The uncertainty created by the nation’s current economic and fiscal conditions continues to dampen confidence for both government and private sector tenants resulting in increasing vacancy rates and declining net absorption in the D.C. market. In anticipation of the looming possibility that the government will fail to resolve its budget impasse, and so enforce mandated federal budget cuts (i.e., “sequestration”), companies that rely on federal spending are consolidating operations, discarding excess space and deferring leasing decisions. As a result, the Washington, D.C., vacancy rate, which has been in the mid-single digits for at least the last decade, has steadily increased since 2010 to over 12.5 percent as of the second quarter of 2012. The D.C. market’s leasing activity has been dominated by lease renewals, totaling 87 percent of all leasing activity in 2011 and 70 percent for the first half of 2012. Despite the economic uncertainty, the D.C. market continues to see new development activity, with nearly 2 million square feet currently under construction, and more than 70 percent of this space pre-leased. The 10-acre, mixed-use CityCenterDC project on the former Convention Center site has approximately 500,000 square feet of office space currently under construction, 77 percent of which has …
Market Reports
Like many metro areas across the U.S., Boston’s 494 million-square-foot industrial market slowed as we approached elections and the end of 2012. Despite mixed signals, the situation isn’t entirely dour, and there are signs of optimism in terms of demand and activity, evidenced by a slight decrease in vacancy and 475,000 square feet of net absorption in the first half of 2012, according to CoStar Group. At a more macro level, the Boston area’s thriving technology sector has led to job growth and declining unemployment, which ultimately increases consumer demand and benefits the industrial property market. The Boston industrial market has been flat for more than three years now, but that’s created opportunities for end users to lease higher-quality properties than they previously inhabited while reducing occupancy costs, which is the prevalent trend both in Boston and nationwide. Tenants seek to improve efficiency by consolidating warehouse and distribution into more modern properties with higher clear-height ceilings and other features. While users demand more efficient and flexible industrial space, they also demand more flexible — and generally shorter — lease terms. If tenants can achieve both operational efficiency and lower costs through outsourcing to third-party logistics providers (3PLs), even better. End …
The San Diego retail market has posted five consecutive quarters of positive net absorption with strong activity in power centers and several vacant big box spaces coming off the market. Through the third quarter of 2012, year-to-date gross leasing activity totals more than 1.8 million square feet with about 330,000 square feet of positive net absorption. So far, we have already surpassed the 2011 gross leasing total of about 1.4 million square feet. The steady leasing activity and positive net absorption dropped the direct vacancy rate from 7.4 percent at the beginning of the first quarter 2012 to 6.9 percent at the end of the third quarter. The current overall vacancy rate, including sublease space, is 7.2 percent. Vacant big box spaces are attracting tenants from national credit retailers to specialty markets. Dick’s Sporting Goods recently opened a 46,019-square-foot location in a redevelopment of a former Mervyn’s site in the Sports Arena submarket. Meanwhile, Zion Market, a Korean-focused grocery and specialty store, subleased a vacant 94,000-square-foot Sears Essentials building in Kearny Mesa. In addition to tenants taking big box spaces, several high-end fashion retailers are entering the San Diego market or opening new stores. Kate Spade New York opened its …
Cash is flowing in the greater Twin Cities real estate market in spite of slow, but positive, year-over-year absorption rates. Investment action was significant in the third quarter of this year. New multifamily housing projects are booming, private student housing developments serving the University of Minnesota continue to grow, and corporate build-to-suit projects add to the inventory in a down economy. The Twin Cities office market has remained stable with modest absorption through the past three years based upon existing inventory. And although there is significant construction in other product types, there is little significant multi-tenant office construction at present. ECONOMIC BACKDROP The 5.7 percent unemployment rate in the Twin Cities stood well below the national jobless rate of 7.8 percent in September. In fact, the unemployment rate for the state of Minnesota was 5.8 percent, again much better than the national average. The Twin Cities does not depend on any single industry and is home to a variety of Fortune 500 headquarters such as Ameriprise Financial, Best Buy, Ecolab, General Mills, Target, 3M, St. Jude Medical, Medtronic and UnitedHealth Group. The variety of services and industries helped buffer the local economy during the Great Recession, although the downturn adversely …
A slight decline in vacancy this year confirms that Washington, D.C.’s apartment sector is in a new phase, where a closer alignment in tenant demand and completions will maintain vacancy within a tight range. Solid rental absorption promises to persist as employers hire workers who create new households and homeownership remains out of reach for many who cannot qualify for mortgages. However, potential cuts in defense spending might dull future housing demand in Virginia. The difference in the multifamily market at mid-year 2012 and one year ago shows the revival of residential construction as developers have cranked up production of all types of housing. Multifamily starts have jumped and represent more than 40 percent of all residential groundbreakings over the past year, approximately two times the typical proportion. All sections of the market will receive new multifamily stock this year, with only modest growth expected in Maryland offset by significant completions in Virginia. Meanwhile, most of this year’s production in the district will come online in the second half of 2012, limiting the extent of vacancy declines in the third and fourth quarters. Positive job growth supported growth in D.C.’s multifamily sector. Employers added 25,200 workers in the first six …
Multifamily transaction activity has increased in San Diego during the fourth quarter, due partly to the typical end-of-year rush to close escrow, as well as uncertainty about tax reform in 2013. Agency debt is still a large driver, but relationship banking is picking up for well-heeled borrowers, and investors increasingly have multiple options. The multifamily rental market continues to benefit from the high down payment and credit requirements placed on average home buyers who still choose to rent in San Diego where the cost to rent is still below the cost to own. San Diego’s diverse economic base added 30,300 jobs over the past 12 months, and year-over-year employment gains in excess of 2 percent were reported in nearly all sectors. San Diego has seen a rise in tourism, which has positively impacted the service industries. While manufacturing has struggled to gain footing, growth within construction and finance has emerged. Unemployment has decreased 1.3 percent since August 2011 and is currently 1.4 percent below state levels. Home prices have increased about 5.2 percent in 2012 but remain 37.5 percent below the 2006 peak levels, with a median-priced home at $350,000 today. San Diego’s population has increased 5.1 percent since 2008. …
The Twin Cities retail market continues to steadily improve from the economic depths of 2008 and 2009. There has been 549,194 square feet of positive absorption since the first quarter of 2011. Another encouraging sign is the increased activity among landlords, tenants and developers. One example of the positive outlook is the investment that landlords are making at regional malls to upgrade and reposition them. The Mall of America in Bloomington seeks to add 550,000 square feet of retail, medical office and hotel space. Southdale Mall, Ridgedale Mall, and Maplewood Mall are also investing in their centers to better compete in this rising market. Another sign of increased activity can be seen among food tenants. Quick service restaurants are betting that Minneapolis-St. Paul residents have a large appetite for yogurt, sandwiches, and burgers and are actively seeking space. Burger and sandwich concepts include Smashburger, Which Wich, Firehouse Subs, and Freddy’s, which are growing in popularity along with Freeziac, Tutti Frutti, Menchies, and CherryBerry yogurt shops. Also active are Noodles, Chipotle, and Starbucks. These types of tenants have gobbled up smaller spaces and end-cap spaces vacated by tenants such as defunct Hollywood Video and Blockbuster. They are pursuing the same spaces …
Cheers and the clamor of new construction are among the dominant sounds wafting above the downtown Austin skyline of late, as the city welcomes a new wave of hotel construction and construction plans. Not a moment too soon. For several years, the hospitality industry has fretted that Austin’s growth as a destination city is outpacing the development of hotel accommodations, particularly in and around downtown. Voila! Hospitality’s proverbial “rooms available” signs are flickering brighter. By early 2013, no fewer than five major hotels will be under construction, delivering more than 2,000 rooms to Austin’s central business district. From all indications, more hotel developments are in the offing for later next year. That’s welcome news for those who promote Austin’s viability as a destination city and who roll out the red carpet for everything from conventions and corporate meetings to spring break activities and mega-events. In mid-November, Austin will debut as host city, through 2021, of the Formula One U.S. Grand Prix, accommodating Formula One racing’s return to the U.S. following a five-year absence. This high-profile race could attract some 300,000 fans. The South by Southwest Film Conference and Festival, Rodeo Austin, and the Austin City Limits Music Festival are just …
Washington, D.C.’s suburban industrial markets in Maryland and Northern Virginia have seen limited new development due to supply constraints for well-located and developable land. Currently, suburban Maryland’s industrial activity is centered around the redevelopment of inefficient but well-located properties to meet the needs of today’s warehouse users that require features such as ceilings with at least 24-foot clear heights, 120-foot truck loading courts, trailer-drop areas and flexible configurations with 50-foot on center column spacing. With its strong fundamentals, the industrial property investment sales market continues to be a focus for institutional investors and REITs. Despite overall economic sluggishness, both markets have strong upside potential. Suburban Maryland Exemplifying suburban Maryland’s redevelopment trends, Chesapeake Realty Group, Oakmont Industrial and Carlyle Group are renovating a 368,000-square-foot former special-purpose facility into a new, modern general- purpose distribution center along the eastern Capital Beltway network. A similar deal involves the renovation and Nash Finch’s subsequent 500,000-square-foot lease of a former Giant Food ’60s-era distribution center. This single transaction led to the vacancy rate falling to below 9 percent in the Landover submarket. Limited new development is occurring along the main transportation arteries feeding into D.C.’s CBD. Demand drivers include regional distributors and service companies catering …
Though a balanced Los Angeles office market may be a year away, the situation is certainly looking more promising than a year ago. This is due to rising rents, positive (and continued) absorption and increased transaction volume. These trends are buoyed by falling unemployment rates, which declined to 11.1 percent in the second quarter, compared with 12.4 percent a year ago. Professional services companies led this charge, adding 16,500 jobs over the past 12 months. Entertainment and media also showed robust gains, adding 8,000 jobs over the same period. Government and manufacturing sectors represent the opposite end of the spectrum and still lag in the recovery. As expected, creative users within the respective fields of entertainment, social media and gaming companies continue to drive leasing activity. This is particularly true on the Westside where companies like Riot Games in Santa Monica, Google in Venice and YouTube in Playa Vista abound. DirecTV also recently signed a 205,202-square-foot renewal in El Segundo. Many Los Angeles companies are also once again thinking about recruitment and seeking out locations that appeal to their employee base. One example is law firm Morrison Forester, which is relocating from Downtown’s Bunker Hill to the amenity-rich Financial District. …