Orange County's industrial marketplace doesn’t quite favor owners just yet, but it’s getting close. Our industrial inventories are at historic lows and, with a few exceptions, we have not seen any new construction since 2007. There are a couple new projects planned — and a few more are under construction — but they’ve mostly been large warehouses north of 100,000 square feet. The projected asking rents for these big boxes is $0.50 or more per square foot, triple net; a very expensive rent for a commodity. In general, as these big box rents approach or exceed $0.50 triple net, occupants tend to seek cheaper environs. In Orange County’s case, this usually means they migrate east of town in the Inland markets or beyond. Smaller, newer inventory (20,000 square feet to 50,000 square feet) that hits the market these days is gobbled up quickly, sometimes with multiple suitors. Incubator space (less than 10,000 square feet) has also rebounded nicely with absorption at a blistering pace. We haven’t seen a great deal of rent growth or price appreciation to date, although the latest round of transactions that are in escrow now should bring some evidence of upward change. During the depths of …
Western Market Reports
The Orange The Orange County apartment market continues to rebound. Operations have improved so far in 2013, with vacancy below equilibrium and asking rents nearly 10 percent above the low point during the recession. The healthy performance of the apartment market is a result of Orange County’s strategic location, population growth, low unemployment rate, high occupancy and shortage of available housing, which has greatly benefited multifamily investors. According to Hendricks-Berkadia Research, the county is one of the most densely populated areas in the United States. Orange County is 2.5 times denser than Contra Costa and Santa Clara counties, and five times denser than San Diego County, which has nearly the same population. The population in Orange County has grown consistently, and reached 3,055,800 residents at the end of 2012, up 26.7 percent from 1990. The unemployment rate for Orange County in the second quarter of 2013 averaged 5.6 percent, 130 basis point below what it was at the end of 2012. According to Moody’s Analytics, the local jobless rate is lower than state and U.S averages. This would be the lowest rate since 2008, indicative of the improving economy in Orange County. Employment growth in the county is also expected …
The Orange County retail market, which consists of about 140 million square feet of space, continues to thrive as it sees an overall vacancy rate of just 5.5 percent. With strong income demographics, an improving job market and a limited supply of retail property, Orange County continues to be a target for both retailers and investors. As job growth is an indicator of a positive retail market due to increasing demand from the county’s consumer base, the positive data coming supports a well-held belief that the investor protects his or her downside risk by targeting ideally located retail property in Orange County. Through this, they benefit from consistent appreciation by virtue of owning retail property in a market characterized by very high barriers to entry. In its 2013-2014 Economic Forecast & Industry Outlook, the Los Angeles County Economic Development Corp. says that the county’s job market over the next couple of years will be strong. It anticipates an increase of nearly 52,000 jobs. LAEDC also reports that retail jobs will increase, and that taxable retail sales reached $39.3 billion last year. Those sales are expected to reach $42 billion this year and $43.7 billion next year. With that said, from …
A multi-speed economic and real estate recovery is occurring in Northern California’s office markets. San Francisco and Silicon Valley have been in recovery mode for more than two years with strong growth in both rents and occupancies. The technology industry is the driving force and has produced about 50,000 jobs in the Bay Area since 2010, according to CBRE’s analysis of data provided by the state of California. This has generated high volumes of office space demand that is concentrated mostly in San Francisco and Silicon Valley. These two markets have seen overall average rents grow by more the 60 percent in the most popular submarkets like South of Market (SOMA) in San Francisco, where prices have reached $53.91 per square foot, and Sunnyvale/Mountain View in Silicon Valley, where they hover at $54.36 per square foot. As conditions tightened, activity fanned out to neighboring submarkets, causing new development in popular submarkets to ramp up. The southern portions of the San Francisco Peninsula, northern portions of San Jose and southern portions of the East Bay markets adjacent to Silicon Valley have all benefited from overflow demand. San Francisco has not yet produced significant overflow demand, although further rental rate increases are …
Technology growth in the southern portion of the Salt Lake Valley is prompting additional development of multifamily properties. A new Adobe campus in Lehi, located between Utah’s major employment areas, has led to further technology sector investment in this region. The company expansions and job creation that is occurring in Lehi is certainly driving the need for new housing. In Bluffdale, located about 20 miles south of Salt Lake City, several hundred acres are being developed into two mixed-use apartment projects. The recently acquired Aclaime at Independence development is expected to include 1,000 residential units and 21 acres designated for mixed-use commercial structures. Adjacent to this development is Independence at the Point, a master-planned community containing 294 acres. This project will include 1,900 single-family homes, townhomes and apartments, as well as 27 acres of commercial development. Overall, steady demand for housing will continue to draw investors and developers to the region as vacancy remains limited and rent growth outpaces the rest of the metro. Metro employers are expected to add 29,900 new jobs by the end of 2013, an annual growth of 4.6 percent, which pushes employment nearly 6 percent above the pre-recession peak. Completions are set to total 2,100 …
The San Francisco Bay Area’s major warehouse/distribution and manufacturing hub can be found along the I-880 corridor in the East Bay. This region’s industrial market has enjoyed steady growth with both overall vacancy rates and asking rental rates improving by about 10 percent year-over-year. The overall vacancy rate in the first quarter of 2013 was 10.22 percent — a three-year low — while the asking rental rate was $7.44 per square foot, triple-net, annually. Interestingly, the most significant growth this year came from the market’s largest segment: the warehouse sector. The warehouse market’s vacancy rate dropped by more than 25 percent year-over-year, to just 8.27 percent. In fact, the vacancy rates in all I-880 warehouse submarkets, aside from Newark, now sit at less than 10 percent. Asking rental rates in the warehouse market increased by nearly 8 percent to $4.80 per square foot, triple-net, annually. Several properties were listed during the second quarter of 2013 and therefore not included in these statistics. However, these properties boast asking rates as high as $5.76. Cornish & Carey Commercial Newmark Knight Frank believes these latest trends indicate an imminent spike in asking rates in the warehouse market. Third-party logistics providers, or 3PLs, are …
National retailers have slowed their progress into the market now that City Creek and Fashion Place Mall have completed the majority of their renovations. The discount segment continues to expand in infill locations along the Wasatch Front. Ross, TJ Maxx and Marshalls continue to lead the charge in this category, with Rue 21 and Dress Barn as the larger tenants. Rural areas are the new frontier within the State of Utah. Many small communities are riding the wave of the energy boom, from natural gas, oil and wind power. These smaller towns are growing at a rapid pace, and with the influx of expendable income, retailers are flocking to these areas. The challenge that many developers face in these towns, however, is the lower rent numbers that national tenants can afford due to the immediate lack of population within the trade areas. Ross, JoAnn Fabrics, Petco, Sportsman’s Warehouse, Sports Authority, Rue 21 and Dress Barn are the retailers that lead the charge in these areas. The grocery sector continues its movement within the state, with Walmart’s Neighborhood Market, Sprouts and Smith’s being the most active. Smith’s is in the process of remodeling many of its existing locations and is looking …
Much like the economy in general, commercial real estate has experienced its share of ups and downs over the past 10 years. However, the strength of Utah’s economy, established infrastructure and strategic regional location are sustaining the Salt Lake industrial market and securing its position as one of the most resilient in the nation. For three consecutive years, Utah has been ranked as the “Best State for Business” by Forbes magazine. It was also recently designated as a boom state by the U.S. Chamber of Commerce. The strength of the local economy has convinced many national and international companies to relocate to Utah, and new construction has followed close behind. By the end of the first quarter of 2013, there were 1.4 million square feet of industrial space under construction, 70 percent of which was pre-leased. Although overall market activity slowed during that quarter, as compared to 2012, the Salt Lake market continues to experience growth. Consequently, industrial availability remains below the average for the Western region. Another sign of market strength is the improvement in lease rates. Utah’s industrial market experienced increasing lease rates and positive net absorption. In fact, from March 2012 to March 2013, the overall achieved …
Apartment development is ramping up across the U.S., creating significant concerns for multifamily operators in 2013 and 2014. Nevertheless, there is pent-up apartment demand. Slow but steady job creation is allowing college graduates to move out of their parents’ homes or to shed the extra roommates who assisted with living expenses. Additionally, construction averaged fewer than 70,000 rentals in the past three years, compared to 130,000 units annually prior to that span. Yet more than 100,000 apartment are expected to come on line nationwide this year alone. While many of the Northern California apartment markets are typically high barrier-to-entry metros for developers, supply concerns are mounting in some areas. Fortunately for apartment operators in the region, a majority of this construction is occurring in the largest metro areas. Elevated populations and job creation in these metros will bolster demand and ease supply-side vacancy pressure. Although construction activity will elevate for the foreseeable future, the biggest Northern California inventory additions will occur in 2014. About 10,000 units will come on line in the region next year. Deliveries will be greatest in San Jose and San Francisco between 2013 and 2014 as 7,000 units and 6,700 units are delivered, respectively. The surge …
The demand for quality office space in Salt Lake City is higher than ever. According to Forbes, Utah’s economy continues to lead the nation, and more employers are looking to expand into the Salt Lake market. Large companies like eBay, Adobe and Boeing are setting up shop along the Wasatch Front, and more corporations will be coming soon. Several new Salt Lake office projects are in the planning stages, while others have already broken ground. With lower vacancy rates in Class A and B spaces, new developments — which vary from build-to-suit to spec projects — are encouraging. Overall Class B and C rates are hovering between 15 percent and 17 percent and inching downward as 2013 progresses, according to Newmark Grubb Acres’ research. Valley-wide, Class A properties are averaging about 11 percent, and will likely level off until more product is built. A big change is currently taking place in the office market. The past few years have been predominantly tenant-driven, but trends now show a decrease in generous landlord incentives. Property owners who were previously given four to six weeks of annual free rent may now only receive two to four weeks. Landlords are also looking at tenant …