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January 06, 2016

Forecast 2016: Ruling With an Iron Fist

Western Real Estate Business

From local environmental laws in California to messy zoning regulations and what was perceived to be a lack of leadership in Washington, it seems the industry does not view the current governmental climate favorably.

These challenges were echoed by Mary Kay Bier, frst vice president at Kidder Mathews in San Diego.

"The cost of doing business in California is a challenge," she said. "Development fees and Title 24 requirements increase the cost of development. Development in certain sectors like professional office and industrial may not be able to be supported by market rents. In San Diego, low vacancy rates and not enough inventory to lease or sell are huge challenges."

Douglas J. Shea, founder of Long Beach, Calif.-based INCO Commercial, seconded Bier's notion that government interference can hinder not just the commercial real estate industry, but commerce and, thereby, local business in general.

"The biggest challenges to the commercial real estate industry for 2016 are the same as they were in 2015," he asserted. "There are too many governmental intrusions into every transaction. The small governments increasing the minimum wage will also have a major impact on 2016."

The upcoming 2016 presidential election provided hope for some, while others thought it would simply bring more of the same. A majority of respondents felt it would be benefcial to the industry if a Republican candidate was elected.

"The election will have a major impact," said Jack Vander Woude, principal at the Tahiti Group in Southern California. "If it's a Republican victory, we should see less regulatory agency costs, timeline issues, obstacles, etc., compared to the ones that currently exist in our world of California, 'the land of CEQA [California Environmental Quality Act].'"

Some were less than thrilled with the thought of Democrats maintaining the top seat.

"Clinton says she will penalize companies that move manufacturing and monies out of the U.S. to avoid taxes, which will slow business growth," Bier said. "The cost of business due to insurance and wage increases will also hinder growth. It's hard to say what will happen if a Republican is elected. Their views on taxation are mixed, although I do feel the commercial real estate market will grow at a quicker pace with a Republican president."

Not surprisingly, Donald Trump and Hillary Clinton were the two candidates who elicited the strongest opinions.

"If any Republican except Trump wins, I think the market will react positively," said an anonymous broker participant. "If it is Hillary [Clinton], I think there will be a pull back. If her early lead is very evident, that pull back could start this June or July."

Despite the spectrum of concerns, 2016 does seem to be on track for another positive year of growth throughout all three professional industries, according to our respondents. While we're all aware the good times can't last forever, it is heartening to know the West's major players expect another stellar performance this year in much of the commercial real estate market.

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