The San Diego retail market has always been one of the strongest markets in the nation with respect to commercial real estate indicators. Many regions greatly affected by the housing downturn like Las Vegas and Phoenix are still experiencing double-digit retail vacancy rates, while San Diego ended 2012 with an overall vacancy rate of 7.1 percent. Even the overall availability rate dropped to 9.5 percent, down from 9.7 percent last quarter and 10.6 percent at the end of fourth quarter 2011. Since the beginning of 2012, both power centers and community centers have outperformed the rest of the market. Vacancy rates came in at 2.4 percent and 6.1 percent, respectively, with both rates representing decreases compared to last quarter and last year. Net absorption for these two products accounted for about 82 percent of the total activity in 2012. Other center types, such as specialty centers and strip centers, have experienced mixed results throughout the year. The drop in vacancy rates can primarily be attributed to basic supply and demand. Many sectors of the retail market are becoming more creative and took advantage of market conditions during the downturn. Discount retailers are expanding in Southern California as Wal-Mart, Dollar Tree …
Western Market Reports
The Metro Phoenix industrial market has been climbing its way to recovery for the past few years, but the activity of 2012 showed the strongest signs of diversified activity of a healthy marketplace. While overall net leasing was down slightly from 2011, the city benefitted from an abundance of medium and large transactions reflecting many types of industrial users leasing and buying throughout the city. This diversity indicates overall health — and not just in our traditional big box arena. In several strong submarkets, we saw owners pushing back on users’ terms due to improved portfolio and individual property activity. The city’s big box hub of Southwest Phoenix experienced continued strong activity with a variety of notable leases and property sales. We saw a shift to speculative construction and actual groundbreakings taking place on multiple projects. Phoenix has more than 2.6 million square feet of industrial space under construction, with more than 2.2 million of that being situated in the Southwest area. Overall net absorption in that area totaled more than 1.3 million square feet in 2012, leading to a shortage of available large facilities following three years of top eight national leasing and sales activity. The overall net absorption …
The Salt Lake office market will hopefully continue to improve throughout the next year. At the end of the third quarter, overall direct vacancy rates were 13.6 percent, down from the 14.9 percent rate recorded this time last year. Overall asking lease rates for the same period have also seen a slight increase of 41 cents per square foot to the now average asking lease rate of $19.92 per square foot, per year, full service. Although a healthy appetite for Class A office space has dropped vacancy rates in this category to below 10 percent, Class B space lags behind with vacancy rates close to 17 percent as of the end of the third quarter. There has been considerable buzz around the Downtown submarket, due mostly to the new City Creek retail center that was estimated to cost $1.5 billion. The project was developed by The Church of Jesus Christ of Latter-day Saints affiliate City Creek Reserve, in collaboration with their partner Taubman Centers. The retail complex is located in the core of Salt Lake’s CBD and came online in March of this year. Despite this unique development, vacancy rates remain high in this submarket. Overall direct vacancy rates for …
The Pheonix economy is recovering slowly, with accelerating employment growth and rising housing prices outpacing national averages. These drivers have begun to stabilize the local retail market, and with future economic expansion likely going forward, retailers are expected to become more active. In 2013, retailers are forecast to absorb about twice as much space as they did in 2012. While vacancy rates remain above 10 percent in many of the valley’s primary trade areas, the overall retail outlook is more promising than in recent years. Following a pre-recession wave of retail construction, development activity has been limited to just a handful of projects over the past several years. The largest project to deliver in 2012 was the 328,000-square-foot Tanger Outlet Mall at Westgate. The center came online during the fourth quarter almost entirely pre-leased and accounted for about 30 percent of the total net absorption in the West Valley in 2012. No projects of this size are expected to be delivered in 2013, and developers will remain on the sidelines for a few more years before bringing additional shopping centers to the market. With vacancy still elevated throughout much of the valley, the development that occurs in 2013 will likely …
The Greater Salt Lake City multifamily market has continued to strengthen during 2012. Vacancy rates have steadily improved, dropping from 5.3 percent in January 2012 down to 4.2 percent in the third quarter of 2012. With the market vacancy tightening, average rent growth was 3.6 percent from mid-year 2011 to mid-year 2012. The average rent per unit is now at an all-time high of $802 per unit — eclipsing the average rental price of $771 per unit in early 2008. Many factors contributed to the positive rent growth and the contraction of vacancy rates, but the most significant were strong job growth and population growth. Utah’s job growth currently ranks fourth in the country at 2.6 percent, adding more than 32,000 jobs over the past 12 months. Utah’s job market is strengthening as the state’s unemployment rate dropped to 6 percent in June 2012, the lowest it has been since March 2009, according to the Utah Department of Workforce Services. The state also has the third fastest-growing population in the nation with nearly 2 percent annual growth. Utah also has the youngest median age in the country at 29.2 years, and the largest average house-hold size of 3.1 persons. These …
The Phoenix industrial market continues its convincing march toward recovery by reaching several milestones. As a more resilient sector during the recession, the industrial market was not plagued with as much bad debt and CMBS loan defaults as other sectors. Industry experts concluded the industrial sector would recover faster as favorable economic conditions such as durable goods orders and manufacturing output favored the industrial market early. The sector has posted 10 consecutive quarters of positive absorption dating back to 2010. Vacancy rates have returned to levels not seen since the third quarter of 2008. This positive direction reflects a rebound in U.S. exports, consumer spending and online purchasing, which has led to a high demand for large distribution space in which there are few options in Phoenix. Confidence in the industrial market – and in Phoenix in particular – has brought renewed interest in developing new projects. Most new construction is a combination of build-to-suit manufacturing space and several new speculative projects to meet the demand for distribution space of more than 100,000 square feet. Industrial investment sales transaction velocity remains quite strong even though it’s declined from last quarter’s significant level. However, price per square footage has increased once …
The San Francisco apartment market is exceptionally active. It features extremely low vacancies, rapidly rising rents and tremendous demand for a very limited inventory of assets. Fueling this demand is San Francisco’s thriving technology sector and young professionals, which will maintain the metro’s stature as one of the premier rental markets in the country well into 2013. While nearby Silicon Valley lures large software and information companies, San Francisco has become the incubator for tech start-ups. More than 94,000 people in the metro area have jobs pertaining to the tech industry, which is up 10 percent from last year. Small but influential firms such as Zynga, Dropbox and Airbnb are continuously hiring young professionals in the core of the metro. These high-paid individuals prefer renting, and are waiting longer to enter the single-family home market. Employment this year has been primarily driven by San Francisco’s technology industry. Major firms such as Facebook and Twitter continue to hire as their businesses evolve. By year’s end, employers will have hired a total of 29,000 workers, a 3 percent increase in total employment. Vacancies are currently some of the lowest on record, as the tech industry flourishes. In the last 12 months, the …
The San Diego retail market has posted five consecutive quarters of positive net absorption with strong activity in power centers and several vacant big box spaces coming off the market. Through the third quarter of 2012, year-to-date gross leasing activity totals more than 1.8 million square feet with about 330,000 square feet of positive net absorption. So far, we have already surpassed the 2011 gross leasing total of about 1.4 million square feet. The steady leasing activity and positive net absorption dropped the direct vacancy rate from 7.4 percent at the beginning of the first quarter 2012 to 6.9 percent at the end of the third quarter. The current overall vacancy rate, including sublease space, is 7.2 percent. Vacant big box spaces are attracting tenants from national credit retailers to specialty markets. Dick’s Sporting Goods recently opened a 46,019-square-foot location in a redevelopment of a former Mervyn’s site in the Sports Arena submarket. Meanwhile, Zion Market, a Korean-focused grocery and specialty store, subleased a vacant 94,000-square-foot Sears Essentials building in Kearny Mesa. In addition to tenants taking big box spaces, several high-end fashion retailers are entering the San Diego market or opening new stores. Kate Spade New York opened its …
Multifamily transaction activity has increased in San Diego during the fourth quarter, due partly to the typical end-of-year rush to close escrow, as well as uncertainty about tax reform in 2013. Agency debt is still a large driver, but relationship banking is picking up for well-heeled borrowers, and investors increasingly have multiple options. The multifamily rental market continues to benefit from the high down payment and credit requirements placed on average home buyers who still choose to rent in San Diego where the cost to rent is still below the cost to own. San Diego’s diverse economic base added 30,300 jobs over the past 12 months, and year-over-year employment gains in excess of 2 percent were reported in nearly all sectors. San Diego has seen a rise in tourism, which has positively impacted the service industries. While manufacturing has struggled to gain footing, growth within construction and finance has emerged. Unemployment has decreased 1.3 percent since August 2011 and is currently 1.4 percent below state levels. Home prices have increased about 5.2 percent in 2012 but remain 37.5 percent below the 2006 peak levels, with a median-priced home at $350,000 today. San Diego’s population has increased 5.1 percent since 2008. …
Though a balanced Los Angeles office market may be a year away, the situation is certainly looking more promising than a year ago. This is due to rising rents, positive (and continued) absorption and increased transaction volume. These trends are buoyed by falling unemployment rates, which declined to 11.1 percent in the second quarter, compared with 12.4 percent a year ago. Professional services companies led this charge, adding 16,500 jobs over the past 12 months. Entertainment and media also showed robust gains, adding 8,000 jobs over the same period. Government and manufacturing sectors represent the opposite end of the spectrum and still lag in the recovery. As expected, creative users within the respective fields of entertainment, social media and gaming companies continue to drive leasing activity. This is particularly true on the Westside where companies like Riot Games in Santa Monica, Google in Venice and YouTube in Playa Vista abound. DirecTV also recently signed a 205,202-square-foot renewal in El Segundo. Many Los Angeles companies are also once again thinking about recruitment and seeking out locations that appeal to their employee base. One example is law firm Morrison Forester, which is relocating from Downtown’s Bunker Hill to the amenity-rich Financial District. …