Orange County’s well-diversified and growing economy, coupled with its high quality of life, attract residents nationally and internationally to the region. Prohibitive home pricing also intensifies the high barrier to home ownership, further supporting overall apartment fundamentals in the Orange County market. Developers are targeting urban centers where they can transform the areas with Class A rentals. Anaheim’s Platinum Triangle, the Disney Resort, Convention Center Complex and surrounding area are undergoing an infusion of more than $5 billion that is redefining the area as a highly urbanized residential, entertainment and business hub. A similar transformation is happening at the Irvine Business Complex (IBC). In addition to these clusters, about 19,000 units are scheduled to come online over the next few years, particularly in the Class A product category. Rents in Orange County rose 4.8 percent year-over-year through January, outpacing the 4.6 percent national growth rate. Renter demand remains elevated, fueled by a rapidly expanding economy and population gains. Large companies and startups alike are drawn to the market’s highly educated workforce as nearly 25 percent of residents have at least a bachelor’s degree. This reinforces the foundation for the multifamily sector’s rent growth in both “renter by necessity” (students/young professionals/blue-collar/subsidized …
Orange County’s innovative office economy continues to be supported by healthy underlying demand drivers. Tech, financial and business services companies continue to provide a strong employment base that was not readily present during the last cycle. Major colleges and universities such as Chapman and UC Irvine provide a steady pool of job-seeking professionals. The climate, lifestyle and general quality of life also continues to attract top employment talent from across the country. Office vacancy is trending downward with rental rates increasing beyond pre-recession levels. As the health of the office market solidifies, notable developers like the Irvine Company, Trammell Crow Co. and Lincoln Property have recently commenced or completed construction on formidable office projects. These new office projects are noteworthy in that they were started on a speculative basis. This is a new trend in the market that would have been unheard of less than three years ago. This is a strong indication of the increased confidence by lenders, equity sources and developers in the Orange County office market’s recovery. Irvine Company has become the dominant source of speculative development due to considerable new development. This company was ahead of the spec curve when it built the first sizeable inventory …
Los Angeles County is facing a significant lack of housing product — an issue that can’t be resolved any time soon. With the fight to limit new development, it is a very uphill and challenging battle that is unfortunate for the economy, business and, most of all, residents. An influx of about 160,000 new residents moved to the county from 2010 through 2015, but we have only seen upwards of 25,000 new housing units built during that same time frame. The demand drivers are extremely significant for new housing, but supply constraints like zoning and regulations are preventing an adequate supply. Additionally, with an unemployment rate currently at a historical low of about 4 percent, projections for housing demand over the next decade all point to a severe shortage in this growing region. Despite all the news about companies moving out of state to enjoy less expensive business costs as well as more affordable housing for their employees, this region, along with California as a whole, continues to see a population increase. Even with all this being said, the multifamily sector has and will continue to be the darling of the commercial real estate industry as it’s fueled by a …
With limited inventory and historically high values and rental rates, it’s safe to say the Los Angeles industrial market is enjoying an all-time high. There are several factors contributing to ongoing strength in the market, including a healthy appetite for acquisitions, strong tenant activity and creative solutions to adapt to supply constraints and maximize ROI. Industrial buyers continue to be active in Los Angeles, even with tightening availability and compressing cap rates. The fact is, there is still tremendous value to be found in this gateway city. Interest rates remain low, and those looking to acquire properties know that the sooner they buy, the better. Conversely, sellers are not especially eager to dispose of properties in the current market, based primarily on the challenge in finding acquisition-worthy assets. Specifically, owners seeking 1031 exchanges are finding it increasingly difficult to identify properties to trade into. That said, values are high enough that some owners are selling and choosing to simply pay taxes on capital gains or look to other markets for product to acquire. For example, Daum recently helped a seller dispose of a property in Los Angeles and reinvest those funds into an asset in Cleveland, Ohio, at a 7 …
The Inland Empire multifamily market will retain its solid foundation of positivity this year as the economy again provides a healthy supply of new jobs and freshly formed households seek apartments to rent. The number of new multifamily units scheduled for delivery is a fraction of what it was last year, and this will place downward pressure on vacancy. Tightening vacancy will support another year of above-trend rent growth. Strong job growth in wholesale trade, government and transportation and warehousing positions has drawn many new employees to the Inland Empire in recent years. The number of 20- to 34-year-olds, who typically favor rental housing, has steadily increased. Growth in wholesale trade, government and warehousing will continue to attract Millennials in 2017, and the region’s employers are expected to add 27,500 new jobs overall. The Inland Empire’s employment boom has led to an increase in household formation, which has stimulated new multifamily construction. Developers fruitfully delivered 2,600 new units to the market in 2016. This exuberance, however, may well have been the peak for the current real estate cycle. This year, the projected number of apartment completions is just 500. This much more measured level of development will be quickly absorbed …
There was a big shake-up in the big box world with long-time sporting goods staples Sports Chalet and Sports Authority shuttering stores across the county. Macy’s in Mission Valley is also closing, while Nordstrom is shutting down in downtown. Interestingly, Hobby Lobby and the large pet stores seem to be buffered by the big box epidemic. In Chula Vista, two long-time vacant big boxes were finally chopped up into four spaces to accommodate the mid-sized box users. The good news is that big, “boring” boxes are being replaced by big “experiences.” Experiences, whether in a larger property or within a specific business, continue to be important for retailers and restaurants. Landlords across the county are making large investments to create experiences that will attract consumers. At the top end of the spectrum we have seen Westfield finally pulling the trigger on a massive remodel of the UTC mall, which will include more than 100 new stores and restaurants. Rouse purchased the Carlsbad mall from Westfield and has seemed to follow a similar business plan with its revamp, adding an exciting lineup of restaurants along the outside of the property. Liberty Station in Point Loma is coming into its prime with, …
After a decade of scarce industrial development in San Diego County, 2016 marked its strong return. About 1.3 million square feet of industrial/R&D space was completed, which is more than what was delivered between 2013 and 2015 combined. This year is expected to be an even more active year for industrial/R&D speculative and build-to-suit development with an additional 1.4 million square feet currently under construction. North County San Diego has become the concentrated hotspot for both speculative and build-to-suit industrial development. Nearly two-thirds of all new industrial/R&D development completed in 2016 was in North County, including about 233,227 square feet of speculative construction. This new wave of development was triggered by 16 consecutive quarters of rental rate increases and last year’s record-low vacancy rate of 4.7 percent for combined industrial/R&D properties countywide. Average asking rental rates are increasing quicker in North County than anywhere else in San Diego. North County’s average asking rental rates have increased by 5.9 percent since the end of 2015, whereas the countywide rate increased by only 3 percent in the same period. Vacancy will likely fluctuate between 4 percent and 5 percent throughout 2017 as net absorption keeps pace with new construction. Many organizations are …
Rent an apartment or buy a home? That is the question now posed to many Millennials as they face the facts about the high barriers to homeownership that generations before them, at the same stage of life, could easily overcome. But since the Great Recession and the loose homeownership qualifications that helped spawn it, banks and other home-lending institutions have been under the tight-fisted control of government regulators who have demanded, rightly or wrongly, that prospective homeowners meet strict and often daunting qualifications to buy a house. While that’s bad news for a generation that was raised by families who owned homes and where a home was the primary financial asset for inheritance, it’s good news for multifamily investors, developers and contractors. The demand for apartments has risen to levels eclipsing demand for homeownership in one of the few times in modern history. This is especially true in Orange County where home prices have always been among the highest in the nation. In fact, demand among multifamily investors is so strong that nearly every recent offering for well-located apartment properties has garnered multiple offers, creating a perfect-storm situation for the sellers. One sale that involved an investment portfolio of four …
Expect the Orange County retail landscape to be characterized by continued strong fundamentals and high transaction volumes in 2017. The area remains among the most stable markets nationally—attractive to both high-end and affordable retailers thanks to its high median income and population growth. However, a bit of volatility would be welcomed in the coming year to generate leasing opportunities and enhance rental rate growth. Significant store closings, including a selection of Walmarts, Macy’s, Staples and Sears, in addition to Sports Authority and Sports Chalet locations, affected many of our regional malls and shopping centers in 2016. As a result, we will continue to see more space absorbed rather than closed or constructed in the coming year. This type of instability breeds opportunity. From grocers to soft goods to restaurateurs, traditional and non-traditional retailers remain motivated to identify what works best across Southern California. Retailers who have been working to right-size and reconfigure their traditional formats will catch everyone’s attention in 2017. Target recently announced the opening of a flex-format concept with plans for a 41,000-square-foot store in Orange in the fall. Burlington Coat Factory has been evaluating a smaller footprint, while 365 by Whole Foods will soon enter the Orange …
The Los Angeles office market continues to experience steady demand and accelerated rent growth as we enter 2017. The market is heading into its sixth consecutive year of expansion, after seeing a sharp contraction between 2008 and 2011. The Los Angeles office market has witnessed vacancy rates steadily decline from 16.3 percent to 13.7 percent since 2011, all the while absorbing more than 10.5 million square feet of occupied space. The market only added 4.5 million square feet of new construction during that same period, allowing vacancy to steadily decline back into the low teens, while average full-service gross asking rents have increased from $29.28 per square foot to $35.76 per square foot, up 22.1 percent. More importantly is the accelerated rent growth during this period. Rents increased 1.6 percent in 2012; 2.8 percent in 2013; 3.9 percent in 2014; 5.3 percent in 2015; and 6.8-percent to date in 2016. On the demand side, net absorption growth rates have been trending higher since 2012, averaging 0.8 percent during the past five years. They will finish above 1 percent for the second consecutive year. This remains below the growth rates experienced from 2003 to 2007, which averaged an annual growth of …