Western Market Reports

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— By Geoffrey West, Senior Vice President, Investment Property Sales and Acquisitions, MDL Group/CORFAC International — The Las Vegas retail market remains a tale of two cities with the tourism-driven Resort Corridor and surrounding MSA comprising two very different markets.  In the past, the stories of the “cities” were somewhat divergent with robust development, premium rents, and top-tier restaurant, bar, entertainment and retail tenants dominating in the Resort Corridor. In contrast, the primarily suburban MSA experienced decreasing rental growth rates, metered new development and fewer exciting new tenants.  However, looking at the past and current years, as well as into 2025, it appears the party isn’t just on the Las Vegas Strip anymore. Due in part to a statistical undersupply, the suburban Las Vegas retail market is poised to experience increasing rental growth rates over the next 12 to 18 months. The lack of new supply is expected to put continued upward pressure on retail leasing rates and downward pressure on vacancy rates, which are expected to be nearing record 2007 levels.  Economic Summary The Las Vegas market saw the completion of more than $8 billion in development in 2023. Among these are the $3.9 billion, 3,644-room Fontainebleau Las Vegas, …

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— By Anthony Pappageorge, Managing Director, NorthMarq — The Bay Area multifamily market is showing signs of stabilizing, although there are some persistent challenges present in the market that will impact operations. With 2024 likely to be a period of slower economic growth, there will be a continued emphasis on multifamily property operations.  The challenges in the Bay Area rental market have shifted somewhat in recent years. In the period immediately following the pandemic, owners of rental properties were focused on maintaining occupancy levels and rent collections. In the current environment, added pressures surrounding rising property insurance costs and the prospect for additional rent control measures are increasing uncertainty to the Bay Area multifamily market. Occupancy: A Bit Lower than Usual, but Bouncing Back One multifamily property metric where the Bay Area routinely outperforms nearly every other part of the country is occupancy levels. Conditions remain tight at the beginning of 2024, with average occupancies ranging from about 96 percent in the South Bay and San Francisco, to about 94.5 percent in the East Bay. Current occupancies are about 50 basis points lower, on average, than in 2019. This is welcome news to operators who saw rates decline to about 90 …

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— By Taylor Stokes, Market Intelligence Analyst, Avison Young — The Los Angeles office market continues to struggle with a 24.7 percent vacancy rate at the end of the first quarter of 2024, according to Avison Young’s first-quarter Los Angeles office market report. Leasing activity picked up slightly in the first quarter of 2024 with 951 leases recorded. This equated to 3.5 million square feet, up 5.4 percent from the fourth quarter of 2023 when there were 902 leases signed.  To put the decline of occupancy in perspective, the first quarter of 2022 ended with a 15.4 percent office vacancy rate, which was up from 15 percent at the end of 2021. It was also up from the previous high of 13.1 percent that was recorded in 2010. There were a couple lease transactions to highlight in the first quarter of 2024. Snap picked up 400,000 square feet in Santa Monica, while Bank of Tokyo Mitsubishi signed a nearly 62,000-square-foot lease in Downtown Los Angeles.  Downtown continues to struggle with the highest vacancy in the market at 28.6 percent. The anticipated return to office hasn’t happened, as many users see the hybrid work schedule continuing for the long-term. They, therefore, …

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— By Kirsten Grado, Toss Vallentine and Wing Lee of JLL — The resilience of the South Bay/Silicon Valley economy has been tested with the dramatic change in hybrid work formats that enabled employees to work from anywhere. While office vacancy has hit near record levels over the past year, signs of strengthening fundamentals are pointing to a bottoming of the market and a period of opportunity for companies and investors with long-term views. So, what is marking the signs of optimism? Leasing activity has continued to improve as companies in technology, professional services, financial services/consulting and other sectors leased 865,000 square feet across 61 transactions in the first quarter of 2024.  The largest leases were PwC agreeing to move from downtown San Jose into 141,000 square feet within the top three floors of One Santana West, as well as a confidential tech firm leasing 162,000 square feet at Coleman Highline, also in San Jose. Other notable leases were TDK InvenSense renewing its 82,000-square-foot space in San Jose, as well as KMPG and the 49ers organization each taking about 50,000 square feet of space in new leases in Santa Clara. Premier space remains in high demand as companies look to …

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— By Gary Baragona, Vice President of Research, Kidder Mathews — Home to an eclectic mix of local retailers, award-winning restaurants and the world’s most prestigious brands, Los Angeles has long been one of the most dynamic retail markets in the country. However, sector dynamics significantly shifted during the pandemic as retailers began to rely heavily on their online sales to stay in business and remain profitable. While consumer preferences further evolved in 2022 and 2023, there has been a noticeable slowdown in consumer spending, largely due to ongoing economic challenges, reduced buying power, decreased savings and increased credit card debt.  On the surface, overall market fundamentals within the commercial real estate retail sector appear to be relatively stable. Some key indicators illustrate market resiliency, but other trends demonstrate the recent struggles felt by the retail sector and the challenges that may lie ahead. For example, total leasing activity across the Los Angeles region was down 15 percent in 2023 compared to the previous year, and down 25 percent compared to pre-COVID averages.  The total vacancy rate across Los Angeles increased to 5.3 percent during the first quarter of 2024 and has consistently hovered between 5 percent and 5.3 percent …

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— By Edward F. Del Beccaro, Executive Vice President, TRI Commercial — The major Northern California industrial markets contain a total of more than 860 million square feet of industrial buildings. The San Francisco Bay Area, North Bay, Silicon Valley, Sacramento and Central Valley have all experienced a falloff in tenant demand from 2021 to 2022 pandemic highs. Most markets experienced negative absorption in fourth-quarter 2023, including sublease space coming on the market that resulted in rents either plateauing or decreasing.  Nevertheless, the outlook is still positive based on the various economic drivers pushing the market. For instance, manufacturers are benefitting from onshoring, with a projected 40 percent reduction in sourced material from China, per a recent report from Alix Partners. In addition, declining interest rates and continuing inflation will cause institutional money to flow into the industrial sector versus the office sector, according to a March 2024 ProLogis report. Below are various industrial submarket reviews: In the Oakland/East Bay Industrial I-80/880 Corridor, year-end 2023 experienced a slowdown in demand due to new construction and existing space becoming available. More than 10.2 million square feet is available, reflecting negative absorption of more than 778,000 square feet last year. The Port …

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— By Robert Peddicord, Executive Managing Director, CBRE South Bay — The Greater Los Angeles (GLA) industrial market is showing stability while enduring challenges like higher vacancy rates, negative absorption and an anticipated decrease in lease rates. Markets across the country continue to adjust post-pandemic, and GLA is no exception. Nevertheless, the GLA industrial market is poised for long-term resilience, thanks, in part, to its proximity to the ports of Los Angeles and Long Beach, while LA’s large population base drives the need for warehousing.  San Pedro Bay Ports The GLA industrial market continues to rely on the San Pedro Bay ports, the two largest ports by volume in the U.S. Although there has been an average decrease of 1.9 percent in cargo volume over the past five years, the San Pedro Bay terminal operators and dockworkers moved 16.6 million TEUs (twenty-foot equivalent units) in 2023, outpacing the TEUs moved at other ports.  Disruptions from the Suez and Panama canals may divert more U.S.-bound cargo ships from Asia to West Coast ports. The West Coast benefits from lower shipping container costs, with about a 40 percent discount shipping to the West Coast compared to the East Coast. U.S. importers, shippers …

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— By Nadia Letey, senior vice president, CBRE — The global office landscape has markedly changed post-pandemic. Now, amidst economic headwinds and the ongoing stabilization of return-to-office mandates, U.S. office markets like Salt Lake City are undergoing various shifts that are set to shape real estate dynamics in 2024. At the same time, Utah’s economy remains a highly desirable location to do business, in large part bolstered by an exceptionally strong talent pool. What’s Changing: Development Slowdown Poised to Ease Supply Demand Imbalances Salt Lake City saw a 42 percent year-over-year decrease in total office space under construction in fourth-quarter 2023, marking an all-time low. High interest rates, along with record-high vacancies, will continue to deter developers from breaking ground in the near term without significant pre-lease activity. This thinning construction pipeline will likely reduce supply side risks over the next several years as demand can be placed within second-generation space with elevated vacancy. Existing properties — especially in amenity-rich locations — will do well to attract tenants. The emphasis on creating a collaborative and inviting workspace will continue to be important to bring employees into the office.  Projects that are moving from planned to under construction are hedging their risk by …

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— By Jarrod Hunt, vice chair, Colliers — The Utah industrial market continues to perform very well given the reduction in the average deal size in 2023 (illustrated in the charts for both Utah and Salt Lake Counties below).  The entrepreneurial spirit that continues to be the backbone of Utah’s economy is evident with the smaller lease sizes. This was a welcome opportunity for companies confined to limited options for growth over the past economic run-up. However, we have seen a notable increase in out-of-market tenant inquiries, with many in search of larger blocks of space in the New Year. We expect the pendulum to swing the other direction this year with an increase in the average square footage of completed deals, an overall increase in the number of deals and a reduction in the vacancy rates, which will put a solid floor on lease rates.  The reduction in vacancy is most attributable to the stark reduction of construction deliveries in the two main county markets, Salt Lake and Utah counties (per the charts below). This dramatic reduction in speculative building activity is “on brand” for Utah, being a very disciplined market for new construction compared to several other high-growth …

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— By Jason Hallahan, associate, Colliers — Northern Nevada’s office market remained resilient throughout last year in the face of strong headwinds. Reno’s office market saw a blend of market fundamentals as net absorption declined, investment activity slowed and available sublease space shrunk. Negative net absorption in three out of four quarters brought the annual total to nearly 23,000 square feet of negative absorption — the lowest the market has seen since 2020.  Vacancy ticked up 100 basis points year over year to 11 percent by the end of 2023, though it is well below the pandemic peak of 13.4 percent of mid-2020. Average direct asking rents also softened slightly this year, though tenant demand and asking rates both remain strong among Class A office product. A combination of growing vacancy, heightened interest rates and continued uncertainty in office space needs have curbed investor appetite this year. Demand for Reno office product fell sharply at the beginning of 2023 when first-quarter sales shrank to less than 20 percent of the average quarterly sale totals from the past three years.  Buyers and sellers struggled to reach a middle ground as elevated vacancies weakened sale prices and increased borrowing costs discouraged investors. There …

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