Construction permit data is a leading indicator used to create near-term forecasts of commercial, industrial and residential investment activity. Commercial Real Estate vacancy rates reflect current business activity in a region and are an indicator of current investment and business activity.
RESIDENTIAL CONSTRUCTION
Residential construction, once a growth and investment sector in the East Bay, has seen a drastic decline, ultimately falling to levels below that of the 2001–02 period. Permit values fell 33.1 percent between the 2007–08 and 2008–09 periods. Though steep in comparison to the steady 3 to 5 percent growth rate of prior years, this most recent decline in building permit values marks a slight improvement over that of the 2006–07 period. A residential construction slowdown of this magnitude indicates that the effects of the mortgage and subprime lending crisis will continue to have an impact on the East Bay over the next several years. Additionally, lower home equity has caused many homeowners to put off remodeling and home addition projects, further impacting construction employment and municipal permit revenues.
NON-RESIDENTIAL CONSTRUCTION
Non-residential construction permits are issued for commercial, industrial and institutional buildings and indicate future business investment. In contrast to residential construction investment over the previous 5-year period, non-residential construction increased throughout the Bay Area until the 2008–09 period when a significant decrease in permits occurred. In the East Bay non-residential investment decreased 32.5 percent between the 2007–08 and 2008–09 periods, San Francisco decreased 44.8 percent and San Jose 30.8 percent.
COMMERCIAL REAL ESTATE
The East Bay's strategic location, industrial lands, and numerous commercial and retail clusters has, in the past, made the region highly desirable to residential, commercial and industrial investors. The East Bay's commercial real estate market was less affected by the previous downturn (2001–02) than nearby regions such as San Francisco and San Jose. The current recession, however, is now beginning to have an impact on East Bay properties. Whereas vacancies in many East Bay commercial and industrial markets hovered between 10 and 12 percent over the past 7 years, on average, rates have jumped between 2 and 4 percent over the last 12 months, with vacancies in some areas topping 30 percent. As commercial banking and real estate transactions are financed and negotiated in a manner that is unlike residential real estate, commercial vacancies are often the last indicator to demonstrate economic distress. As a result of the current contraction in business investment, it is expected that a wave of commercial foreclosures will occur in the 2010–11 period.