The retail sector continues to struggle as consumer confidence remains relatively low. Until the job market perks up, Orange County residents will maintain low levels of spending. This nervous sentiment has crossed over to prospective investors in retail properties because of the potential for weak cash flow. Leasing activity is at a virtual standstill, with no anticipated movement for at least the next 6 to 9 months. With the exception of Kohl’s and Forever 21 leasing up former Mervyn’s stores and Marshalls taking up large space at previously occupied locations, most of the vacated big box spaces are sitting empty. As of August, the Orange County vacancy rate increased to 7.7 percent, up 8 percent from the previous quarter. Further evidence of a weak market, the average asking rent declined $0.05 to $2.56 per square foot from the previous quarter. Sales activity during the third quarter has lacked large trendsetting transactions. Due to rising vacancies and declining rental rates, potential investors have been hesitant to acquire large properties; this explains why most of the deals have been small or mid-sized. Cap rates have shifted from 5 percent during the market peak in 2007 to 8 percent or higher for large, …
Market Reports
The declining job market continues to take a toll on the Orange County multifamily sector. With unemployment reaching 9.6 percent in August, the market is showing little signs of life. Relief will not come until new jobs are created and the unemployment level begins to descend. Orange County’s apartment vacancy increased 36 percent during the 12 months following second quarter 2008, from 4.5 to 6.1 percent. Asking rents fell 1.9 percent since second quarter 2008, from $1,566 to $1,537, while effective rents during the same time frame decreased at a higher rate of 3.6 percent from $1,519 to $1,465. Despite the downturn in rental rates, tenants are vacating the apartment market in search of less expensive housing. Orange County residents are moving in with their parents, taking in roommates or seeking respite in neighboring markets or even out of state. Rising vacancies have led to a decline in values by more than 20 percent since 2007. According to CoStar’s year-to-date numbers, the average price per unit for buildings with 16 or more units is $129,704 with average cap rates at 7.83 percent, compared to 2007, when the average price per unit was $179,260 with average cap rates at 4.43 percent. …
National retailers have taken a step back this year and have begun looking at opening up new locations in the San Jose area in 2011 and 2012. There are fewer retailers currently active in the San Jose retail market, which can have a negative effect on the absorption of large blocks of space that come into the market as retailers downsize. Former Mervyns sites continue to be the largest weight in the market due to the substantial size of each space — sites average 85,000 square feet. It is difficult to find tenants to occupy the entire store, and it is often cost prohibitive to subdivide these properties. Retail vacancy increased in the second quarter of this year. Year-over-year, Silicon Valley’s overall vacancy rate has gone to 6 percent from 3 percent at the end of the first half of 2008. Anticipate retail vacancy to climb to 7.5 percent by year’s end. The good news is that compared with other retail markets on the West Coast, the Silicon Valley retail market has not experienced a tremendous amount of overbuilding. The amount of jobs lost so far has been less extreme when compared with San Francisco, San Mateo and Alameda. Since …
The capital market crash of 2007 and the global recession still cast a pall over Sacramento’s industrial landscape. Landlords are paying close attention to the State of California, the city’s biggest tenant, and its desire to extend leases where landlords will reduce rent (by up to 30 percent in some cases). There are no speculative developments of any significance underway in Sacramento and only a few are under development in the San Joaquin markets closer to the Bay Area, where greater population densities create some optimism. To date, the standout deal in Sacramento has been Buzz Oates Real Estate’s inking of Nestle Waters North America to a 215,000-square-foot deal on existing space at Younger Creek Drive in the Florin Fruitridge Industrial Park; the firm’s two-line bottling plant slated to open early next year. Sacramento’s traditional strength in securing large distribution commitments has recently been diverted south and west to Stockton, Tracy, Lathrop, Cordelia and as far south as Patterson. Dealmakers point to the availability of large tracts of land and closer proximity to bigger markets like the Bay Area and Southern California as key drivers. Right now, a geographic difference of 50 miles in one direction or the other is …
At nearly 1 billion square feet, the Los Angeles industrial market is one of the largest in the nation, and despite increasing vacancy in the past year, it remains one of the tightest. The Bureau of Labor Statistics has estimated that 172,100 non-farm jobs were lost between July 2008 and July 2009. Industrial-oriented jobs have been among the hardest hit during the past 12 months, including losses in trade, transportation and utilities (39,900 jobs); manufacturing (36,200 jobs); and construction (18,000 jobs). Slowing trade and reduced consumer spending is largely responsible for lower industrial demand in 2009. At the Port of Los Angeles, year-to-date TEU volume through August was 18.3 percent lower than the same period in 2008; at the Port of Long Beach, the TEU volume has declined 21.7 percent from 2008 levels. Container activity at the Los Angeles/Long Beach port complex peaked in 2006 when 15.76 million TEUs were handled. The forecast for 2009 is for 12.2 million TEUs, a decline of 22.6 percent. At mid-year 2009, total industrial vacancy in the area was 4.6 percent, up from 3.5 percent at the end of 2008. While vacancy remains low, availability has surpassed 9 percent, the highest rate in more …
Following trends in the domestic and global economy, conditions in the Los Angeles office market continued to deteriorate this summer. Los Angeles County’s unemployment rate reached 11.9 percent in July, up from 7.7 percent 1 year earlier, and the Bureau of Labor Statistics estimated that 172,100 non-farm jobs were lost between July 2008 and July 2009. Area companies have conceded to a difficult business environment and lower revenue forecasts by shedding employees in record numbers and, in turn, reducing their need for office space. At mid-year, total vacancy was 14.7 percent, up from 12.5 percent at the end of last year. The market experienced negative net absorption of 3.3 million square feet through the first half of the year, and preliminary third quarter data indicates that vacancy continues to rise, albeit at a slower pace than has been witnessed during the past 18 months. While previous real estate downturns in Los Angeles were triggered by excessive speculative office construction, the current rise in vacancy has stemmed from a collapse in demand. Construction has been relatively limited in the current cycle; however, a handful of large projects have been delivered this year, most notably The Pointe (480,000 square feet) and 2300 …
San Diego has historically been a strong retail market with low vacancy and barriers to entry that restrict the supply of new centers. However, the market has not been immune to these difficult times. Rising unemployment and decreased home values have made consumers more cautious, leading to lower sales volumes for many retailers and restaurants creating slightly more vacancy throughout the area. Expo Design Center, Linens ‘N Things, Circuit City and Mervyns are just a few of the big boxes that sit empty along with several former gas stations, Starbucks Coffee, Banner Mattresses, Baja Fresh and La Salsa locations. However, these vacancies created opportunities for Wal-Mart, Kohls, Best Buy, yogurt shops, taco shops and others to enter projects or trade areas that had proven difficult to enter. Many of these former restaurant locations still include the furniture, fixtures and equipment and have created excellent opportunities for new tenants to reopen with little upfront investment. This is particularly true in South County as many experienced restaurateurs and other business owners from Mexico are crossing the border to open businesses. Tenants such as Autozone, Chase Bank, CVS/pharmacy, Gamestop, 7-Eleven and Five Guys are now taking advantage of the lower rents and increased …
Vacancy is rising and rents are falling in Orange County’s office market. To maintain occupancy, landlords are lowering their rent rates and reducing lease terms. The total amount of office space available in Orange County was 22.41 percent at the end of first quarter 2009, which is an increase of 3.72 percent from the vacancy rate at the end of first quarter 2008. Many tenants are either downsizing or consolidating due to the declining economy and shrinking job market. However, as demand drops off and lease rates decline, some companies are capitalizing on some of the opportunities arising in Orange County’s office market. Orange County’s popularity with businesses and its strong labor base has always made it a popular destination for companies to expand into, but its high rent rates prevented many from doing so. In the current economic climate, businesses such as loan modification companies and call centers have actually expanded and are moving to the area. Now that rents have fallen, these companies that would previously have been uninterested in office space within Orange County due to its high prices are opting to move to the area. While there are some great opportunities for tenants in the current …
The prominent trend in retail development thus far in 2009 has been its absence. Developers are either completing projects already underway or remodeling existing properties to maximize marketability. Only 15 new buildings were delivered in first quarter, totaling approximately 156,000 square feet (another 856,000 is slated for delivery later in the year). The overall vacancy rate for retail space in the first quarter was 9.2 percent, with negative net absorption of nearly 850,000 square feet. Rental rates climbed to $21.06 per square foot per year (approximately $1.75 per monthly). That represents a 1.9 percent increase in rental rates in the current quarter, and a 6.13 percent decrease from first quarter 2008. Asking rents do not reflect market activity, which is being affected by tenants demanding and owners making major concessions in order to close transactions. As for hot spots, everyone is watching Sacramento’s K Street redevelopment with a hopeful eye toward an emerging downtown entertainment district. The city has redevelopment funds to draw the attention of potential tenants and it could be successful, even if it means buying the tenants. Newly delivered retail projects include 5065 Quinn Rd., a 37,914-square-foot general freestanding building occupied by Camping World; a 20,000-square-foot building …
Last year brought rapid change to the Inland Empire industrial market, which finished 2008 with increased vacancy rates, rising cap rates, negative absorption and negative rent growth. Throw in the region’s unemployment rate of 10 percent — one of the highest in the country — and it’s no surprise that the Inland Empire industrial sector will continue to have its challenges in 2009. That said, this market is viewed by most as having strong long-term fundamentals, which will continue to attract institutional capital and drive tenant demand. Industrial leasing is expected to remain soft this year with landlords going to great lengths to secure and retain occupancy. Vacancy rates, currently at 22 percent in the east and 12 percent in the west, will continue to trend upward as leases expire and companies continue to downsize. Effective rental rates have dropped 20 to 25 percent in the last 9 months, with flat to negative rent growth expected for 2009. As retailers continue to downsize and outsource their distribution function, third-party logistics providers will pick up the slack. Southern California is home to more than 21 million people, who may be buying fewer jet skis and flat-screen TVs, but will still need …