More improvement is seen in 2012 and 2013, shaping up as a lot more vibrant, said Mr. Schniepp on Thursday, detailing his analysis of the local economy in the year ahead.
The linchpin for an accelerating local economy hinges on two principal conditions: job growth broadens and deepens and homeowner distress begins to fade.
That was the hopeful message conveyed by Mr. Schniepp, who addressed a crowd of several hundred people at the 2011 Santa Barbara County Real Estate and Economic Outlook Conference at Fess Parker’s Doubletree Resort.
Sponsored by Bank of Santa Barbara, Hayes Commercial Group and Radius Commercial Real Estate & Investments, the event was geared mainly toward commercial and industrial investors and brokers, and people from the development and construction communities. The annual event provides a snapshot of economic trends and forces, both local and national.
Joining Mr. Schniepp was economist Larry Harris, a professor of finance at the University of Southern California, and commercial real estate brokers Paul Gamberdella with Radius and Francois DeJohn with Hayes.
Despite the fact that a major employer announced 50 layoffs earlier in the week, the local economy is now in a recovery that few people believed was occurring until recently, said Mr. Schniepp, director of The California Economic Forecast.
“The stock market has been soaring, consumer spending is up. manufacturing is red hot, hotel occupancy is rising, and California’s ports are handling cargo in record numbers,” enthused Mr. Schniepp, whose forecast is contained in a 116-page publication.
He addresses such issues as demographics, residential and commercial real estate, quality-of-life indicators and a sense of who is buying homes in Santa Barbara County.
Due to much higher rates of unemployment and a badly broken state budget, economic growth in California will lag behind the U.S. in 2011.
The Santa Barbara County economy will move in tandem with California, especially with serious public sector budget cuts this year producing more downsizing in state and local government employment, Mr. Schniepp said.
Still, his forecast is for Santa Barbara County employers to add 1,300 jobs for the calendar year, primarily in the private sector.
“We expect modest job growth with more consistent job creation than the fits and starts in 2010,” Mr. Schniepp said.
The second half of 2011 will be better than the first half, and 2012 is forecast to be a more normal year for job creation.
Sectors creating the most jobs include farms, retail trade, professional services, leisure, education and health services, and financial activities. Even employment in construction is forecast to rise nearly 3 percent this year, with most of the action occurring in North County, Mr. Schniepp said.
Joblessness, however, won’t retreat below 7 percent for probably another three years, he said.
“Unemployment is largely a young people’s phenomenon and among those who are unskilled,” declared Mr. Schniepp.
While job creation will improve, positions aren’t being created fast enough to bring millions of Gen Y’ers — those who are 18 to 24 — into the nation’s and the county’s workforce.
Homeowner stress appears to be easing in the county, and home prices will rise this year on conventional home sales, rather than distressed, he said.
“Affordability is at a nine-year low. By summer, sales should be stronger,” said Mr. Schniepp, citing a survey of local real estate brokers.
“Both a decline in foreclosures and a rise in job creation are exactly what the U.S. economy needs to turn the current economic recovery into a self-sustaining expansion,” he said.
While Mr. Schniepp gave his take on the local economy, Mr. Harris addressed the national and global scenes.
“Many of the prospects are excellent, but that doesn’t mean some of the changes in store for the U.S. economy over the next 10 years will be all that welcome,” Mr. Harris said.
The U.S. is now competing for resources that were once its exclusive province, he said.
“Ferrous metals and lumber prices are up … we don’t own the world’s resources like we used to,” said Mr. Harris, talking about competition from countries such as China, India and Brazil.
He expects the Fed to continue to tamp down inflation and doesn’t see it increasing more than 2-4 percent annually for the next decade.
Inflation would boost interest rates, which would short-circuit the recovery even further, Mr. Harris said.
The local commercial real estate market is beginning to recover, with the upward employment trend in 2011 increasing the demand for space, especially among high-tech outfits, law firms, accountants and financial services companies, he said.
Mr. Gamberdella spoke about greater scrutiny by banks of tenants, leases and lease rates.
“Were seeing more (sales) offers, but with more financing contingencies,” he said.
Office vacancy rates in downtown Santa Barbara are 5.6 percent; retail vacancies are less than 3 percent.
The Goleta office market vacancy of 12 percent will click down appreciably in 2011, another speaker said.
“There are close to 80,000 square feet of leases looking to be inked this year,” (in Goleta) predicted Mr. DeJohn, referring to such companies as Yardi, Citrix, Sonos, Lynda.Com and Deckers that are looking at expanding their footprints.
Of the 1,073 hotel rooms approved or proposed in the county, Mr. Gamberdella said he doesn’t see all three of the major projects — La Entrada, the Miramar and El Encanto — coming to fruition in 2011.
“I would be shocked to see two of these built,” said Mr. Gamberdella, talking about financing challenges and whether there is enough visitor demand for all of them to pencil out.
“The one most likely to move forward is La Entrada,” he said.
To obtain a copy of the complete publication, interested persons should contact www.californiaforecast.com.