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 …
Western Market Reports
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 …
Fueled by an increase in population and job growth, Denver’s robust housing market and the constant influx of young professionals to the region has attracted some attention. Both new and existing retailers and investors are now looking to either penetrate or expand within this ever-growing market. Metro Denver added a total of 37,300 jobs last year. This was an increase of 2.7 percent from 2011, according to the Metro Denver Economic Development Corp. The region’s growth rate has consistently outpaced the national rate in every decade since the 1930s. By 2020, the region’s population is expected to increase from 2.9 million today to more than 3.2 million. Retailers are definitely taking note. Cabela’s, a Nebraska-based outfitter of hunting, fishing and outdoor gear, has two stores under construction that should be completed in the third quarter of this year. These will represented Cabela’s second and third Colorado locations. The chain already has a Grand Junction outpost. THF Realty also recently completed the 147,806-square-foot Walmart in the Lakeside Shopping Center redevelopment area. Metro Denver has seen quite a few Walmart Neighborhood Markets pop up throughout the region recently. Also new to the Denver market is Trader Joe’s. The California-based specialty grocer plans …
The Inland Empire apartment market improved slowly since the end of the recession, as apartment demand received little help from the local job market. In the past year however, an economic recovery finally began to take shape, boosting expectations for accelerated improvements in apartment fundamentals. Prior to 2012, local payroll growth significantly lagged state and national gains. After the U.S. shed more than 8.7 million jobs, employers rehired nearly 66 percent of workers so far nationally. Meanwhile, as 53 percent of laid-off Californians returned to work, the Riverside-San Bernardino metro recouped just 31 percent of the jobs lost. Despite the slow overall recovery in the employment market, Inland Empire job creation surged in 2012. Metrowide employment increased by 34,400 workers last year. This represented a gain of 3 percent and was the largest 12-month rise since September 2006. In comparison, state and national headcounts expanded just 2.3 percent and 1.7 percent, respectively. Hiring has accelerated so far in 2013 with both public and private employers announcing hiring plans. The Riverside County Sheriff’s Department will add 500 deputies, while AT&T plans to add 500 California workers. Many of these workers will be based in Riverside. With job creation expected to build …
In 2012, Hawaii’s major economic indicators continued on a positive trajectory. The tourism sector, on which Hawaii’s economy is centered, showed growth in both visitor arrivals and visitor expenditures in every month of the year. According to the Hawaii Tourism Authority, total visitor expenditures for 2012 were a record high of $14.3 billion, an 18.7 percent increase over 2011, while the total visitor arrivals of 7.99 million exceeded the previous record of 7.63 million in 2006. Wage and salary jobs, personal income, and state general fund tax revenues all also increased in comparison to 2011. According to the latest reports from the Bureau of Labor Statistics (BLS), job growth accelerated during 2012 in Honolulu, with similar improvements taking place statewide. The construction sector, along with hospitality and leisure employment, both increased at a higher rate than any other sectors with increases of 5 percent and 3.7 percent, respectively. Improvement to the hospitality and leisure sector is notable due to the fact that leisure and hospitality jobs represent the third largest employment block in the state and its largest metro area. With respect to construction, this sector plays an important role in driving consumer confidence. This, in turn, gave retailers the …
With its central, accessible location, relatively affordable prices and strong labor pool, the Inland Empire’s office sector is poised for steady growth. The Inland Empire is actually considered one of the top markets in the country in terms of population growth, job creation, construction and industrial space absorption — all of which bode well for the commercial office sector. The Inland Empire market is composed of two submarkets: the East, containing Riverside, San Bernardino and Corona, among others; and the West, which includes Ontario, Rancho Cucamonga, Fontana and Chino/Chino Hills. Transaction volume is on the rise in both, and vacancy rates have been at some of the lowest levels seen in three years. This is partially due to some exceptionally large transactions recorded in 2012. The largest and most significant was a 232,176-square-foot office lease transaction at the Atrium building in Rancho Cucamonga for Inland Empire Health Plans (IEHP). The lease was valued at nearly $100 million. IEHP currently serves more than 575,000 residents of Riverside and San Bernardino counties and is anticipating continued growth, which prompted the need for this space. With IEHP now occupying the building, the previous 60 percent vacancy has all but been eliminated. This lease …
Multifamily development in the State of Hawaii and specifically on the Island of Oahu is primarily focused on for-sale condominium development. This has limited new developments of rental projects, leading to a critical shortage of affordable housing. In response, county governments implemented workforce housing requirements on new developments. The limited supply of rental housing is reflected in the region’s low vacancy rates, creating upward pressure on rental rates. Perhaps the primary reason for the limited supply and resulting high rental rates in Hawaii, and on the Island of Oahu in particular, are the significant barriers to entry. The primary barriers are the high cost of land and the infeasibility of developers to put together rental residential projects without public subsidy. Secondly, building regulations and urban boundary limits aimed at reducing sprawl have constrained the amount of land that can be developed with residential uses. Additionally, a stringent and often lengthy entitlement process adds time and risk to projects, further reducing their financial feasibility. The conversion of military housing to private use over the past decade resulted in an increase in private sector apartment units for Honolulu County. However, this was a transfer from the public to the private sector, rather …
Multifamily transaction activity increased 13 percent year over year in San Diego in 2012. Although many people predicted a dramatic increase in year-end closings to avoid the uncertainty of tax reform, owners continued to shelter their money in apartments. Economic Drivers San Diego’s diverse economic base added 24,600 jobs over the past 12 months, and year-over-year employment gains were positive in all sectors except manufacturing. • Unemployment has decreased 1.1 percent since November 2011, and as of November 2012, is 1.3 percent below state levels. • Home prices increased about 8.6 percent in 2012, but remained 35 percent below the peak levels of 2006, with a median priced home at $397,000, and a mere 50 percent homeownership rate in the metro area compared to 66 percent nationally. • San Diego’s population has increased 5.81 percent since 2008. Projections call for solid 1.5 percent annual growth through 2017. Performance San Diego remains a supply constrained market with a vacancy rate of 5.3 percent countywide, including Class A, B and C product. Coastal and core submarkets routinely log less than 3 percent vacancy. San Diego’s year-over-year rent growth is expected to be 2.2 percent in 2013. It is expected to increase to …
After several years with virtually no new construction of multifamily homes, the Metro Phoenix market looks to rebound with a pipeline of projects that could result in 5,000 to 7,000 new units built per year in 2013, 2014 and 2015. That returns our market to construction levels last seen in 2007. In order to see this volume of construction, developers will need to be successful in raising the required equity, which has been a challenge. At the end of 2012, the Valley had 17 projects (of 50 units or greater) under construction, totaling a little more than 4,200 units. Building on that, we expect to see 15 to 20 projects per year through 2015. This is just a fraction of the more than 20,000 units filling the development pipeline. The demand for all these units, however, will hinge on Phoenix’s population and job growth. It will also be influenced by the national and global economies. Developers are capitalizing on the recent purchases of properties in prime, upscale locations that were not previously considered for strictly rental housing. Alliance Residential, P.B. Bell and JLB have all either begun construction or have plans in the works for rental developments in premium Phoenix …
Well, 2012 has come to an end, the fiscal cliff has been averted for now and the presidential election is behind us. Despite it all, retail sales in the Arizona market seemed to fair reasonably well last year, albeit with markdowns acting as the trigger point for consumers to make those last-minute holiday purchases. With an active 2012 under our belts, the Phoenix market is hoping to outdo itself this year with leasing activity as retailers gear up for cautious expansions, downsizes and relocations. The housing picture for Maricopa County is terrific in terms of inventory being absorbed. Homebuilders are building out improved lots and creating new subdivisions. It is likely that new housing permits, which were positive in 2011, will result in more than 12,000 new homes in 2013. This number should increase steadily for the balance of the decade. This is not to indicate that new retail development will be built anytime soon, but that these numbers may create more of an opportunity to fill existing retail space that has a current vacancy rate of 11.7 percent. Last year, we experienced a positive absorption of 1.03 million square feet, according to CoStar. Therefore, unless a significant amount of …