Market Reports

Orange County Market Adjusts, but Remains Resilient

by Jeff Shaw August 22, 2023

— By Christopher J. Destino, Principal, Lee & Associates — The geographic area along the border of Los Angeles and Orange County is locally known as the Mid Counties market. This region currently boasts about 130 million square feet of industrial real estate, thanks to its prime location. This is a location that’s only 25 miles from the ports of Long Beach and Los Angeles, and 20 miles from Los Angeles International Airport (LAX). Like many other parts of the U.S., Mid Counties has begun to see the effects of continued economic uncertainty and a rising interest rate environment. It faces challenges like land scarcity and limited newly constructed buildings to accommodate the growing demand. Thankfully, this area still typically delivers 200,000 to 500,000 square feet of new construction annually (2018 was abnormally high with about 2 million square feet added). One recent deal worth noting is the 94,000-square-foot, Class A industrial distribution building in Santa Fe Springs from Panattoni that leased to BeBella Cosmetics for $2.05 per square foot net per month with an option to purchase at $577 per square foot. Another new development example is the 146,617-square-foot building that Duke Realty developed and leased to Weee!, a …

August 22, 2023

California Market Reports Retail Western Western Market Reports

Investor Demand Continues for Orange County Retail

by Jeff Shaw August 15, 2023

— By Gleb Lvovich, Managing Director, and Daniel Tyner, Senior Director, JLL Capital Markets — The commercial real estate market across all asset classes has seen a slowdown in transaction activity in 2023 compared to 2022 and 2021 largely due to the rapid increase in borrowing costs for investors. This might have impacted the commercial real estate sector as a whole, but shopping centers in Orange County are still buzzing with consumers as occupancy remains robust. Orange County has continuously proved to be one of the most sought-after markets to invest in retail due to its strong demographics, population growth and overall fundamentals. Investor Demand Shopping center performance in Orange County has been excellent over the past few years, and investors see this trend continuing for the foreseeable future. Low vacancy and strong tenant demand has allowed investors to experience significant rent growth at their properties. Orange County has experienced particularly strong grocer performance and expansion. Historically, shopping center transactions have been very limited in Orange County. This has further driven investor demand due to the lack of available investment opportunities. The few listings that exist generate significant interest. Recent examples include the sale of Ralph’s- and Rite Aid-anchored Brea …

August 15, 2023

California Market Reports Office Western Western Market Reports

Orange County’s Office Market Sees Stabilization Signs

by Jeff Shaw August 8, 2023

— By Brian C. Childs, Executive Managing Director, NAI Capital Commercial — Orange County office has historically been last in and first out of any recession or economic setback. That trend continues as an office recovery is in sight in this post-COVID marketplace. The challenge of encouraging workers to return to the office post-pandemic has slowed considerably. The rate of space being vacated in Orange County’s office market slowed to less than a 1 percent increase quarter over quarter in vacant space in the second quarter of 2023. This is compared to the 17 percent year-over-year rise, resulting in a total of 20.9 million square feet of vacant office space. Similarly, the growth rate of available sublease space also experienced a slower pace of 0.2 percent quarter over quarter, compared to a 23.4 percent year-over-year increase, reaching 4.6 million square feet. The second-quarter office vacancy rate sits at 13.3 percent, versus 13.2 percent in the first quarter. Overall office vacancy was at 11.5 percent a year ago. As the availability of office space has begun to stabilize, the average asking rent remained unchanged compared to the previous quarter. There was a minor decline of …

August 8, 2023

California Market Reports Office Western Western Market Reports

San Diego’s Office Sector Experiences Elevated Sublease Levels

by Jeff Shaw July 28, 2023

— By Jerry Holdner, Avison Young — Southern California Region Lead, Innovation & Insight, AVANT — The San Diego office market is starting to show signs of weakness. Unemployment remains low, but it is important to highlight that job creation has been uneven. The bright spot is that high-value-added jobs in a broad range of sectors, such as scientific research, medical products and pharmaceutical development continue to grow, which bodes well for San Diego. We are still uncertain about a recession. It could be short and shallow like many are predicting, or we could be in for a period of monumental headwinds. Investment sales have retreated as interest rates increased, and office workers have been reluctant to return to the office. This has created an uncertain picture of our office market going forward. The rise and future uncertainty of the pace of inflation has caused many to take a “pencils down” approach. This has caused many to slow, pause or even halt their dealmaking, growth, capital investment and development efforts as the ability to borrow funds has become difficult. San Diego’s office vacancy currently stands at 12.3 percent, and 18.9 percent of the total office market is available (including sublease …

July 28, 2023

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Lending Difficulties Make Multifamily Financing a Challenge in San Diego

by Jeff Shaw July 21, 2023

— By Chad O’Connor, Executive Managing Director, Capital Markets, Marcus & Millichap Capital Corp. — Financing continues to be challenging for multifamily, whether in San Diego County or elsewhere. We have noticed a general shift in the market where the usual players are moving to the sidelines, thereby allowing new developers to enter the field. Many of the new developers do not have a track record that encourages a lender to underwrite a transaction. The more seasoned developers are focused on smaller developments with a higher probability of securing financing. The redirection to smaller developers in San Diego has directly impacted the institutional market. Despite this, we are still financing a lot of deals and capital is, indeed, available. Having proprietary programs in the market — especially on the bridge side of things — continues to keep us both busy and adding value for our clients. The lack of go-to lenders in the market is driving us to forge new relationships with growing lenders, building those connections, and paving way for future opportunities. Timing is a crucial variable when securing financing. Locking in the most favorable interest rates and moving swiftly through the closing process is very important in dynamic …

July 21, 2023

California Market Reports Retail Western Western Market Reports

San Diego’s Retail Market Brings Positivity

by Jeff Shaw July 14, 2023

— By Reg Kobzi, Senior Vice President, CBRE — Despite economic headwinds and uncertainty, there remains a positive sentiment within the San Diego retail market due to the historically low vacancies that continue to persist quarter over quarter. Inflation across consumer categories erodes spending power and challenges the retail landscape, as well as the greater economy. Landlords proactively track consumer spending and tenant resilience to mitigate risk. Inflation has proven stubbornly high, but it is predicted to decline over the coming months as the economy cools. CBRE believes the rate hiking cycle is nearing an end, and the Feds should start to cut rates by the end of the year. Despite the economic challenges, San Diego is healthy as its unemployment rate has remained relatively steady and seen significantly less expansion than at the state and national levels. June is the 35th consecutive month that unemployment in San Diego was below the state norm and the 12th straight month below the U.S. average. San Diego retail vacancy stabilized at the beginning of 2023, mirroring the rate from the last quarter of 2022 of 4.9 percent. Since vacancy rates are indicators of the market’s overall health, this stabilization is a valuable …

July 14, 2023

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Premiering Premier Retail Space in Los Angeles

by Jeff Shaw June 27, 2023

One word comes to mind when you pair Los Angeles and real estate: expensive. But creating a premier space can attract top-notch tenants, which then brings in the nearby clientele that can afford to live, work and play in, well, LA. Of course, tourists are enthusiastic spenders as well. Price tags and calories don’t count when you’re on vacation, after all. Way Out West Malibu-based developer, manager and sponsor Christina knows all about what it takes to cultivate a dynamic retail offering in Los Angeles. In uber-developed areas like this, it typically takes a tired or underachieving retail space in a prime location that can be made into something grand. “Christina operates with a laser focus on investing only in the ultra-prime submarkets of Los Angeles: Beverly Hills, Brentwood, Century City, Malibu, Santa Monica, Westwood, West Hollywood and Venice/Silicon Beach,” says Lawrence “Larry” Taylor, founder and CEO of Christina. “Redevelopment opportunities in these submarkets, which have limited inventory of pedestrian-oriented retail streets, are rarely available.” Given their scarce availability, the 46-year-old firm’s strategy has been to establish and maintain relationships with property owners in these markets. “Then, when disposition opportunities present themselves due to life changes, estate planning or similar reasons, …

June 27, 2023

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The Future of Downtown LA’s Food-and-Beverage Industry

by Jeff Shaw June 20, 2023

— By Evan Jurgensen, Senior Vice President, Lee & Associates Los Angeles – Downtown — As the pandemic recedes, the hospitality and food and beverage industries in downtown Los Angeles are rebounding, driven in part by the return of venue entertainment and conferences. The number of visitors to the area has climbed back to within 10 percent of pre-pandemic levels and now sits at 10 million people per month. Consequently, there has been an influx of new restaurants, venues and breweries in the region. However, as overall occupancy levels in the market remain in flux, businesses are becoming mindful of how they utilize their spaces to achieve a triple bottom line impact that benefits not only the asset owner, but also the consumer and community at large for the long run. Increased Investment in Outdoor Space Outdoor dining saved many restaurants during the pandemic and continues to have great appeal in the present day. In addition to being a healthier option for diners, outdoor seating allows restaurants to handle more customers at once and increase profitability. Los Angeles city officials created a streamlined process known as the L.A. Al Fresco program in May 2020, which allowed more than 2,500 restaurants and …

June 20, 2023

California Market Reports Multifamily Western Western Market Reports

Opportunities Abound for Investors in Westside Los Angeles Apartment Market

by Jeff Shaw June 9, 2023

— By Kimberly Stepp, Principal, Stepp Commercial Group — Los Angeles’ Westside apartment market is poised to see a robust pipeline of transactions in 2023. Long-time owners have been increasingly seeking to trade into out-of-state assets, while 1031 investors or those looking to pay all cash seek to take advantage of opportunities in a high interest rate environment. Last year, Stepp Commercial Group saw a significant number of transactions with LA-area sellers who were frustrated with rent control and other problematic apartment legislation. They were looking to trade into states like Arizona, Florida and Texas because they provide a stronger ROI over the long-term and offer fewer landlord restrictions. We see that trend continuing into 2023 as owners want to enjoy a passive income as they achieve their individual investment goals and objectives. Additionally, while Measure ULA (“the mansion tax”) went into effect on April 1 — and impacts only homes and apartment complexes sold within the City of Los Angeles at $5 million or more — the overall sentiment has been sour from owners throughout the Greater LA area. They are justifiably concerned that similar legislation will soon be coming to their city, on top of other landlord-unfriendly restrictions …

June 9, 2023

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Office Leasing Remains Robust in California’s Mixed-Use Projects

by Jeff Shaw June 6, 2023

The pandemic has done a lot to the office sector, not the least of which is convince employees they don’t need to sit in a cubicle eight hours a day, five days a week. Turns out, unsurprisingly, many people appreciate the freedom and flexibility that comes with working from home. The average U.S. office vacancy rate was 18.6 percent in the first quarter of 2023, according to Cushman & Wakefield. This was 5.9 percentage points higher than fourth-quarter 2019. Three California regions are also listed on the “Bottom 10 Performers of 2022” list (according to vacancy rate) put out by the National Association of Realtors. These include San Rafael (19.3 percent vacancy), San Francisco (16.4 percent) and Los Angeles (14.4 percent). Yet, leases are still getting signed, particularly at urban mixed-use projects throughout the state. Sean Slater, senior principal in RDC’s San Diego office, thinks this type of environment is a no-brainer for companies looking to bring employees back to the office. “Office workers want choice, especially with the current work-from-anywhere trend,” he says. “For a long time, suburban office parks have lacked choice of food and beverage, a diverse population of tenants, and a meaningful connection to their community. …

June 6, 2023

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