The Orange County retail market remains active due to declining vacancies and increasing job creation and housing starts. As a result, enthusiasm was evident at the recent ICSC Western Division Conference in San Diego, as industry colleagues discussed opportunities and challenges associated with the strength of the local market. There has been very little new development recently in Orange County, which has seen more than 3 million square feet of vacant space absorbed since 2011, according to CoStar. There continues to be an unbelievable demand for retail investment properties, while the Fed’s announcement to maintain existing interest rates will only increase competition in this limited market. A dynamic investment market offers both challenges and opportunities for retail leasing. Limited local new development is directly connected to continued instability among major grocery stores and big-box retailers. We might never see another ground-up traditional power center again because of post-recession downsizing and shakeouts among major retailers. While many of the major national retailers remain active, the focus has turned to expansion in smaller urban environments, which are limited in Orange County. Grocery-anchored daily needs centers remain a Class A asset type, though instability within the local grocery sector continues to challenge the …
Western Market Reports
Orange County’s industrial market highly favors the seller and landlord for properties of all sizes and conditions due to a tight vacancy rate and lack of available product. Vacancy rates have been on the decline, ending the second quarter of this year at 3.9 percent. Average asking rents rose to $0.83 per square foot – an increase of 9.2 percent over the 12-month span of the second quarter of 2014 to the second of quarter of 2015. The county continues to hit new pricing highs as well, with many transactions receiving multiple offers. Full-price offers are oftentimes not enough anymore, as bidding wars have driven prices above the listing. Demand remains extremely strong for owner/user industrial buildings in North Orange County. Several recent smaller sales transactions in the 10,000-square-foot range have sold for around $170 per square foot. Most of these properties received multiple offers within days of going to market. Industrial buildings in this size range were trading for about $125 per square foot just three years ago. On the leasing side, rates are escalating as product is in limited supply. User demand a year ago wasn’t as strong as it is now. This will likely continue to grow …
Santa Monica is Los Angeles County’s most stable beachside apartment rental location. The prices this market commands as the year progresses continue to surprise our brokerage team. No longer the sleepy beach town of old, we are seeing capitalization rates below 3 percent on 30- to 40-plus-year-old product with stringent, and at times almost suffocating, rent control laws. There have been multiple record-breaking transactions that have taken place in Santa Monica this year, including one mind-blowing apartment deal at 537 San Vicente Blvd. that sold for $16.1 million this past March. It was then sold to another party three months later for $19 million. The old adage about location rings true for Santa Monica as buyers consider future returns in this beachside enclave. The question right now on everyone’s mind is: how long can this last? It has been our opinion that this upward trend in pricing cannot last forever. It is inevitable that the Federal Reserve will raise interest rates soon. However, as rates rise, we will see a minimal effect on Santa Monica multifamily investment, as this “real -estate safe haven” makes investment even more desirable as stability is attractive to owners seeking long-term returns. Even though some …
The retail market in Los Angeles is demonstrating exponential growth. Rents are going up, cap rates are going down and occupancy is soaring. Naturally, as lease prices rise, so do sale prices. As such, it is becoming increasingly difficult for investors to find opportunities where substantial rent growth is possible. Tenant competition is also fierce, and landlords are benefitting from extremely high demand throughout the market. Competition Abounds It’s only natural that retailers are competing over space as occupancy rises. One trend that has emerged in Los Angeles is competition among not only direct competitors, but indirect competitors as well. For example, a small grocer might compete with a Ross Dress 4 Less for the same location. Fueling this competition is an increase in large national retailers seeking out smaller urban spaces in downtown areas. Target, for example, is opening a store in LA’s Koreatown on Vermont and 6th streets at the base of a high-rise apartment building. When national soft goods chains open in urban hubs, there will be an evolution of retail surrounding those stores. Smaller discount stores and mom-and-pop retailers will likely suffer, which will lead to vacancies that tend to open the doors for new specialty …
It is a great time to be a multifamily owner in San Diego. Vacancies are at the low rate of 4.1 percent for the county, while rent growth is at its highest level since 2011. Cap rates and interest rates are still at record lows, and we are slowly seeing an increase in inventory as owners realize values are higher than ever. We will soon see a rise in interest rates, and can expect a reduction in values as the cash-on-cash returns are reduced. For every 100 basis points of increase in rates, we may see up to a 6.7 percent reduction in value. Rental market performance, according to the San Diego County Apartment Association, has weighted averages in San Diego up to: $974: Studios $1,301: one-bedroom $1,609: two -bedrooms $1,943: three -bedrooms South Bay has the highest vacancies at 5.1 percent, while North County has the lowest at 3.1 percent. Chase, one of the largest lenders in San Diego, is expecting rent growth of 35 percent over the next five years. This news is encouraging as the market has been flat in San Diego for years. There were 139 apartment buildings with 50 units or less that sold in …
The San Diego retail market had another positive quarter, which built on the strength of the local economy. Strong job growth and low unemployment led to positive net absorption and a spike in sales activities. The unemployment rate decreased across the board. San Diego posted a 4.9 percent rate, a post-recession low for overall unemployment. This is the first time San Diego unemployment has been sub-5 percent since the beginning of 2008. Local San Diego retail employment has been steadily increasing by 2.4 percent over the past five years, according to CBRE Econometric Advisors. Annual growth for the next five years, however, is expected to be relatively flat. Despite the lack of space, there have been a few construction deliveries. Most of the current retail construction in San Diego is from mixed-use development and property renovations. Westfield plans to spend $500 million to expand its center at UTC. It will also spend $300 million in Carlsbad where it plans intends to transform an indoor mall into an open-air center. Regional malls are leading the trend, and smaller centers like Flower Hill Promenade and Del Mar Heights Town Center are keeping up with them. One of the most significant signings this …
San Diego’s industrial market is on pace to be a record-setting year, as of the end of the second quarter. Countywide vacancy has plummeted to 5.76 percent due to another quarter of strong leasing and owner/user activity. The majority of San Diego’s industrial absorption has occurred on the fringes of the county. The southernmost submarket where this is occurring is Otay Mesa. This market has been a historical laggard, but has recently witnessed a flurry of leasing activity during the first half of 2015. The drivers for Otay Mesa’s demand are high-quality, large blocks of space, proximity for companies with maquiladora operations in Mexico and companies migrating out of expensive central submarkets in search of value. There is some speculative industrial development breaking ground in the county for the first time in almost 10 years. First Industrial Realty Trust and McDonald Property Group has tilted walls on First Park @ Ocean Ranch in Oceanside. The three-building, 237,000-square-foot project has received strong preleasing activity from users that like the northern San Diego location as a launching point to serve San Diego, Orange County, Riverside County and Los Angeles. Most importantly new projects like First Park offers state-of-the-art features tenants are looking …
The Southern Nevada industrial market has continuously seen improvement through the second quarter of 2015 with a positive absorption of 878,151 square feet. The overall vacancy rate followed suit and decreased to 8 percent – down 2.1 points from the 12 previous months, which ended at 10.1 percent. The asking lease rates also increased to an average of $6.38 – up almost 10 percent in the fourth quarter of 2014 when it stood at $6.16. A new addition to the healthy market is the growth in new projects that are either planned or under construction. There is an estimated 2.4 million square feet currently under construction, with deliveries anticipated from the third quarter of 2015 through the second quarter of 2016. Big box distribution demand continues to climb, and most developers now believe “if you build it, they will come.” One of the largest deliveries planned for the third quarter of this year is Prologis’ 3700 Bay Lake Trail. Bay Lake was originally planned as a 464,203-square-foot, speculative project. The entire development was leased by Cushman & Wakefield to the Global Equipment Company (GEC), a subsidiary of Systemax, prior to the official groundbreaking, however. This deal was an expansion for …
Owners, investors and developers are bullish about the Phoenix industrial market – and for good reason. We occupy one of the most strategic supply chain locations in the West – a sweet spot between West Coast ports, manufacturing in Mexico, and alongside truck and rail routes leading product into the heart of the nation. Add to this Governor Ducey’s mandate to grow Arizona’s trade volume with Mexico by 20 percent per year – not to mention Mexico itself being on the verge of becoming the world’s largest manufacturer – and you have a Phoenix market entering a new era of long-term growth. This has expanded our already robust industrial construction industry, where design-build is hot and will likely stay that way, thanks to the 8 million square feet to 10 million square feet of industrial requirements seriously considering Arizona for their location solutions. For energy-centric companies with high employee head counts in particular, Arizona offers as much as a 30 percent to 40 percent savings proposition over higher-cost Tier 1 markets. The West Valley has welcomed 10 million square feet of larger build-to-suit corporate projects looking for specialized footprints and visibility along I-10 in the past three years. These include …
The Las Vegas retail market is transitioning from recovery to stability. Based on CoStar’s second-quarter report, the overall vacancy rate was 9.9 percent, a slight decrease from the 10 percent experienced at the end of the second quarter of 2014. The decrease is impressive considering the 2 million square feet in net absorption that occurred during this same period. Rental rates have continued to average around $1.30 per square foot, per month for the past 2.5 years, although we are hearing about newer centers achieving impressive rate increases. There was 822,512 square feet of retail space under construction at the end of the second quarter of 2015. Ikea is the largest retail project currently under construction in Southern Nevada, which is expected to open next summer. The second largest project is Tivoli Village’s 117,516-square-foot expansion. Restoration Hardware also signed a lease this quarter for 77,000 square feet at Tivoli. It is expected to take up occupy during the first quarter of 2016. Though private investors dominate the market, we are seeing more institutional investors who are interested in acquiring newly stabilized product. Cap rates have continued to decline, averaging 6.53 percent for 2015, compared to a 2014 average of 6.99 …