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. …
Market Reports
Chicago, the nation’s third-largest metropolitan area, is known as a legendary shopping destination. Occupying a glamorous stretch along Chicago’s Michigan Avenue, the Magnificent Mile is lined with fabulous shops, exciting sightseeing activities, restaurants, luxury hotels and even flagship boutiques for some of the world’s most luxurious brands. But the Windy City, like most of the nation, remains mired in a depressed real estate market and faces the worst slump in retailing growth in at least a decade. Vacancies across the Chicagoland market have increased and are currently hovering between 10 and 12 percent. But because the city is so large, there are varying degrees to which areas are affected. The outlying suburbs, where clusters of homes sprouted from farm fields just as the recession began, seem to be faring worse than the downtown area and the more densely populated suburbs. Retailers are taking advantage of the current conditions and many are leaving the “green,” suburban areas and repositioning within the city or upgrading their locations if they already have an urban presence. In the city proper, a massive new Barneys New York emporium opened its doors earlier this year. The 90,000-square-foot store occupies a new six-story building on the corner …
The hottest trend is to simply not develop! This holds true for all types of speculative development and is currently the case for build-to-suits. There is just nothing being built. Contemplated projects are more complex than ever. To get a development out of the ground, it now takes a true partnership between the user, developer, broker and lender. Having all the parties at the table to structure the deal is key to success in this environment. Four speculative projects, totaling approximately 1.45 million square feet, have been built since third quarter 2008 — the projects are currently 5.3 percent occupied. Facilities recently built include the 533,520-square-foot Allpoints Midwest Building 2 built by Duke and Browning in Plainfield; two buildings built by Browning in Mt. Comfort — a 423,000-square-foot modern bulk facility and a 250,000-square-foot hybrid-bulk facility; and Precedent’s 245,041-square-foot building, which is also in Mt. Comfort. These projects added 2.5 percent to the vacancy in the modern bulk product type. The above projects are located within the southwest and east submarkets of Indianapolis and situated along the Interstate 70 corridor, which is the jugular vein for commodities flow. Browning is the most active developer and is involved in three of …
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 …
Three significant Portland multifamily buildings delivered downtown in the first two quarters: Cyan/PDX (352 units developed by Gerding Edlen Development) and the Ladd (332 units developed by Opus Northwest) and the Riva on the Park (294 units developed by Trammell Crow). Downtown Portland has historically been a healthy submarket for multifamily, and much recent construction has been centered there, so the area is now becoming very competitive. All three of the aforementioned projects are also pursuing LEED certification, which appeals to Portland’s urban tenant. Vacancy is an important factor in Portland’s multifamily market as it is an indicator of the overall market’s health. The vacancy rate has been trending upward in recent quarters, which should continue in the second half of the year. It’s important to note that the increase in vacancy is due to economic pressure on tenants, not migration of people out of the metro area. Expect vacancy to regain its footing next summer or when economic conditions improve. Portland’s Urban Growth Boundary sets it apart from other multifamily markets in the West. The UGB has prevented overbuilding in both the single-family and multifamily markets in the last 5 years. This means that despite the recession, Portland’s apartment …
Chicago’s downtown and suburban office markets continue their dynamic path through an unpredictable and unprecedented economic environment. Although no one can predict the future, it is difficult to argue with the opportunities of a tenant in the current market. New supply in Chicagoland has increased by 3.9 million square feet in the past 2 years. Historically, new space is absorbed quickly; however, 2009 met this new supply with a different embrace than before. Space demand has not been as robust, and positive absorption enjoyed in the years past has decreased. This excess space, coupled with added sublease space, is contributing to Chicago’s pain. Given the tumultuous economy, the sublease market (both CBD and suburban) soared to 6.5 million square feet in second quarter 2009. The sublease market has become such a force in volume and quality that it competes with direct space, resulting in a downward push of overall effective rates. While tenants stand to reap the benefits of the subleases available, current market dynamics reveal the risks associated with leasing and subleasing space. A tenant’s credit has never been scrutinized more closely. Furthermore, the credit of the landlord/sub-landlord and tenant/sub-tenant is a major concern. A Subordination Non-Disturbance & Attornment …
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 …
In the stifling heat of August, the Charlotte office market seemed stagnant and weak. According to Jones Lang LaSalle, Charlotte lost nearly 13,000 jobs in the first two quarters of this year, pushing the unemployment rate to 12 percent. Year-over-year, second quarter office leasing activity fell 32 percent. To further paint a grim picture, Jones Lang LaSalle predicts that downtown Charlotte is in for a double-digit vacancy rate, due to the 2.5 million square feet of office space that will see completion in the next 18 to 24 months. In reality, the future of the Charlotte office market is much brighter than it looks on paper. “At the street level, a lot of brokers remain pretty busy. There are still deals being done; they’re just taking longer,” says Tim Bahr of Charlotte-based NAI Southern Real Estate. It also happens to be the tail end of vacation season, and everything, commercial real estate included, is a bit more sluggish during the twilight of summer than during the rest of the year. “This time of year is typically slow. With the economy, it just seems like that’s amplified things a bit,” he says. The office spaces that are frequently being occupied in …
Small box retail is the new Seattle trend, and small-shop local retailers are rising to the top. Investor groups are primed, seeing this market as a cherry-picking field of opportunities. Strong big box retailers are shopping a surplus of space that has gone dark. The vacancy rate in the Puget Sound area is 7 to 8 percent, with 4 percent being the norm in prior recessions. Retailers that have vacated without immediate replacement include Circuit City, Linens 'n Things and Joe's Sports & Outdoor. Developers and landlords have struggled to crunch numbers that mid-box retailers can digest. Retailers still seek “Main & Main” locations. Small shop space now commands 25 percent lower rents, but remains competitive due to lack of new construction. From small to large space, tenants should expect to see rates in the low teens, even the single digits in one-off markets. After many peaked at more than current market rates, renewal rates have now dropped in order for landlords to retain tenants. Often space that would have commanded $36 per square foot to $40 per square foot 2 years ago, now goes for around $30 per square foot. Both the upper-income suburban locations and the inner-city mixed-use …