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 …
When you visit Los Angeles, the sight of the cranes looming in the sky in all directions shows a city undergoing significant revitalization and redevelopment. Not so long ago, the Downtown area of Los Angeles went “dark.” This occurred after the hustle and bustle of the normal workday was done and the streets were mostly empty, businesses closed. Fortunately, Los Angeles has seen significant construction and redevelopment over the past few years. According to the Downtown Center Business Improvement District (DCBID), the population of Downtown Los Angeles was 18,000 people in 1999. Today, the population is estimated at 63,208, with a daytime population of 500,000. The residential inventory consists of 36,964 units with 11,868 under construction and 19,054 proposed for a total of 48,832 units as of the third quarter of 2016. There are 8,163 hotel rooms with 2,765 more under construction and 3,636 proposed for a total of 14,564. Retail has 2 million square feet under construction and an additional 1.5 million square feet proposed. Major industrial activity includes the announcement of Warner Music Group relocating from Burbank to the Arts District where it will occupy 257,000 square feet at the former Ford Factory, which was constructed in 1912. …
A steady supply of job opportunities and the growing population in the Inland Empire are supporting household formation, raising demand for housing and bolstering the performance of the area’s multifamily property market. Nearly 22,420 households were formed in the Inland Empire over the past four quarters that ended in September, while 48,500 individuals were added to the local population. By year’s end, area employers will have expanded the workforce by 2.2 percent with the addition of 30,000 positions. Hiring this year was driven by the government sector, which climbed 4 percent, or by more than 9,400 workers during the past 12 months that ended Sept. 30. The trade, transportation and utilities sectors also performed well, contributing 8,950 jobs over the same period. These strong hiring trends resulted in the unemployment rate falling 20 basis points to 6.2 percent — nearing the pre-recession five-year average of 5.7 percent — over the year-long period that ended in the third quarter of 2016. The Inland Empire’s growth and solid economic fundamentals are key factors behind the observable rise in construction activity we’ve witnessed this year. Apartment construction is booming, and builders are expected to more than double the units that were brought into …
People are aware of the Inland Empire’s rapidly growing market and the fulfillment center trend that’s sweeping Southern California. Amazon, Walmart and many others continue to be pioneers in logistics and door-to-door fulfillment, but the side of the market people are missing is the smaller, more locally sourced user, the groups that service these large international companies. It’s a common theme that when the big guys grow into space there’s normally a contingent of smaller users behind them ready to take down the small- to mid-sized product. This trend has never been more true than it has over the past 12 months. As million-square-foot buildings continue to be leased out by these massive conglomerates, the smaller product has been flying off the shelves. There was a concern in early 2016 that this size range was going to be overbuilt, but due to 8.5 million square feet worth of gross absorption through the first three quarters in the 100,000- to 300,000-square-foot size range, that idea has become a misconception. We’re now sitting with a deficiency of product driving lease rates and sales numbers higher than ever. Lease rates in this size range have jumped about 8 percent over the past year …
The Orange County apartment market is currently enjoying strong fundamentals that comes from several sources. These include robust renter demand, strong local economy and historic low interest rates, all of which make for a perfect storm. As more renters enter the market due to strong employment numbers, it gives way to new household formation. While home prices in the region escalate, more would-be homebuyers are being priced out of the market and forced to remain in the rental pool, further driving competition for suitable housing and pushing rents to new levels. Orange County developers are responding to a growing demand for new multifamily housing developments, many of which are Class A projects targeting high-end tenant bases and price points. Many older properties, such as Class C or C+ buildings, are enjoying the blow back from these new developments when tenants seek out lower rents when compared to top-tier projects, resulting in robust rent increases. Investors looking to place capital in today’s multifamily market are taking advantage of strong fundamentals and cheap debt. Transaction volume has increased more than 10 percent in the past 12 months, with notable sales volume in the northern end of Orange County. Confident that upward rent …
The Orange County office sector continues to see falling vacancy rates, positive net absorption and rising asking rates. Orange County has beaten the U.S. national average for office vacancy since the fourth quarter of 2014. Office vacancy fell to 8.9 percent in the third quarter, down from 9.4 percent in the second quarter and 9.9 percent in the first quarter of 2016. We continue to see positive net absorption to the tune of 626,900 square feet, but that number is down from 730,844 square feet in the second quarter, a difference of 15,044 square feet. Asking rates continue to trend upward from $27.61 per square foot to $27.73 per square foot annually. Class A buildings lead the way, with asking rates averaging $32.89 per square foot. Class B and C buildings come in at $26.28 per square foot and $21.57 per square foot, respectively. These are all good signs for the new development coming to market in 2017. One of the more notable projects to soon come to fruition is 400 Spectrum Center Drive in Irvine. This 466,696-square-foot, Class A office tower is expected to be complete in the third quarter of 2017. This will be the sister tower to …
San Francisco and San Mateo counties boast above average employment numbers and wages and have been strong all through the current business cycle. Over the past four quarters ending in June, organizations in these counties, along with Marin County, (henceforth referred to as “the metro,”) have created 30,750 new jobs. This expansion of the metro’s labor force by 2.9 percent far exceeds the national average over the same time period. Businesses are expected to create 40,000 new positions this year and employment growth will reach 3.7 percent. Hence, the metro’s economy has created substantial demand for housing and apartments are leading the way, as the high cost of single-family homes, rigorous regulation, and the infill nature within the metro has constrained deliveries during previous years in the cycle. There are multiple major projects that will boost the rate of completions significantly above previous years in the cycle. Builder activity will surge to a multi-decade high with 6,440 apartments slated for delivery, exceeding the 1,488 units brought to market in 2015. The majority of completions will target the South of Market (SoMA) and South San Mateo County submarkets. Vacancy rate in the metro will register a 110-basis-point increase in 2016, rising …
Financial markets worldwide have seen dramatic volatility in this past 12 months. The Bay Area economy and new hiring have cooled, while the San Francisco housing and condo markets have started to normalize after four feverishly overheated years. We are hearing about a big jump in apartment vacancy rates, with more apartments for rent than we’ve seen in many years just as rental rates begin to decline from recent all-time peaks. As would be expected, preliminary indicators show a transition to a cooler market when it comes to apartment building sales activity. However, as illustrated in the charts below, we haven’t seen any significant changes in the statistics. The second half of 2016 will undoubtedly provide more insight regarding the speed and scale of any market condition changes. San Francisco multifamily assets that contained more than five units experienced a plateau in cap rates year over year between 2015 and 2016. However, this same product experienced an increase in dollars per square foot, price per unit and average sale prices. The politics of new home development in San Francisco are not for the weak of heart. There are vocal disagreements between neighborhood and homeowner associations, developers, affordable housing advocates, tenant’s …
The retail market in Los Angeles is demonstrating exponential growth. Rents are going up, cap rates are going down and occupancy is soaring. Naturally, as lease prices rise, so do sale prices. As such, it is becoming increasingly difficult for investors to find opportunities where substantial rent growth is possible. Tenant competition is also fierce, and landlords are benefitting from extremely high demand throughout the market. Competition Abounds It’s only natural that retailers are competing over space as occupancy rises. One trend that has emerged in Los Angeles is competition among not only direct competitors, but indirect competitors as well. For example, a small grocer might compete with a Ross Dress 4 Less for the same location. Fueling this competition is an increase in large national retailers seeking out smaller urban spaces in downtown areas. Target, for example, is opening a store in LA’s Koreatown on Vermont and 6th streets at the base of a high-rise apartment building. When national soft goods chains open in urban hubs, there will be an evolution of retail surrounding those stores. Smaller discount stores and mom-and-pop retailers will likely suffer, which will lead to vacancies that tend to open the doors for new specialty …
The San Diego retail market had another positive quarter, which built on the strength of the local economy. Strong job growth and low unemployment led to positive net absorption and a spike in sales activities. The unemployment rate decreased across the board. San Diego posted a 4.9 percent rate, a post-recession low for overall unemployment. This is the first time San Diego unemployment has been sub-5 percent since the beginning of 2008. Local San Diego retail employment has been steadily increasing by 2.4 percent over the past five years, according to CBRE Econometric Advisors. Annual growth for the next five years, however, is expected to be relatively flat. Despite the lack of space, there have been a few construction deliveries. Most of the current retail construction in San Diego is from mixed-use development and property renovations. Westfield plans to spend $500 million to expand its center at UTC. It will also spend $300 million in Carlsbad where it plans intends to transform an indoor mall into an open-air center. Regional malls are leading the trend, and smaller centers like Flower Hill Promenade and Del Mar Heights Town Center are keeping up with them. One of the most significant signings this …