Market Reports

Orange County’s Industrial Sector Continues to Grow

by Jeff Shaw March 24, 2023

— By Jace Gan, Executive Vice President, Colliers — Before 2020, Orange County’s industrial base shrank due to developers opting to redevelop multifamily and creative office spaces. Historically tight market conditions limit the number of new leases, and rising interest rates price out many businesses looking to purchase a building. However, we are seeing a significant increase in industrial development across Orange County for the first time in a while. Orange County industrial properties have seen a pullback from institutions that were putting capital out the door. About 2.4 million square feet of new industrial space was constructed in 2022 — a significant increase over the 660,000-square-foot, five-year average. Setting Pace Most activity occurs in North County, which makes up 45 percent of OC’s industrial base. Irvine has remained the hub for more specialized uses related to aerospace, medical, etc. Key developments across the region are dictating the speed of future activity. Goodman recently developed a 1.5-million-square-foot, four-building logistics center in Fullerton. The overall size is rare for the OC, and was 89 percent pre-leased before completion. Samsung took two buildings totaling 1 million square feet. Sprouts took 337,000 square feet in another building. Sares Regis Group is redeveloping an …

March 24, 2023

California Market Reports Office Western Western Market Reports

Orange County’s Office Market is on Divergent Paths as it Looks to Find Balance

by Jeff Shaw March 14, 2023

— Scott Wetzel, Executive Vice President, JLL — Tenants and debt remain the most important drivers of the Orange County office ecosystem — both having undergone major evolutions in recent history. Maybe unexpectedly, leasing velocity improved year over year, despite the never-ending drumbeat of a pending recession. Conversely, investment markets were much more cautious as debt cost spiked and investors pumped the brakes. Leasing From Bob Iger to Howard Schultz, prominent executives are voicing frustration over the state of the office market…and rightfully so. We watched the pendulum swing from end to end as office tenants went from fully “in office” pre-pandemic, to 100 percent remote for the better part of 2020 and 2021. Today, the national office usage rate still hovers around 50 percent, according to the most recent Kastle Systems report. Orange County reflects this national trend, meaning it’s stuck in the middle between in-office and in-home. Tenants are also on divergent paths as some seek quality, while others prioritize value. New Orange County office developments like Flight (Lincoln Property Company), Boardwalk (AEW) and Spectrum Terrace (the Irvine Company) are fully leased and have achieved premium rental rates, typically 70 percent-plus above average market lease rates. Large contiguous …

March 14, 2023

California Market Reports Multifamily Western Western Market Reports

Orange County’s Multifamily Sector Remains Highly Sought After By Investors

by Jeff Shaw March 8, 2023

— By Shane Shafer, Managing Director, Northmarq — Orange County remains a highly desirable market for multifamily investors — and for good reason. It’s a flight-to-quality market with a strong employment base and continued expectations of future job growth. This drives demand for rental units and pushes rent growth and occupancy. Add to that a severe shortage of rental housing supply, more would-be homebuyers remaining renter, and Orange County’s affordability compared with other Southern California markets, and it points to a robust investor market. The employment market continues to show signs of growth and resurgence, adding 73,000 jobs in 2022. Unemployment is an extremely low 2.5 percent. Orange County is long known for its tech startups, tourism and hospitality sectors, though healthcare and bioscience are expanding here as well. For example, Washington-based health system Providence is investing $712 million in Orange County to build two new multi-specialty medical centers and a new patient care tower for Providence Mission Hospital. The centers will be in San Clemente and Rancho Mission Viejo. This strong job market gives multifamily investors confidence in their expected returns as they aggressively pursue assets when they hit the market. Central OC Leads in Rental Gains Central Orange County experienced a …

March 8, 2023

California Market Reports Multifamily Western Western Market Reports

Inland Empire Multifamily Market Poised for Great Future Potential

by Jeff Shaw March 1, 2023

— By Shane Shafer, Managing Director, Northmarq — The Inland Empire submarkets have maintained rent increases, low vacancy rates and employment growth. Plus, unlike other Southern California markets, the IE has seen a migration into the area — not out. The population of the Inland Empire region in an average year expands by about 50,000 residents. This is the fifth largest gain among the largest 50 metros, per 2021 Census numbers. A Jobs-Rich Market Gaining Momentum Local employment showed signs of growth and resurgence, adding jobs each of the past four quarters. Year-over-year total employment increased by more than 83,000 positions, which equates to a gain of more than 5 percent. Contrast this with other markets, and you can see why the Inland Empire is on most investors’ top 10 lists for buying, and why expectations are so high for the market to have continued rental growth. The logistics sector is one of the biggest and fastest growing in the United States. These jobs have consistently grown over the past 10 years, increasing by more than 10 percent. This year, Amazon inked a record-setting 4.1-million-square-foot facility in Ontario, while companies like Target, Shopify, Best Buy, AutoZone and others also made large commitments. The …

March 1, 2023

California Market Reports Multifamily Western Western Market Reports

Inland Empire Multifamily Market Poised for Great Future

by Jeff Shaw March 1, 2023

March 1, 2023

California Industrial Market Reports Western Western Market Reports

Inland Empire Industrial Remains Strong, but Sees Signs of Equilibrium

by Jeff Shaw February 20, 2023

— By Jerry Holdner, Southern California Region Lead, Innovation & Insight, AVANT, Avison Young — The industrial market in the Inland Empire has been performing beyond what most of the industry projected over recent quarters. The region boasts a low unemployment rate of 4.2 percent, as of November 2022, which is below the anticipated 5.4 percent estimated a year ago. It is important to highlight, however, that job creation has been uneven. Leisure and hospitality jobs are still underwater, for example. The bright spot is that high-value-added jobs in a broad range of sectors like technology, software development, aerospace, scientific research, medical products and pharmaceutical development continue to grow, which bode well for the industrial sector. Here are some key market indicators, according to Avison Young’s fourth-quarter Inland Empire Industrial Insights report: • There was 38.9 million square feet of new industrial construction underway at the end of 2022. This is down 37.1 percent as compared to the end of 2021 when 28.4 million square feet was under construction. • There was 13.9 million square feet of positive absorption in 2022, down 53.5 percent when compared to 2021’s record-high total of 29.9 million square feet of positive absorption. This represents 2.5 percent …

February 20, 2023

California Market Reports Office Western Western Market Reports

Rising Costs Create a Challenge for Inland Empire Office Landlords

by Jeff Shaw February 13, 2023

— By Kyle Yocum, first vice president, and Phillip Woodford, senior vice president, CBRE — The Inland Empire office market is experiencing a rise in cost, much like all sectors and markets throughout the U.S. As tenant improvement costs continue to increase, it’s becoming more and more challenging to find win-win situations with landlords and tenants. Landlords are having to increase their TI allocations, while tenants are having to show more flexibility as it relates to working with existing space. That, or they must cover a portion of the TI costs themselves or commit to longer-term leases to help the deal pencil for the landlord. Due to TI costs, both parties need to meet halfway and make concessions. I think one of the reasons our market has done well is that we are a smaller market. Most parties involved seem to understand the give and take needed to make deals pencil for both sides. Concessions are entirely contingent on TI costs, with landlords offering significant amounts of free rent and slight discounts on the rental rate if the TI costs are low. If a tenant is seeking major changes to the space, landlords are staying close to or at their …

February 13, 2023

California Market Reports Retail Western Western Market Reports

Is There a Supply Problem for Inland Empire Retail?

by Jeff Shaw February 6, 2023

— Brad Umansky, President, Progressive Real Estate Partners — The retail vacancy rate for the Inland Empire has dipped below 6 percent for the first time since 2008. But there is a dramatic difference between then and now. From 2006 to 2008, there was about 20 million square feet constructed, compared to only 2.8 million square feet from 2020 to 2022. Using Costar’s data, retail rents rose 5.7 percent in the past year, which was just under the 6 percent rent growth in 2021. These are the two highest years of rent growth in the past 15 years. In my opinion, the market has regained equilibrium, which is about where we were at in 2019 before the bottom fell out the following year. The substantial development of the early 2000s required almost a decade to fully absorb. COVID then created 1.5 million square feet of negative absorption in 2020, which has all been fully absorbed, plus another 3.3 million square feet of net absorption in 2021 and 2022. The Inland Empire added more than 74,000 jobs in the past year, and the region’s population continues to grow despite the decline in California’s overall population. People are attracted to the employment opportunities, lower cost of …

February 6, 2023

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San Bernardino Multifamily Market Slows But Market Fundamentals Remain Strong

by Jeff Shaw December 22, 2022

By Guy Enriquez, Vice President, NAI Capital The market for small- to medium-sized multifamily buildings ranging from 10 to 100 units in the City of San Bernardino has experienced a severe downturn in sales transactions recently. This was caused by the rapid increase in interest rates and a disconnect between buyers and sellers on pricing expectations. Cap rates on sales completed in the third quarter of 2022 show an increase of about 80 basis points year over year to 5.5 percent in the Inland Empire. Third-quarter 2022 sales volume in the Inland Empire fell to 15 transactions totaling $54 million. The area has been averaging 37 transactions totaling $180 million on a quarterly basis over the past four quarters. This quarter, the City of San Bernardino saw one sales transaction in this segment of the market, indicating the lack of deal volume. While rising interest rates caused a collapse of sales volume, combined with other general economic factors, San Bernardino’s rental market has remained very strong. The city’s overall multifamily physical vacancy rate has stood at 3.2 percent throughout 2022. The average rent for a one-bedroom unit increased from $949 to $966 per unit during the first three quarters of …

December 22, 2022

California Industrial Market Reports Western Western Market Reports

Despite a Slowdown, San Bernardino’s Industrial Outlook Remains Strong

by Jeff Shaw December 13, 2022

By Rick John, Executive Vice President, Ontario Branch Manager, DAUM Commercial The San Bernardino industrial market is experiencing strong market fundamentals as it’s home to 18 percent of the Inland Empire East’s nearly 245 million square feet of industrial space. The city also commands one of the highest prices per square foot across the market, exceeding $300. Although vacancy rates for the Inland Empire East increased for the first time since the pandemic – jumping 14 basis points and ending at 1.1 percent for the third quarter – overall vacancy in San Bernardino remains historically low. In fact, it’s among the lowest in the region at 0.24 percent. This incremental increase in vacancies was primarily seen among smaller buildings, while larger buildings of 500,000 square feet or more continue to be in short supply as vacancy remains near zero. Consistent low vacancy and competition for space are encouraging large companies to pre-lease new developments in the construction pipeline. This has helped bring gross leasing activity to near pre-pandemic levels. In September, Shein signed the largest lease within the Riverside-San Bernardino metro for the quarter with plans to open a 1.8-million-square-foot distribution center that’s currently under development in Cherry Valley. Due …

December 13, 2022

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