The Seattle-Tacoma metro area is one of the top-performing multifamily commercial real estate markets in the nation. Locally, employers are adding jobs at one of the fastest paces in the country, supporting a strong rental market in the region. In Tacoma, State Farm and other companies have energized the area’s economy and strengthened its apartment operations. In Seattle, companies like Amazon, Zillow and Julep Beauty are supporting new job growth, and many of these new job opportunities are attracting young workers who need apartments. There were 8,800 jobs were created in the metro in the beginning of the year. About 130,000 workers were added to payrolls over the past three years. The primary renter cohort of residents between the ages of 20 and 34 years old grew nearly twice as fast as the metro population in 2013, greatly increasing the need for apartments. This year, strong job growth will also support demand for area rentals as the total jobs in the metro will rise nearly 4 percent above the pre-recession high. While there are plenty of new jobs, the median household income needed to qualify for a mortgage on a median-priced home in the metro is $83,150, assuming a 20 …
Western Market Reports
Seattle has come a long way since the 1971 billboard reading “will the last person leaving Seattle turn the lights off?” The greater Seattle economy and real estate market has continued to be one of the nation’s top- performing locales, even exceeding its prior 2007 peak. Large corporations such as Amazon, Boeing, Microsoft and Starbucks, along with many independent startup companies, have rapidly reduced the unemployment rate, which has dropped to 4.8 percent. The construction pipeline in Seattle remains robust. With more than 20 cranes working on new developments, the market has the most active projects underway since the Downtown Seattle Associations started tracking development in 2005. Nearly two-thirds of construction in Seattle is residential, with more than 5,000 new apartment units opening since January 2013, and more than 6,000 new units to be completed in the next three years, according to the DSA report. During the past year, the amount of office space under construction has nearly doubled from 1.7 million square feet to more than 3.2 million square feet. A large contributor to this is Amazon’s revitalization of the South Lake Union area. Amazon’s global workforce has doubled in the past two years, and the company is reportedly …
San Francisco is a veritable boom town that has already surpassed the market roar of 1999. It can even conceivably be compared to 1849, when gold was discovered 100 miles east. In fact, this year is so utterly off the charts that most of us in the commercial real estate industry have never seen an upcycle like this in our entire careers. Witness the fact that through the first three quarters of 2014, San Francisco’s gross office absorption reached 7.6 million square feet. Net absorption in this same period was 2.4 million square feet. This compares with 1999, the record year, when gross absorption was 7.4 million square feet – and that was for the entire year! It is quite possible we’ll hit 10 million square feet of gross absorption by the time 2014 closes out. Incidentally, net absorption for 1999 was “only” 526,000 square feet. Not surprisingly, three out of the four biggest leases in the third quarter were completed by tech companies. The tech frenzy in San Francisco has been well documented. Most of the Silicon Valley companies want, or need, to have a presence in the city. The trend is employment-driven. Young techies don’t want to commute …
With the scarcity of vacant land in Orange County and the need for antiquated properties to be updated, the trend seems to be redevelopment with an eye on mixed-use retail, including a multi-story residential component. There are currently several new development projects either in the planning or construction phase. Los Olivos Marketplace – Irvine The Irvine Company plans to build Los Olivos Marketplace, a new 120,000-square-foot retail center across from its Los Olivos Apartment Community on Irvine Center Drive near the 405 Freeway in Irvine. This development would be situated adjacent to its existing 62,000-square-foot retail center, and just minutes from the firm’s Irvine Spectrum Cente. Whole Foods Market has already signed a lease for 40,000 square feet at the center. It plans to open in spring 2016. The Source – Buena Park On a more international scale, M+D Properties is building a 400,000-square-foot, mixed-use center known as The Source in Buena Park. It would include world-class, high-end retailers and restaurants, a 150-room Hyatt Place, a seven-story office building, a 1,200-seat movie theater, and a 54,000-square-foot performing arts center called YG Land, from South Korea-based entertainment company YG Entertainment. The project is expected to be complete early next year. Pacific …
No one will deny that the Orange County industrial market is tight, boasting a 4.1 percent vacancy. If you are an industrial user looking for 100,000 square feet or more, your options are extremely limited, as supply and demand are not working in your favor in terms of rental rates and landlord concessions. According to CoStar, positive net absorption was just above 900,000 square feet for the second quarter of 2014. Compare that with the 978,000 square feet currently under construction and it is easy to see why most believe these rate and scarcity trends will continue. A number of large warehouse and industrial buildings in Orange County are also being raised and converted to high-density residential or data center space. These facts beg the question, where will all the industrial users go? Two counterbalances have the potential to cool the decreasing vacancy and create disintermediation to the benefit of Orange County industrial users. As rental rates continue to rise in Orange County, more and more companies are being lured to the Inland Empire where they can still make two port trips a day and consolidate into a much more efficient and affordable building. Companies that grew by necessity in …
The Los Angeles industrial market continues to lead the country with the lowest vacancy of any industrial market. The combination of the overall market’s size and lack of inventory continues to put upward pressure on rents. Not only is there limited inventory, but a lack of quality product puts top economical facilities in high demand. The inability to build new product readily, combined with increasing demand, changes the focus of the marketplace going forward. As rents for high-quality properties continue to rise, developers and land owners are looking for ways to redevelop existing product to take advantage of this need. A number of redevelopment projects have recently commenced construction, and many of those properties are already pre-leased prior to completion. This increased demand also gives owners of older, less functional properties the ability to spend the necessary funds to upgrade their facilities with the anticipation of receiving higher rents and a return on their investment. The increase in demand from international commerce through the Port of Los Angeles, combined with growth in the manufacturing, aerospace and healthcare sectors, have all assisted in this overall increase in demand. The need for third-party logistics companies to acquire large chunks of space to …
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 …
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, …