Western Market Reports

Post-District-SLC-UT

— By Kip Paul, vice chair; Michael King, director; and JT Redd, senior associate, Cushman & Wakefield — The Salt Lake City multifamily market has experienced significant growth in recent years. This reflects the influx of new residents to the State of Utah, in addition to notable increases in average household income. Developers have responded to this growing demand by delivering an unprecedented amount of rental housing inventory to the market. Since 2020, new deliveries averaged 12 percent of Salt Lake’s inventory base each year.  Despite increases in apartment supply, overall fundamentals remain strong. Last year’s vacancy rates remained below 4 percent for the 12th consecutive year, while rental rates surged from $1,182 to $1,654 between 2020 and 2023. Salt Lake City’s renowned access to the outdoors and high quality of life place the city in a league of its own, positioning it to continue to capture apartment demand for years to come. What Sets Salt Lake Apart The Salt Lake City multifamily market stands out due to several key features. First, it offers affordability. Rental rates remain below 30 percent of residents’ average income despite overall increases in apartment prices. Second, Salt Lake City provides unparalleled access to outdoor …

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955-Ave-of-the-Oaks-Reno-NV

— By Benjamin Galles, senior vice president, CBRE — The outlook for the Reno multifamily market in 2024 is similar to how the year panned out in 2023. There is significant interest in Reno from investors across asset types, earning us a ranking on Business Insider’s list of the top 15 hottest real estate markets for the next decade.  Northern Nevada’s continued job growth has piqued investors’ interest in owning multifamily properties within the state. This growth will continue as existing companies expand their presence in the market, proving their commitment to the city and people of Northern Nevada.   The current elevated construction costs and construction loan costs could pose a roadblock to developers meeting the anticipated demand in the next 12 to 24 months. That being said, there are currently 4,700 apartment units under construction in the market. This will likely be absorbed by people moving into Reno from outside the region.  Unlike other markets we’ve seen across the country, very few loans in our region have maturities over the next 12 months. This means seller motivation in Reno remains low to moderate when it comes to offloading properties. The lack of debt events where owners will be pressed into a …

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— By Pat Swanson, executive vice president, Colliers International — As Orange County enters 2024, its multifamily market stands at the brink of transformation, confronting challenges like softened rents, affordability dynamics and the resilience required in the face of tenant-related complexities. In the midst of a robust economy, the region grapples with obstacles and opportunities that will significantly shape the future of its real estate sector. Orange County’s economic vitality is evident, with a 5.2 percent growth in U.S. GDP and a thriving job market. However, the looming shadow of interest rate fluctuations and inflation above 3 percent has briefly slowed down real estate transactions. While rates are predicted to stabilize, the potential for modest reductions later in the year signals a period of nuanced economic growth and sustained higher rates. In 2024, Orange County’s multifamily housing market is set for change, departing from previous trends of rent increases. The region anticipates modest growth that will be influenced by factors like slower job growth, an influx of 510,000 new units and the mounting challenge of finding qualified tenants. Affordability takes center stage, with rent-to-income ratios reaching 29.8 percent. The widening affordability gap between owning a home and renting is further …

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— By John R. Read, senior vice president, CBRE Retail Investment Properties-West — Undoubtedly, 2023 proved to be a volatile year. It was marked by persistent inflationary pressures, four 25-basis-point interest rate hikes by the Fed and a surge in the 10-year U.S. Treasury yield (from the high 3 percent range in January to peak levels near 5 percent in October). These changes had a pronounced impact on retail real estate investors, businesses occupying retail centers and consumers who frequented these establishments.  The real estate sector particularly grappled with the cost of financing in an environment of higher interest rates. While these challenges did temper Orange County’s retail market to some extent, it largely remained resilient due to its strong underlying fundamentals. These include a substantial population of high-income earners, flourishing industries like tourism and destination-oriented shopping centers, as well as a supply constrained retail property base with limited large-scale retail development. The unemployment rate in Orange County remained steady at 3.8 percent in December 2023, unchanged from November’s revised rate. This rate is notably higher than the year-ago estimate of 2.7 percent. In comparison, California’s unemployment rate stands at 5.1 percent rate, while the national rate during the same …

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South-Coast-Collection-Costa-Mesa-CA

The South Coast Metro area — consisting of north Costa Mesa and south Santa Ana — has been a hotbed of activity lately. Toyo Tire Holdings of Americas (TTHA) leased 60,000 square feet in the Harbor Gateway Business Center in early January. The Gateway is situated at the northwest corner of Harbor Boulevard and Sunflower Avenue near freeways, major thoroughfares, apartment communities, shopping, dining and entertainment. In addition to that, the 2,500-acre, 3.5-square-mile Metro area is home to a Theater & Arts District that boasts performance venues like the Renée and Henry Segerstrom Concert Hall and the Tony Award-winning South Coast Repertory. It also has South Coast Plaza, a retail mecca that includes 280 boutiques and restaurants, with an additional 100 restaurants situated within about a one-mile radius of the shopping center. This activity has not only benefitted the nearby businesses, residents and visitors, but the South Coast Metro Alliance as well. The non-profit corporation of property owners and major businesses added three new corporate partners last year, including Related California, Travel Santa Ana and Breeze IT.  Related California is the West Coast affiliate of Related Companies, a fully integrated real estate firm that develops multifamily residential and mixed-use properties …

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1065-Link-Anaheim-CA

— By Mike Adams, managing director, office investor services, Stream Realty Partners — The Orange County office market, like many others, is undergoing significant shifts as tenants reassess their office space needs in the wake of the ongoing transition to hybrid work models. Despite persisting challenges, recent developments suggest certain market segments are showing signs of recovery. This, naturally, sparks optimism that the worst of the downturn could be behind us. A key indicator of this positive shift is the noteworthy net absorption of 231,744 square feet, marking the first positive trend since the second quarter of 2022. Orange County’s Airport area has emerged as a leader in this office recovery, witnessing move-ins totaling 204,376 square feet. While the overall market grapples with challenges, such as a slight increase in the unemployment rate and mixed performance in office-using sector jobs, there are pockets of improvement, especially in the Class A segment. This positive absorption has contributed to a 10-basis-point decline in the total vacancy rate quarter over quarter, dropping from 18.7 percent to 18.6 percent. However, when viewed year over year, the increase from 16.4 percent highlights the enduring impact of recent economic challenges. The current vacancy rate remains notably …

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7000-Shoreline-Ct-South-San-Francisco-CA

— By Alex Browne, life sciences research director, Transwestern Real Estate Service — The San Francisco Bay Area life sciences market has been resilient in the face of the economic headwinds of the past 18 months. Despite the mix of issues besetting other commercial real estate asset classes, life sciences assets have fared well, with quality science continuing to thrive.  Any shifts within the life sciences sector have been among the landlords and tenants, as the change in deal influence has varied over the past 12 months. Starting in 2017, the bulk of the deal leverage was on the landlord’s side. This, in turn, sparked an appetite for new development looking to meet the increased demand. It wasn’t until 2022 that the tide began to turn, with tenants gaining more leverage in negotiating renewals or electing to search for more favorable, high-quality space. Even though the market’s activity tends to be overshadowed by industry headlines, deals are being done, and space is being delivered and absorbed — albeit at a slower pace.  The Bay Area continues to be the second-largest life sciences hub in the nation, with healthy industry drivers that continue to fuel innovation. The region is home to …

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— By Kyle Seeger, Vice President, JLL — Like office markets across the U.S., Phoenix continues to navigate its post-pandemic “normal.” But with red-hot population growth, a comparatively low cost of doing business, a dynamic office inventory and a stellar quality of life, it also remains a prime contender for new office locations, relocations and expansions. Metro Phoenix’s overall office vacancy rate had ticked up slightly to 25.6 percent at the close of 2023. Average annual rent growth had decelerated moderately to 0.8 percent year over year, but remained positive. The overall direct asking rent had stabilized at just over $29 per square foot. Although negative absorption remained markedly high at more than 3.5 million square feet through 2023, there was less quarterly loss in the fourth quarter compared to the third quarter. Amid all of this, Phoenix’s cost and demographic advantages — along with its ample inventory — pushed leasing momentum forward. In some cases, it even created positive net absorption, such as in prime office corridors and in newer, highly amenitized Class A projects.  The Grove, a 180,000-square-foot, Class AA office building in the Camelback Corridor, is a prime example of this. Within 16 months of its mid-2021 …

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— By Zach Middleton, senior associate, The Klabin Company/ CORFAC International — Last year brought significant change to the industrial sector across the country. Orange County was not immune to general market factors that were influenced by a sharp rise in interest rates, growing vacancy rates, shallowing tenant demand and increased supply. Fortunately, Orange County remains resilient heading into 2024 due to its prominent geography harbored by major distribution routes along the 5 and 91 freeways, as well as the county’s proximity to the ports.   Orange County also proudly showcases one of Southern California’s most diverse tenant pools. This is spearheaded by key sectors like technology and innovation, research, healthcare and biotechnology, manufacturing and aerospace, consumer goods, ecommerce, wholesale and distribution, underscoring its economic versatility and potential for sustained growth.  Market breakdown: vacancy rate uptick still below historical average Current vacancy rates across Orange County are as follows: • North County – 2.4% • West County – 4% • South County – 3.5% • Airport – 2.5% Vacancy rates have trended upward but remain below the historical average of 4 percent.  A growing number of cheaper sublease options and the slight uptick in vacancy rates have influenced direct deal …

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— By John Kobierowski, President/CEO, ABI Multifamily — Phoenix has experienced a surge in population due to its favorable climate, affordable cost of living and thriving job market. Since 2012, Phoenix has seen an average of 1.6 percent in population growth per year versus an annual U.S. average of 0.6 percent.  The city’s allure is particularly strong among young professionals drawn to its continued job growth and retirees seeking sunny skies.  This rising demand has translated into increased rental rates and occupancy levels over time, making the Phoenix market highly appealing to investors seeking stable and profitable ventures  To meet the rising demand for multifamily housing, developers have ramped up construction activities in Phoenix. There are 40,459 new construction projects planned for 50-plus-unit construction. The market has also witnessed an escalation in the number of new projects — 28,841, according to Yardi). These include luxury apartments, mixed-use developments and affordable housing options. These projects not only cater to professionals, but target Millennials and members of Generation Z, who are increasingly gravitating toward rental properties. However, ABI Multifamily outlook sees a substantial drop-off in completions starting at the end of 2024 through 2025 as a result of increased pricing in materials, …

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