Multifamily remains the most desirable asset class in Orange County due to a steady increase in apartment rental demand, strong sector fundamentals and the county’s emergence as a Southern California leader in the economic recovery. These factors have become a catalyst for a surge in multifamily asset construction. Apartment rental demand continues to grow in Orange County due to the high barriers to entry in the housing market and recent memories of the Great Recession. Median home values, which now exceed $580,000, place home ownership out of reach for many households. Orange County’s population also grew 4.31 percent from 2010 through 2014, according to Census data. This growth pattern is predicted to hold through 2019, with an expected increase in population of 5.17 percent, or an average of 32,478 residents annually. Orange County’s emergence as a leader in Southern California’s economic recovery is evidenced by superior employment rates in comparison to competing markets. Orange County experienced a high unemployment rate of 10.2 percent in January 2012. That rate has now declined 4.89 percent, as of May 2014. Orange County’s employment figures have increased investor confidence in the region, especially when compared to the national average of 6.3 percent, California’s 7.8 …
Western Market Reports
We are seeing several trends emerge in the Los Angeles multifamily development sector as we move into the second half of 2014. These trends are influenced by several factors, including job growth, local economy and public infrastructure. The unemployment rate in Los Angeles County has continued to tick downward with true job growth across all sectors, which, in return, has had a direct influence on multifamily project starts. Job growth has been exponential in certain markets, including West Los Angeles, Downtown Los Angeles and Tri-Cities (Glendale, Burbank and Pasadena), creating natural household formations to accommodate the swell of rental demand. Job growth, along with the creation of a comprehensive public transportation system, will continue to drive multifamily development and construction in a way the City of Los Angeles has never seen before. The construction pipeline has swelled to 14,500 rental units, including 12,200 market-rate units. At the end of the first quarter, nearly 29,000 rentals were planned in the county, which is roughly 50 percent higher than the number of units on the drawing board one year ago. With the subway expansion, areas of town that were once deemed undesirable by developers and residents are now being sought after in …
While the industrial recovery in the Phoenix area has been slow, market indicators show signs of steady improvement. Average rental rates for the Phoenix metro industrial market have remained consistent, hovering around $0.52 per square foot for the past year. In the Southwest Valley, however, which constitutes almost one-third of the entire valley’s industrial space, average rental rates are much lower at $0.36 per square foot. Lease rates at Sky Harbor Airport are averaging about $0.59 per square foot, and $0.66 per square foot in the Southeast Valley. The highest average rental rates are predictably seen in the Northeast Valley, which reported an average of $0.85 per square foot. More than 2.9 million square feet was leased in the second quarter, representing 593 transactions. Leases remain steady compared to the first quarter of this year, but the rate will likely fall short of 2013 when 16.7 million square feet was leased. Vacancy rates continue to fall after the spike seen last year. The second quarter of 2014 reported a 12.6 percent vacancy, down from the high of 13.2 percent in the third quarter of 2013. While a positive indicator, vacancy rates in the industrial sector swing on such a pendulum …
The health club tenant is a very hot category throughout the nation. This is especially proving to be the case in the Las Vegas and Henderson markets. Two of the best examples of this are Village Square Shopping Center and Canyon Lakes Center, located on the northwest and southwest corners of Fort Apache and Sahara in the Summerlin submarket. Just three years ago, neither center had any type of fitness use. In the past 18 months, however, Village Square has leased to Sumits Yoga, a 5160-square-foot hot yoga center, and Orange Theory Fitness, a 2,915-square-foot fitness franchise out of Florida. Across the street to the east, Canyon Lakes has just signed a lease with Body Heat Pilates and Yoga for 5,332 square feet. It is also working with a martial arts tenant for another space. Both centers report they have interest from larger boot camps, ballet-based workouts and Pilates-type tenants. This example repeats itself throughout the entire Las Vegas Valley. Planet Fitness, made popular by The Biggest Loser television show, has opened its fifth location, a 24-hour-a-day center with memberships starting at $10 per month and no long-term obligations. At the other end of the spectrum, LifeTime Fitness, a full-service, …
Net absorption in the first half of 2014 for the Las Vegas office market is positive, by about 500,000 square feet, causing the total office vacancy rate to decline valley-wide. This market has a total office inventory of 60.7 million square feet in 3,860 buildings. About 900,000 square feet remains under construction at the end of the second quarter — about 800,000 square feet of which is speculative development. This is interesting, considering the overall market vacancy is hovering around 20 percent. Average quoted asking rental rates decreased slightly to $1.88 per square foot, per month ($22.56 per square foot annualized) on a full-service gross basis. Concessions, incentives and tenant improvement allowances to secure tenants continue to vary from project to project. The assumption that a tenant could expect to receive up to one month free rent per year of lease term may be a declining trend in the coming quarters. The newer trend is landlords completing speculative build-outs in vacant suites, though this is still not the norm. Investment sales in the first half of 2014 decreased from the previous year, with about 800,000 square feet of properties sold at an average price per square foot that was slightly …
The Phoenix metro economy continues to outpace the nation in job growth, even though 2014 has taken on a slower pace than last year. Much of the 2013 job growth occurred in education, healthcare and financial services. The latter has been a particularly strong growth industry for Phoenix, with 7.2 percent job growth in 2013, versus overall job growth of 2.8 percent. Overall job growth for Phoenix is forecast to be 3.2 percent this year. Despite the job growth and the cautiously optimistic outlook from most within the retail industry, new retail development is still very limited. Unlike in the past when the anchor was a traditional grocery or discount store, much of the development today is anchored by non-retail traffic generators. This includes office and apartment developments, such as new retail space planned for SkySong at Scottsdale and McDowell roads. There are also several ground-floor retail opportunities at the newest mid-rise apartment developments around Scottsdale Fashion Square, Arizona State University and the area on the northern edge of Downtown Phoenix near Roosevelt and Central. Additional retail is planned adjacent to the newest Village Health Club at Ocotillo/Alma School Road in south Chandler. Retail and hospitality developments have been proposed …
The Phoenix metro office market continues to show signs of growth and recovery despite a high level of economic uncertainty that businesses around the country are experiencing today. Besides this being an election year, there is uncertainty over healthcare costs, the regulatory environment, minimum wage, taxes, government spending, entitlement programs, political gridlock, and on and on. The Phoenix metro area has absorbed 1.1 million square feet of office space year-to-date, bringing overall vacancy down to 18.6 percent, according to Colliers. Most of the larger, contiguous office spaces that are in demand by larger companies have been absorbed. However, uncertainty has caused postponement in investment, hiring, expansion and relocation, especially for small- to medium-sized businesses. Much of the vacant office space is composed of small, noncontiguous spaces that these firms would occupy. Certain submarkets enjoy vacancy rates in the single digits. Chandler’s Price Corridor and downtown Tempe have been consistently attractive to larger office users given their amenities and concentration of technology firms, financial institutions, software developers, insurance, and many other industries and institutions. Rental rates are beginning to inch up in these submarkets as supply is absorbed and new construction begins to take shape. Excessive economic uncertainty has kept the …
Las Vegas investors remain risk averse, favoring Class A and B properties. Increased buyer demand and a lack of inventory will support more aggressive pricing, with the sellers capitalizing on improving property performance. With stronger operations, Class C owners are encouraged to bring assets to market, pushing deal flow for the properties. The location of the asset is crucial to investors searching for higher returns, which is expected to exceed 8 percent. With an improving local economy, new construction, strengthening job market and a new “downtown,” we can expect a lower apartment vacancy and higher rents in Las Vegas this year. The improving local market and strengthen job market is being driven by some noteworthy construction and openings this year. They include the Linq, SLS Hotel (formerly Sahara Casino), the Downtown Summerlin Mall, the Grand Bazaar Shops, the Malaysia-based Genting Berhad’s $4-billion Resorts World Las Vegas (formerly Echelon) and the announcement of the $2.5-billion renovation of the Las Vegas Convention Center. These projects will create more than 15 million direct and indirect jobs. On top of this, occupancy rates keep rising. The Las Vegas market absorbed more than 3,000 units in 2013. It has absorbed another 760 net-leased units so …
Investor money has returned to the industrial market in Las Vegas. Compressing cap rates continue to result in rising values on properties even in the hardest-hit areas of Las Vegas. Couple that with limited available industrial product, and the result is the need for today’s buyers to act quickly and competitively if they want to acquire quality properties that will deliver attractive yields. MCA Realty initially entered the Las Vegas market in mid-2011 to acquire incubator/mid-bay, multi-tenant industrial properties significantly below replacement cost. Since that time, the firm has seen a substantial shift in the number of buyers competing for this product type in this market. This increasing competition will continue to drive values up, and investors will need to rely even more heavily on their local brokerage relationships to make deals work. On the leasing side, vacancy rates continue their downward trend. Occupancy is up on all industrial product types, and confidence from business owners continues to rise. The result is increased stabilization throughout the market. A key component driving the tenant demand for multi-tenant industrial is the resurgence of hotel construction and renovation in the works on the Las Vegas Strip. This activity has created a surge of …
It should come as no surprise at this point that Orange County is on course with a robust economic recovery. Furthermore, there are favorable indicators for a steady increase in value over the next few years. Even though industrial product is limited in the county, development is picking up now that vacancy rates have been on a downward slope and rental rates continue their course on a gradual upturn. While all sectors in Orange County are seeing movement in a desirable direction, quality industrial space is becoming even more of a premium. The larger industrial spaces are drying up in Orange County. Most of the industrial spaces available today are smaller than 20,000 square feet. Meanwhile, many older buildings are being converted or remodeled to invite a variety of other property uses like residential, creative office and self-storage. The average asking price for investment-grade industrial properties of more than 20,000 square feet in Orange County is at $147 per square foot, as of the halfway point through the second quarter of 2014. This number has been on the rise year-over-year since the drop at the end of 2010 when the average asking price dipped to $120 per square foot. The …