While economic uncertainty still abounds, the Los Angeles County retail market remains on the road to recovery. Several significant leases were signed during 2013, representing an expansion of both value retailers and luxury brands. Also contributing to positive market momentum was the lack of massive closures by big box retailers, such as Borders and Blockbuster, which were seen in previous years. Los Angeles also maintained its status as a primary market for investors. Cap rates trended in the low- to mid-5 percent range for core grocery/drugstore-anchored product and around the 6 percent range for power/promotional shopping centers. Investor demand was strong for high-profile and street-front retail in Hollywood and Beverly Hills, resulting in aggressive acquisition terms and cap rates falling into the four percent range and below. Los Angeles’ retail market overall experienced moderate leasing activity in 2013. CoStar reported a positive net absorption of 850,112 square feet in the third quarter. However, one submarket that saw significant activity—retail and otherwise—was Downtown LA with the FIGat7th open-air shopping center leading the renaissance. In addition to CityTarget, which opened here in 2012, FIGat7th recently signed a 27,000-square-foot lease with Spanish clothier Zara for a flagship location and a 32,000-square-foot lease with …
Market Reports
In its entirety, the Orange County industrial market showed positive net absorption at the closing of 2013. Neighboring markets like Los Angeles and the Inland Empire, however, displayed a more robust recovery when compared to the Orange County industrial market. This reflects a less aggressive, but steady decrease in vacancy at about 4.3 percent — a number that has not been seen since the third quarter of 2008. Most of the market’s leasing activity has been established by users in the less than 100,000 square feet range. A few notable large transactions that took place in 2013: • Cargill, Inc. moving into 184,438 square feet at Fullerton Crossroads • Obey Clothing moving into 170,466 square feet on Michelson Drive in Irvine • Cavotec Dabico US Inc. moving into 159,943 square feet at 5665 Corporate Ave. in Cypress Pointe Rental rates steadily increased in 2013. The average quoted asking rate for available industrial space was $8.49 per square foot, per year at the end of the third quarter of 2013. This represented a 1.3 percent increase in quoted rental rates from the end of the second quarter, as rents were reported at $8.38 per square foot. Although lease rates underwent one …
Strong recent job growth in Orange County has led to a major pickup in demand for quality retail space. The county’s low development profile has resulted in correspondingly high long-term occupancy levels. Thus, the recent recession with its negative absorption drove the local community neighborhood shopping center rate no higher than the 7 percent peak it reached in the first quarter of 2010. Descent has been the trend ever since. The rate has dropped to 5.5 percent by the end of the second quarter, down 40 basis points year-over-year amid modest additions to supply. The second quarter National Community neighborhood sector rates, by comparison, were notably higher at 10.5 percent. Orange County power centers’ vacancy rates are also lower than the national rate. There have been no power center projects completed in the county since 2007. The vacancy rate for power centers in Orange County is 3.9 percent, compared to 5.7 percent nationally. Orange County’s typically strong economy, positive population growth and high levels of affluence bode well for local retailing and the local retail real estate market. All of Orange County’s cores will see new retail development delivered in 2014 and beyond. Some of the new development will be …
Optimism is returning to the Inland Empire office market. With an overall vacancy rate of 18.3 percent at the end of the third quarter, the office sector is slowly improving. It’s down from a 19.4 percent vacancy rate, which was recorded in the second quarter of 2013. The declining vacancy number shows activity is increasing throughout the Inland Empire as tenants feel now is the time to take advantage of below-market rental rates for Class A and B properties. Landlords are also competing to lower their vacancy levels. They’re negotiating rental rates, tenant improvements and free rent concessions. Nevertheless, it’s a tenants’ market. There is an absence of new construction throughout the region and, as occupancies continue to improve, renewal negotiations will become tougher for tenants as the market is expected to gradually favor landlords as fundamentals continue their positive momentum. With that said, tenant urgency is returning to the market as absorption levels increase and options for quality product diminish. In fact, we’re starting to see rent growth in certain sectors of the market. The average overall asking lease rate ended the quarter at $1.73 per square foot, increasing by 1 cent from the previous quarter. CBRE forecasts that …
The Inland Empire’s commercial real estate market is seeing large big box industrial buildings of 300,000 square feet or more being built on a speculative basis — and they are being absorbed by a healthy market. There is nearly 10.4 million square feet of industrial space currently under construction in this region. Once completed, this new space will increase the total inventory of industrial properties by 2 percent, or from 509 million square feet to 520 million square feet. At the same time, unemployment is above 7 percent for the nation and almost 9 percent in California, with many questioning the strength of the economy. If it seems like a big gamble for developers of these big projects to be building in such uncertain times, think again. This money will likely fare better than it would in the bank. These large projects are being leased and sold. Since 1982 — when only 3.5 million square feet was constructed for the year — the Inland Empire has seen average construction levels of about 13 million square feet annually. Some years it seemed like construction could not keep up with demand. This was the case in 1989, when 34.3 million square feet …
International trade is a driving force behind one of the most vibrant industrial markets in the nation. There are more than 1.7 billion square feet of industrial space in Los Angeles County, Orange County and the Inland Empire, with 18.2 million square feet of additional space under construction at the end of the third quarter. The South Bay and Central Los Angeles markets are leading the way in new development in Los Angeles County. The LA Basin’s occupancy gains of 12.7 million square feet during the first nine months of the year dropped its overall vacancy rate to 4.9 percent, from 5 percent last quarter and 5.3 percent a year ago. As the logistics hub of Southern California and the big-box capital of the U.S., international trade is especially critical to the Inland Empire’s industrial market. As a result of increased demand for modern warehouse facilities, warehouse construction in the Inland Empire more than doubled from a year ago to 16.4 million square feet. It was the most active in the nation. Increased demand for industrial space in the Inland Empire lowered the overall vacancy rate to 6.2 percent in the third quarter. This was 60 basis points lower than …
The San Diego apartment market is doing unsustainably well. About 400 buildings will sell this year, which is the average volume of the past 30 years. Sellers are obtaining prices near peak levels, while buyers are capturing cash flow twice as good as the stock market — and with less risk. There are three sources of buyers: cash that was sitting on the sidelines; investors who bought houses and condos at half price and are now ready to move up; and 1031 buyers. Investors are tired of going broke safely. Hundreds have had cash in the bank that was paying a pittance while inflation and taxes slowly dissolve capital. Apartments deliver cash returns that are two to three times what stocks offer. Additionally, over the past few years there have been more than 30,000 homes and condos sold at distressed prices. Many of those owners have doubled their equity and are ready to re-leverage their equity and trade up. This is creating a significant number of 1031 buyers again. It is not quite a chain reaction, but the ripple is helpful. Apartment financing is easy and interest rates are cheaper than they have been for 48 of the past 50 …
Orange County's industrial marketplace doesn’t quite favor owners just yet, but it’s getting close. Our industrial inventories are at historic lows and, with a few exceptions, we have not seen any new construction since 2007. There are a couple new projects planned — and a few more are under construction — but they’ve mostly been large warehouses north of 100,000 square feet. The projected asking rents for these big boxes is $0.50 or more per square foot, triple net; a very expensive rent for a commodity. In general, as these big box rents approach or exceed $0.50 triple net, occupants tend to seek cheaper environs. In Orange County’s case, this usually means they migrate east of town in the Inland markets or beyond. Smaller, newer inventory (20,000 square feet to 50,000 square feet) that hits the market these days is gobbled up quickly, sometimes with multiple suitors. Incubator space (less than 10,000 square feet) has also rebounded nicely with absorption at a blistering pace. We haven’t seen a great deal of rent growth or price appreciation to date, although the latest round of transactions that are in escrow now should bring some evidence of upward change. During the depths of …
The Orange The Orange County apartment market continues to rebound. Operations have improved so far in 2013, with vacancy below equilibrium and asking rents nearly 10 percent above the low point during the recession. The healthy performance of the apartment market is a result of Orange County’s strategic location, population growth, low unemployment rate, high occupancy and shortage of available housing, which has greatly benefited multifamily investors. According to Hendricks-Berkadia Research, the county is one of the most densely populated areas in the United States. Orange County is 2.5 times denser than Contra Costa and Santa Clara counties, and five times denser than San Diego County, which has nearly the same population. The population in Orange County has grown consistently, and reached 3,055,800 residents at the end of 2012, up 26.7 percent from 1990. The unemployment rate for Orange County in the second quarter of 2013 averaged 5.6 percent, 130 basis point below what it was at the end of 2012. According to Moody’s Analytics, the local jobless rate is lower than state and U.S averages. This would be the lowest rate since 2008, indicative of the improving economy in Orange County. Employment growth in the county is also expected …
The Orange County retail market, which consists of about 140 million square feet of space, continues to thrive as it sees an overall vacancy rate of just 5.5 percent. With strong income demographics, an improving job market and a limited supply of retail property, Orange County continues to be a target for both retailers and investors. As job growth is an indicator of a positive retail market due to increasing demand from the county’s consumer base, the positive data coming supports a well-held belief that the investor protects his or her downside risk by targeting ideally located retail property in Orange County. Through this, they benefit from consistent appreciation by virtue of owning retail property in a market characterized by very high barriers to entry. In its 2013-2014 Economic Forecast & Industry Outlook, the Los Angeles County Economic Development Corp. says that the county’s job market over the next couple of years will be strong. It anticipates an increase of nearly 52,000 jobs. LAEDC also reports that retail jobs will increase, and that taxable retail sales reached $39.3 billion last year. Those sales are expected to reach $42 billion this year and $43.7 billion next year. With that said, from …