housing shortage continues to present compelling development opportunities in the multifamily market. The Summer 2026 Forecast shows that 75% of Northern California respondents and 64% of Southern California respondents expect multifamily demand to outpace supply over the next three years.
Momentum is particularly strong in Northern California, where 64% of respondents report plans for at least one new multifamily project over the next 12 months, compared with 48% in Southern California. Respondents also expect rents to remain resilient, with 63% anticipating Orange County rents will outpace inflation, and 58% expecting the same in San Diego.
The findings also underscore the disconnect between demand and development. Respondents overwhelmingly pointed to factors beyond market fundamentals as barriers to additional housing supply, including entitlement delays, construction costs, local fees and regulatory hurdles.
“In 2026, we’re seeing a mixed outlook. In the Bay Area. Rents are increasing coupled with job creation through AI, but it’s still challenging for ground-up development because we’re not sure where the interest rates will go in 2026, which also has an effect on treasury borrowing rates,” said Michael Van Every, President and Managing Partner at Republic Urban Properties.
Neighborhood-serving retail is California’s next growth story
Retail developers are increasingly concentrating investment on centers that serve everyday consumer needs rather than pursuing traditional large-format retail. Development activity is accelerating, with 75% of Northern California and 61% of Southern California respondents planning at least one new retail project in the next 12 months, up from 60% and 45% respectively in the Winter Forecast.
Supporting this conviction, 62% of Northern California respondents and 59% of Southern California respondents expect retail demand to outpace supply, with 46% of respondents identifying neighborhood-serving retail as their preferred development focus.
Grocery-anchored centers, specialty retail and mixed-use projects continue to attract the strongest interest, reflecting changing consumer preferences and population growth across California. While developers are becoming more active, outlook on the sector is measured, with nearly half of respondents (49%) indicating they do not expect retail to enter a new growth cycle within the next three years.
Industrial demand broadens beyond e-commerce
The industrial market is benefitting from one of the most diversified demand profiles in California commercial real estate. While 32% of respondents identified e-commerce as the primary driver of industrial demand, down from 45% in the Winter 2026 Forecast, developers increasingly cited logistics, advanced manufacturing, robotics and AI-related digital infrastructure as contributing to future growth.
At the same time, 63% of Northern California respondents and 59% of Southern California respondents plan to pursue at least one new industrial development over the next 12 months, reflecting continued confidence in the sector despite cost pressures. Eighty-two percent of respondents expect construction costs to rise faster than inflation over the next three years, further underscoring developers’ appetite to move forward with new projects despite elevated expenses.
“Developers are recognizing that diversity in retail centers is the driver today. People want to go to one retail center to work out, eat, buy their groceries, and get a coffee. Service-oriented businesses complement your standard grocery-anchored centers,” said Sandy Jacobson, Partner at Allen Matkins.
Office fundamentals improve while new development waits
California’s office market is gaining traction as leasing fundamentals strengthen across several major markets, particularly San Francisco, Silicon Valley, Orange County and San Diego. However, developers remain disciplined about introducing new supplies. Ninety-two percent of Northern California respondents and 81% of Southern California respondents reported no plans to begin a new office development over the next year.
The Forecast points to a market that is steadily recovering through improved occupancy, rental expectations and tenant demand rather than new construction. Vacancy expectations improved across Orange County, San Diego, Silicon Valley, San Francisco and the East Bay. Respondents suggest the office sector has moved beyond its period of greatest uncertainty, though Southern California respondents still do not expect a new office development cycle within the next three years, further underscoring a gradual recovery.
“In San Francisco, the speed at which AI companies need office space is creating a game of musical chairs. For many years, the music was playing and tenants could circle a space and maybe see it a couple of times, but now the music has stopped, and there is more demand than move-in ready space available,” said Nate Touboul, Partner at Allen Matkins.
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 over 285 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 nearly 50 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.
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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