and Europe. Would-be domestic buyers are put off by the tightening credit climate.

                Rent prospects vary by location, depending a lot on new construction.
                San Diego. The 1.1 million sq. ft. of space added to the office inventory
in the first half of the year flooded the market. The 14% second quarter vacancy rate
was the highest in more than a decade and good news for businesses seeking leases.
New buildings in Rancho Bernardo threaten to raise that area’s vacancy rate to 40%.
                Inland Empire. The vacancy rate will rise from 17.5% to 20% by year-end.
Rents haven’t dropped yet, but they’ll have to when newly built offices are leased.
Owners in Riverside will do OK, but not those in Corona and Ontario.
                Orange County. New buildings are opening up, but they’re poorly timed
with the county losing about 15,000 office jobs this year. The weakest markets
are near the airport and in Central County. West County and South County are OK.

                Los Angeles. Rents will flatten rather than drop in a fairly strong market,
particularly in the downtown and Westside neighborhoods. L.A.’s Class A rents
are the third highest in the U.S., behind only New York City and San Francisco.
But it will be a tenant’s market at LAX, Santa Clarita and West San Fernando Valley.
                Sacramento. Likely cuts in the state budget will jeopardize expansion plans
by government agencies, trade associations and state contractors, putting pressure
on landlords to reduce rents. The area’s vacancy rate of 16.8% will probably go up.
The healthiest markets will be in downtown, the Highway 50 Corridor and Folsom.
                Fresno. The 10.6% vacancy rate will drop a bit, but rents will go down, too.
Many new tenants are subleasing space for half what the primary leaseholder paid.

 Silicon Valley. A softening economy and a run of Silicon Valley mergers
 will push vacancy rates up past 12% and rents down a bit by year-end.
But expansions by Google and other tech firms will keep the office market stable.
                San Francisco. Tenants will get a reprieve from the steady rent increases
that followed the tech revival. Most decreases will be in Class A buildings,
which tenants have deserted in the past few years because the costs were so high.
Most resistant to rent drops will be the South of Market and Yerba Buena areas.
                Oakland. The East Bay market should hold up better than most.
Tenants recently migrating from San Francisco are keeping demand steady.

 Nordstrom will open a three-level store at Santa Monica Place in 2010,
 when the once-fading mall undergoes a revival as an open-air venue.
The company also plans to remodel a store in Walnut Creek and relocate another
in Cerritos to a site formerly occupied by Robinsons-May in the Los Cerritos Center.
                Among Los Angeles County’s top sources of foreign investment:
Japan, the United Kingdom, France, Germany and Canada. Besides the weak dollar,
investors are lured by the area’s strong growth prospects for the manufacturing,
retail and wholesale trade, financial services and transportation industries.
                Tougher building codes are one reason earthquake damage was minor
in the Chino Hills temblor July 29. Most buildings near the quake’s epicenter
were constructed since rules were tightened after the Northridge disaster in 1994.

                Chances are good for a half-cent hike in L.A. County’s sales tax.
The Metropolitan Transportation Authority has approved the increase
to 8.75¢ on the dollar, but it still needs an OK by the legislature and county voters.
The funds would go for highways, buses, rail lines and other transportation projects.
                Forget about a dock strike at West Coast ports. The Pacific Maritime Assn.
has reached a six-year deal with the International Longshore and Warehouse Union
that will probably be ratified by members. A work slowdown that delayed traffic
during labor negotiations will also come to an end, speeding up shipments.

 Kaiser Permanente Medical Center will replace its Fontana hospital
 with twin seven-story towers holding 314 beds. Construction begins in Jan.
and will finish in 2013 on the 482,000-sq.-ft. facility south of the current hospital.
                ResMed plans a distribution center in Moreno Valley near I-60 and I-215.
The company, which makes products for sleep and respiratory disorders,
has signed a lease for a 130,000-sq.-ft. facility at Centerpointe Business Park.
                UC Riverside’s new medical school will boost the Inland Empire’s economy.
Approval by the UC Board of Regents means a lot more construction in the area
and a surge in enrollment. The Riverside campus already contributes $1.1 billion
to the state economy, according to the latest figures available from the university.

 A bad Calif. fire season boosts chances of a San Diego-area tax increase.
 The regional government is close to putting a $52-a-year parcel tax
on the November ballot to raise more than $50 million a year for firefighting efforts.
                The San Diego Port Commission expects to attract more luxury yachts
by approving a two-year test of Mediterranean mooring...docking boats perpendicular
to a pier and parallel to each other rather than tying them up alongside the pier.
Luxury yachts are typically 100 feet or longer, taking up a lot of space on the docks.

                Another sign of bad times in the housing industry: A canceled awards party
by the Sales and Marketing Council of San Diego for the charitable arm
of the Building Industry Assn. of San Diego County, which charged $150 a seat.
Attendance dropped in 2007, and costs in 2008 were slashed before the cancellation.
Ever optimistic, builders are buoyed by a second quarter gain in area home sales.

 The weak housing market isn’t affecting apartment rents, despite forecasts
 that homeowners would be forced into rentals, driving up monthly rates.
In Stockton, which has the highest foreclosure rate in the nation, rents have risen
by only 0.7% in the past year, and in Fresno, only 0.5%. The soft employment market
is keeping job seekers away and is driving down the demand for apartments.
                Next in line for revitalization: Winters. The southwest Yolo County city
of 6800 is already drawing tourists with a number of quality restaurants.
It’s planning improvements at Putah Creek, the Monticello mixed-use project
and the Granite Bay commercial project. A downtown master plan is in the works.
                
                An Indian gambling casino near Madera is moving ahead after the decision
by the U.S. Department of the Interior to expedite an environmental impact report.
The North Fork Rancheria of Mono Indians wants to build its facility on 300 acres
along Highway 99, 35 miles from the reservation. The tribe has a long way to go
before breaking ground. Fifteen similar applications are being considered
by the Interior Department, and the deal must be OK’d by the legislature and governor.
                ExpressJet will stop flying to and from Fresno on Sept. 2 because of fuel costs.
That leaves two carriers...United Express and American Eagle...to serve Fresno
and the Southern California market. Both carriers have Fresno-Los Angeles flights.

 A former cereal plant in San Leandro is being converted into an industrial park.
 Broadreach Capital Partners is renovating the former Kellogg’s cereal factory
as the Williams Street Industrial Park, a 485,000-sq.-ft. mixed-use development.
Project managers are seeking clean technology, food processing and beverage companies.
                Cisco’s supremacy in networking equipment is going to be challenged
by Brocade Communications Systems, which is buying Foundry Networks for $3 billion.
Cisco is also in a buying mood, acquiring Pure Networks, a home network software firm.
                San Francisco’s real estate transfer tax will probably go up. A ballot measure
to be considered in Nov. would double the tax on property valued over $5 million.
                Motorists driving alone will be able to pay to use area carpool lanes
starting in two or three years, according to preliminary plans by transportation officials.
The first pilot projects will probably be on Interstate 680 over the Sunol Grade
and on Interstate 580 between Livermore and the Interstate 680 interchange.

California will fare well in the increasingly competitive global economy. Current job and housing troubles are only a pause in a wave of growth that will carry the state in a rising tide of expansion over the next 10 years. Reason: Well paying fast-growth industries selling goods and services outside of California, according to the report California Growth 2008, just put out by the Center for Continuing Study of the California Economy, based in Palo Alto. Professional and technical services, such as computer, management and Internet firms. Foreign trade and transportation industries. Entertainment and tourism, which benefit from growing sales abroad and foreign visitors. High tech, to be led by new ventures in alternative energy, biotech and Internet services. But there are still difficulties ahead: Getting enough transportation and housing plus finding state revenue without overtaxing productive firms.

 An insect threatens the state’s citrus industry after coming close to the U.S.
 in Tijuana, Mexico. Federal and state officials have hundreds of traps
near the Mexican border to stop Asian citrus psyllid, lice that carry the disease
called by its Chinese name, huanglongbing. The only known remedy for the disease
is tree removal, but scientists are hoping to build genetic resistance into new trees.
                Water will be in even shorter supply next year, when more is diverted
to protect endangered fish, demand from heavily populated areas increases
and reservoir levels drop lower. Plus forecasters are calling for another dry winter.
Expect more pressure for new dams, a peripheral canal and underground storage.

 How are motorists reacting to the ban on holding cell phones while driving?
 They’re buying Bluetooth headsets...earpieces allowing hands-free talking
on the phone. S.F. consumers bought almost twice the national average in March,
three times the average in April and more than four times the average in May.
Just before the July 1 deadline, sales were solid in Sacramento, L.A. and San Diego.
                Next, figure on a legislative ban on text messaging while driving in Calif.
The cell phone law seems to be working, so an antitexting bill is likely to pass.

                New software allows searches of the 2007 Plumbing and Mechanical Codes.
The International Association of Plumbing and Mechanical Officials has made a deal
with Citation Technologies to put the code online, where it is also embedded
with links to other codes, such as related National Fire Protection Association rules.
Companies can write their own notes in the codes after they download them.
                Long term, expect similar software for other building trades and industries.

 Firms must offer rest and meal breaks, but it’s up to workers to take them.
 A court decision is a big victory for companies, which are often sued
for meal and rest break violations even if workers skip breaks or forget about them.
Calif.’s 4th District Court of Appeal says employers aren’t liable for missed breaks
unless employees are forced to miss them. The time off must only be made available.
                Break times are flexible. The court rejected restaurant workers’ arguments
that they should get two lunch breaks if the first one was too early in the day.
                It’ll be harder to file class action suits over rest and meal break violations.
The court said the circumstances will probably be different for each employee
who sues when some are forced to forgo a break and others skip them voluntarily.

 The state’s effort to reduce pollution from ships faces a tough court battle.
 The California Air Resources Board will require oceangoing vessels
within 24 nautical miles of the coast to use lower-sulfur marine distillates
in their engines rather than bunker fuel. Enforcing the rule may be difficult
because a court said other rules to cut ship emissions were preempted by U.S. law.

                But new green building standards will be accepted by business groups.
The California Chamber of Commerce is cheering the standards’ adoption this month
by the state Building Standards Commission. They’ll be voluntary until 2010,
and they’re not as strict as legislation being drafted by California lawmakers.
New houses and commercial buildings will need to save energy, conserve water
and contain paint, adhesives and air-conditioning filters that limit greenhouse gases.
Businesses figure green buildings are popular and will reduce energy costs.

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©2008 The Kiplinger Washington Editors