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 …
Western Market Reports
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 …
Although the Metropolitan Las Vegas office market has not experienced the robust recovery seen in other sectors, it has shown three years of moderately steady growth. With net absorption of 341,976 square feet through the second quarter of 2015, the area is experiencing the 14th consecutive quarter of positive net absorption, while the vacancy rate is at the lowest level since the first quarter of 2009. The steady improvement in the Las Vegas office market is largely attributed to the city’s economic rebound, particularly in employment. The Bureau of Labor Statistics pegged the unemployment rate for Las Vegas at 6.6 percent as of May 2015. It’s also the first month to see an unemployment rate below 7 percent in nearly seven years. Office-related employment represents about 28 percent of the total labor force, second to only hospitality employment, and has played a critical role in the area’s economic recovery. In addition to the buoying job market, housing has improved, contributing to the economic recovery. New home starts increased by 45 percent year-over-year in the first quarter of this year, according to Metrostudy, while the average asking home price increased by 12 percent in the same time period. Las Vegas has …
After muddling through the post-recession with office vacancy rates stuck around 20 percent for the overall Phoenix office market, the office sector has begun to show elements of stabilization in the Valley of the Sun. The unemployment rate in Phoenix plummeted to 5 percent in April this year, down from more than 11 percent near the end of 2009. The overall office vacancy ended the first quarter of this year at 17.2 percent. Second quarter figures were not available at press time, but my colleagues and I think it will dip below 17 percent at mid-year. If it does, the vacancy rate will have dropped nearly 300 basis points over the previous 24 months. The submarkets with the lowest vacancy rates are the usual suspects in our marketplace: Scottsdale (11.2 percent), 44th Street Corridor (aka Camelback Corridor at 11.6 percent) and Tempe, which houses the main campus of Arizona State University (12.7 percent). The slow and steady recovery makes for a healthier market than boom and bust swings. Some of the region’s larger office occupiers have expanded in recent years, which account for a substantial amount of office space absorption. A short list of growing companies with significant footprints here …
After disappointing national GDP results early this year, we’ve received great reports on jobs, housing, auto sales, personal income and construction, suggesting the economy is improving. National job growth has seen a 12-month positive, record-breaking streak, while consumer confidence remains strong. Consumer spending is also likely to remain strong in the coming months, supported by high savings, rising house prices and a tightening labor market. This has led the retail market to continue its improvement with demand driven, in part, by high employment rates and consumer spending. Retailers are continuing to grow and progress with multiple small construction and proposed projects throughout Orange County. The local market finished last quarter with decreasing vacancy rates that ended at 4.4 percent. The Orange County retail market has seen a vacancy rate decline over the past 12 months that began at 4.9 percent and finished last quarter at 4.4 percent. Average rental rates have performed just the opposite to vacancy declines. We’ve seen a rise in the past four quarters to an average of $23.15, a total increase of more than 3.4 percent. The steady decline in vacancy and increase in average rental rates can be directly credited to the high demand for …
Hawaii is one of – if not the – top-performing industrial market in the country. The city and county of Honolulu, which contains Hawaii’s main shipping port, had a low vacancy rate of 2.05 percent at the end of the first quarter. This vacancy rate peaked at 4.8 percent in 2009. Significant gains have been made since then. The direct weighted average asking net rental rate for industrial users in Honolulu was $13.80 per square foot (NNN) at the end of the first quarter, while operating expenses ran an additional $5.16 per square foot, per year on top of that. Having bottomed out after the downturn in 2009 at $11.20 per square foot, the Honolulu market has gained almost 24 percent since then. Land values have also followed suit. Hawaii is definitely not Chicago or Los Angeles. In fact, both of those markets have individual industrial parks greater in size than the entire Hawaii marketplace, at 39 million square feet. Having said this, Hawaii is in the midst of a construction and tourism boom, with billions of dollars being allocated to urban core renewal projects, light rail, resort renovations and new residential developments. Up until recently, this renewal had occurred …