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Market & Economic Outlook

Real Estate Outlook: West Coast Recovery Underway

27 Minute Read

The recovery from the COVID-19 pandemic was stronger than many expected, accelerating in the first half of 2021 as local economies reopened and vaccine optimism boosted business and consumer spending. Even as the recovery accelerates, headwinds remind us that the path of the economy is dependent upon the course of the pandemic. The surge in infections from the delta variant could derail the economic and real estate recovery, adding a layer of risk to the near term outlook. While the economic recovery may be volatile, fraught with starts and stops, West Coast real estate markets should build upon the improvements in the first half of the year.

Labor Market Impact

While the pandemic had an indelible impact on the labor market, the recovery thus far in 2021 outpaced expectations. The unprecedented fiscal stimulus measures by federal and state governments kept businesses from shuttering and families in their homes. Pent-up demand and vaccine optimism led to a spike in spending on goods and services in early 2021.

Following a record-setting surge in unemployment in the first half of 2020, labor market conditions improved relatively rapidly. The U.S. unemployment rate fell to 5.4% in July, nearly one-third of the peak during the initial months of the pandemic and business restrictions. While many workers were rehired as business restrictions were lifted, many others have dropped out of the labor market. In the early days of the pandemic, the labor force declined by nearly eight million. Even as businesses reopened, many such workers cited the need to care for family members, lack of childcare or children learning from home, or fear of the virus as reasons for not rejoining the labor force.

With an elevated number of workers not actively seeking employment, job openings soared in recent months. In June, the latest month available, openings breached the 10 million mark for the first time. Job openings increased in nearly all industries, underscoring the broad effects of the pandemic rather than a shortage of any particular skillsets.

Even with the strong recovery, payroll employment remains 5.7 million lower than the pre-pandemic level. Rosen Consulting Group (RCG), an independent real estate economics consulting firm, expects employment will not reach the pre-pandemic level until 2022 or perhaps 2023. The construction, transportation, and professional and business services sectors are likely to create the bulk of jobs in the next year. While the retail trade and leisure and hospitality sectors will continue to rebound, many of those jobs will not return. The unemployment rate should stabilize in the 4% range through the next several years. The improved job prospects, as well as hopefully a safer work environment without COVID-19, will draw some workers off of the sidelines and improve the labor force participation rate back to roughly 63%.

Labor Market Trends: Unemployment Rate for California, Oregon, and Washington vs National


  • With business restrictions lingering in California, the employment recovery began later than many other states. By June, the latest data available, the unemployment rate improved to 7.7% from 9.3% at the end of 2020. While the improvement in the unemployment rate in recent months was highly positive, the unemployment rate if those exiting the labor force returned would approach 10%.
  • After the onset of the pandemic, more than 2.7 million jobs were lost throughout California. By June, the state recovered nearly 1.5 million jobs. The only employment sector that has fully recovered was the transportation and utilities sector. The hard-hit leisure and hospitality sector recovered only one-third of jobs lost last year.
  • In the Bay Area, many workers continue to work remotely and some local businesses offer reduced hours or services. The regional unemployment rate fell below 5% for the first time late in the second quarter. The decrease in the labor force in the Bay Area is higher than much of the rest of the state as the high cost of living can cause greater out-migration when job prospects are diminished.
  • The recovery started somewhat earlier in Southern California, and the Los Angeles region regained roughly 64% of jobs lost during the pandemic. The regional unemployment rate fell to 7.7%, much less than the 17.2% peak in 2020. While the initial improvement was strong, in recent months the recovery slowed and the unemployment rate is now one of the highest in the country.
  • The San Diego regional economy also lagged national trends somewhat, with only 62% of jobs recovered by June. With a large number of households moving into and within the region for larger residences, construction employment has surpassed pre-pandemic levels. While domestic travel has recovered well, leisure and hospitality employment remained sluggish.


  • The unemployment rate decreased to 5.6% in June, modestly lower than the 6.3% at year-end 2020. While the improvement in the unemployment rate was not as substantial as other West Coast states, the labor force in Oregon did not contract as it did elsewhere. In fact, the labor force participation rate increased to 62.5% from a pre-pandemic level of 61.7%. Migration from higher cost metropolitan areas in California and elsewhere added some workers to the labor force.
  • The employment recovery in Oregon lagged most other states with only 59% of jobs recovered thus far. On par with the national average, the Portland region recovered 69% of jobs lost during the pandemic. Employment in the professional and business services and transportation and utilities sectors exceeded the early-2020 peaks. The unemployment rate decreased to the low-4% range, approaching the pre-pandemic lows.


  • The state recovered two-thirds of the approximately 415,000 jobs lost during the peak pandemic months. Despite lagging the recovery of other metropolitan areas across the country, several employment sectors surpassed pre-pandemic peaks in recent months. The educational and health services, information services, trade, and construction sectors each employ more workers than prior to the pandemic. The unemployment rate stabilized at 5.2% in June, a modest decrease from 6.3% in late 2020.
  • The technology industry drove much of the recovery in the Seattle-Tacoma metropolitan area. Both the professional and business services and information services employment sectors surpassed the pre-pandemic levels. In some cases, regional employment was bolstered by tech worker transplants from outside of the Seattle-Tacoma area. The regional unemployment rate fell below the 5% threshold in June.

Commercial Real Estate Trends

Government stimulus measures that helped consumers and businesses, and rent forbearance programs, combined with the better-than-expected economic rebound led the commercial real estate sector to also outperform gloomy expectations. While some office tenants vacated buildings or offered space for sublease and retail tenants shuttered, occupancy levels held up relatively well considering the depth of the pandemic-induced recession.

Tenant demand for office space weakened throughout much of 2020 and into early 2021. Many corporate tenants delayed leasing or relocation decisions in 2020 until the path of the recovery became more apparent. In recent months, tenant touring activity began to rebound, particularly in downtown areas, but interest in suburban locations is greater in most cities.

Commercial Real Estate Trends: Office Vacancy Rate by Metro Area - U.S. West Coast

San Francisco Bay Area

  • In the Bay Area, office operating conditions remained weak for much of the year. The vacancy rate increased in downtown San Francisco as well as suburban Alameda and Santa Clara counties. The amount of sublease space surged, particularly in the city of San Francisco. Whether all of this sublease space is ultimately vacated remains uncertain as some firms may reclaim space once employees return to the office. While the average asking rent held up throughout much of the last year, the value of leasing concessions surged from virtually zero prior to the pandemic to 10% to 20% for some available spaces.
  • With some of the toughest business restrictions in the state, stores and restaurants in the Bay Area struggled to survive. The retail vacancy rate increased moderately in the first half of the year, particularly in urban San Francisco, though the actual vacancy rate would be much higher if not for a number of landlords allowing tenants to miss rent payments. Many major retailers shuttered stores, including national retailers and niche retailers, leading to darkened storefronts in shopping centers throughout the region.
  • The combination of pent-up demand and strong equity market returns bolstered sales for some luxury retailers, though many of the purchases were made online. While domestic tourism rebounded throughout much of the country, visitor volume stayed much lower in San Francisco as some remained wary of the strict business restrictions in the first half of the year. With international travel volume also low, shopping centers geared towards tourists may continue to suffer through the remainder of the year

Greater Los Angeles Metropolitan Area

  • The vacancy rate increased in the first half of 2021 throughout much of Los Angeles and Orange counties. In the Inland Empire, the vacancy rate remained stable throughout much of this year. In recent months, leasing volume by technology, media and entertainment tenants accelerated, particularly in prime submarkets. In some submarkets, the average rent was buoyed by several large blocks of high-rent sublease space made available by tenants.
  • While vaccine optimism and lifting of regional restrictions provided a temporary boost to retail sales activity in the region, the rising infection rate in July caused many consumers to reconsider shopping for goods and accessing services. Similar to other regions in California, the vacancy rate has moved little in the past few quarters as government stimulus measures as well as landlord forbearance allowed many retail tenants to remain in operation. Neighborhood grocery-anchored centers and prime shopping centers, as well as those with uniquely curated stores and restaurants, outperformed in the last year.
  • New leasing volume remains very limited, with few new concepts entering the market this year and those that do, such as ghost kitchens, often utilizing industrial space. RCG expects the combination of the resurgence of the COVID-19 virus combined with continued shift to online shopping will hamper the retail real estate sector. The vacancy rate may remain stable through the remainder of the year and into 2022, particularly if most landlords do not pursue evictions for non-payment of rent as is expected. The bifurcated performance may continue, with consumers prioritizing necessities as well as select discretionary goods and services. Well-located centers with good tenant mixes and necessity retailers should maintain asset values in the coming years better than most Class B and C shopping centers.

San Diego Metropolitan Area

  • The San Diego County office market accelerated during the first half of 2021. The vacancy rate decreased, particularly for Class A properties. While rents remained flat throughout much of the region, concessions did not increase as much as in Los Angeles and Orange counties. Tenant demand should continue to accelerate, particularly from life science and technology industry firms. As leasing demand rises, the average asking rent should also increase. Construction activity should increase modestly, particularly for life science space.
  • Operating conditions in the retail segment remained stable through the first half of 2021 as retail sales began to recover and landlord forbearance programs remained in effect. The vacancy rate was relatively flat in the first half of the year, though leasing volume remained low. With local capacity restrictions lifted, and potential recovery in domestic tourism volume, retail and restaurant sales should increase as consumers resume normal activities.

Portland Metropolitan Area

  • Office leasing activity remained slow through the first half of the year. The vacancy rate increased slightly as tenants placed sublease space on the market, roughly 500,000 square feet. With sluggish demand for space, the average asking rent declined by nearly 5% in the first half of the year, with leasing concessions on the rise as well. 
  • As companies reopen offices in late 2021, some of the sublease space may be removed from the market. Though some recovery in leasing interest manifested in recent months, the vacancy rate may remain elevated through the remainder of 2021. The average asking rent should stabilize before the end of the year and rent growth may return in 2022, particularly in Class A buildings.
  • The retail vacancy rate improved to the mid-4% range, with many retailers and restaurants supported by stimulus measures. Some downtown storefronts remain hampered by few daytime office workers as well as lingering effects from last year’s social unrest. While the vacancy rate trended in a positive direction, the average rent decreased with few tenants able or willing to lease new storefronts. As in other cities, vaccine optimism led to a release of pent-up demand for goods and services. While the delta variant surge is underway in Oregon, once the infection rate stabilizes consumers may resume retail activities, supporting restaurants and retailers. The vacancy rate should remain stable through the near term, with positive rent growth returning next year.

Seattle-Tacoma Metropolitan Area

  • The office vacancy rate increased moderately in the first half of the year, approaching 18%. While tech industry employment recovered well, many firms in the region are evaluating current and future space needs. With large portions of the workforce able to work remotely, some Seattle companies pared office space. By mid-2021, available sublease space increased to roughly 2.5 million square feet. The surge in available space drove asking rents lower throughout much of the region. In Seattle, the average rent decreased by nearly 6% in the first half of the year.
  • With many tenants still determining future space needs and the share of employees that may work remotely, leasing volume will remain sluggish through the next few quarters. The vacancy rate should remain in the high-teens even as the tech industry continues to expand. With a large amount of available space, asking rent growth may remain soft through the near term.
  • The regional retail market remained weak, particularly for non-essential retailers and shopping centers with a large component of entertainment tenants. The vacancy rate remained relatively low despite the retailer weakness as many stores and restaurants were kept open by government stimulus programs. As business restrictions were eased, retail worker hiring accelerated and many shops and food establishments expanded hours or services. While near-term risk remains elevated, and the shift towards online purchasing will continue, Seattle-area retail centers, particularly those with necessity retail components, should maintain asset values better than other types of shopping centers.


Throughout much of the country, the residential market has been surprisingly strong given the level of economic loss during the pandemic. As families spent more time at home, either by choice or government guidance, many households realized more space was needed for home offices, workout equipment and study areas. The ability to work remotely gave many households the freedom to relocate, either to suburban neighborhoods or cities that offered greater housing affordability. In many metropolitan areas, sales volume reached record levels early in 2021 and price gains outpaced the mid-2000s. Historically low mortgage rates offset some of the price gains, allowing more households to afford to buy.

Federal and state measures to provide rental assistance and prevent foreclosures or evictions proved to be very successful in keeping residents in their homes and apartments. As these mandates expire, it is unclear if the impending wave of evictions and foreclosures will manifest or if landlords and lenders will continue to work with residents. The likely outcome is that a small number of households may be evicted for non-payment of rent or mortgage but the vast majority of households behind on payments will be given some time to become current.

Residential Markets: Change in Median Home Prices by Metro Area - U.S. West Coast


San Francisco Bay Area

  • In the Bay Area, the single family home price surged to record levels in the last year. Over the last several months, the median price increased by between 20% and 30% throughout the region, the greatest price gains on record. With these gains, the Bay Area became the most expensive housing market in the country. With for-sale inventory limited, potential buyers continued to compete for available homes, and most homes sold for more than the list price. With little construction and few existing owners willing to sell even with the surge in home equity, the for-sale market will remain competitive for the foreseeable future. Despite the low level of affordability and median prices exceeding $1 million in many neighborhoods, buyer demand will remain strong.
  • For much of 2020, the San Francisco apartment market was one of the weakest in the nation. In the first half of the year, rental demand rebounded in suburban neighborhoods throughout much of the region. Finally, towards the middle of the year, rental demand in downtown San Francisco began to recover. While the vacancy rate reached a trough earlier in the year, the average apartment rent recovered some of last year’s losses. Despite gains in the monthly rent, concessions remain available in most urban submarkets. The high cost of ownership in the Bay Area will continue to funnel housing demand to rental apartments. As more workers return to their offices, apartment demand should continue to recover.

Greater Los Angeles Metropolitan Area

  • The single family market continued to accelerate in Southern California, with sales increasing in prime neighborhoods. In the first half of the year, the median price increased by roughly 12% in Los Angeles County and nearly 20% in Orange County. Potential buyers continued to target larger homes with extra rooms for a home office or classroom, as well as access to outdoor space. Few existing homeowners listed properties for sale in the first half of the year, and at the current pace of sales this supply would be absorbed in less than two months. The elevated competition for homes drove buyers to make quick decisions, and the median time on market for listed homes fell to approximately one week. Pent-up demand for homes should continue to outweigh new listings, creating tight market conditions and upward pressure on pricing for some time.
  • The apartment market in Greater Los Angeles recovered quickly from the initial pandemic-related weakness. The vacancy rate fell in the first half of the year throughout the region, approaching pre-pandemic levels. Despite the positive absorption of apartment units, the average rent fell in many submarkets. Additionally, availability of leasing concessions remained high. Although the potential for a wave of evictions remains, the regional apartment market should accelerate in the coming months. As more households return to work, there may be some movement between submarkets as workers adjust to new commute patterns, but overall rental demand will recover.

San Diego Metropolitan Area

  • The San Diego single family market also improved, albeit at a modest pace relative to other California cities. In the first half of the year, the median price increased by more than 3%. Normally, this would be a very strong first half for pricing, but in the current environment compared to Los Angeles and San Francisco, the price increase was on the low end. Sales volume accelerated this year, with many buyers looking to take advantage of historically low mortgage rates. In recent months, for-sale inventory increased slightly as existing homeowners sought to capitalize on gains in home equity. Migration to the region will continue to add housing demand and, combined with pent-up demand from resident households, sales volume should remain elevated into next year.
  • The apartment market in San Diego is one of the strongest in the state, with the vacancy rate lower today than prior to the pandemic. During the pandemic, the inflow of renters from other regions helped stabilize the vacancy rate. Rental demand rebounded well for dense, urban apartments, a rarity for a coastal market. The strong demand also drove average monthly rents higher and decreased utilization of concessions. In the first half of 2021, the average apartment rent surpassed the pre-pandemic high. Renter demand will remain high through the near term as younger households will be attracted to the region and the high cost of ownership will continue to price many households out of the single family and condo markets.

Portland Metropolitan Area

  • The Portland single family market slowed from the tight conditions in late 2020. In the first half of 2021, the median price increased by slightly more than 4%, compared with 14% last year. A lack of for-sale inventory is hampering sales volume as is the reduction in affordability despite low mortgage rates. For listed homes, the median days on market fell to slightly more than one week and some sellers received multiple offers. The inflow of households from high-cost California metropolitan areas continued to add to housing demand. With little inventory on the horizon, upward pressure on pricing should continue for the foreseeable future.
  • The regional apartment market strengthened, particularly in the Class A segment, in the first half of the year. The vacancy rate fell to less than 4%, lower than the pre-pandemic vacancy rate. A return of in-person learning for students as well as employers requiring workers to return to the office added to the apartment demand in the first and second quarters. This bolstered demand helped drive the average rent higher by nearly 5%.  The average monthly rent now exceeds the pre-pandemic high. Going forward, renter demand should remain elevated, supporting rent growth as well as new construction.

Seattle- Tacoma Metropolitan Area

  • Demand for single family homes was robust in Seattle-Tacoma with sales on pace to eclipse last year’s high mark. The regional median price increased by more than 20% as potential buyers competed for homes. Many sellers received multiple offers and homes often closed at greater than the asking price. While new home construction was elevated in recent years, supply chain and labor issues constricted supply in 2020 and into 2021. With for-sale inventory limited, buyer demand should continue to outpace supply. RCG expects sales to set another record this year and the median price to increase through the near term.
  • Apartment demand began to recover in 2020 in line with the economic recovery from the pandemic business restrictions. The vacancy rate decreased to roughly 5%, slightly higher than the pre-pandemic level. With relatively strong demand for apartments, the average rent recovered last year’s losses and now exceeds the peak prior to the start of the pandemic. Renter demand remains focused on suburban and exurban neighborhoods, but has also recently begun to rebound in urban Seattle. The economic recovery will lead to a resurgence of renter demand throughout most unit types in the next year.


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