San Francisco is not immune to the forces of gravity, but sometimes it appears that might be true for the city's apartment market. Across the country, the multifamily sector has weathered the Great Recession better than other asset classes. Availability of capital — both equity and debt — has resulted in relatively modest value declines compared to office, industrial and retail investments. Transaction volume has been relatively robust, largely attributable to the disassembly and re-sale of the former Lembi portfolio. Research indicates that in excess of 50 apartment sales were completed in the first half of 2010, for a total value representing about $120 million. Among the most active buyers were Flynn Investments, Klingbeil Capital Management and Tribeca Cos. Expect market activity to remain level or even increase, as buyer appetite has yet to be satisfied. The rental market also seems to have stabilized. According to Novato, California-based RealFacts, a national leader in apartment industry research, rents in San Francisco are only down modestly since second quarter of 2009, but they are up slightly in the first half of 2010. While occupancy is reported to be at a relatively low 94 percent, we believe this state may be a temporary …
Western Market Reports
The Las Vegas retail market has taken a significant hit during the economic downturn, but amid the doom-and-gloom the city continues to attract retailers and visitors that eventually will help restore stability to the region. Much of the declines are being driven by the general economy and, subsequently, joblessness throughout greater Las Vegas. According to the U.S. Bureau of Labor Statistics, the metropolitan area reported an unemployment rate of 13.8 percent in January 2010, compared with 10.3 percent in January 2009. With nearly 136,000 people out of work in metro Las Vegas, it has been difficult for the market to achieve consumer spending levels that could help turn the market around. Recent retail statistics show worsening conditions for metro Las Vegas. According to a December 2009 survey conducted by Applied Analysis, the Las Vegas retail market had a vacancy rate of 10 percent, which is up from 7.5 percent in December 2008 and more than double the market's historical 10-year vacancy rate of 4.5 percent for anchored retail centers. Meanwhile, average retail property rents reportedly declined to $1.84 per square foot, down from $2.13 just 1 year prior. New development virtually stalled for retail properties in the market during 2009. …
The Denver industrial real estate market stopped its 2008 free-fall and stabilized in the second half of 2009. A recipe of back-to-back quarters of positive absorption and no new speculative construction caused the vacancy rate to hold steady at 8.6 percent. Tenants are still vacating blocks of space as leases expire, and the weak economy continues to take its toll, but statistically this has been somewhat offset by the lack of new product coming to market and a handful of tenants relocating or expanding. The renewable energy sector had a dramatic impact on the Denver industrial market in 2009 as solar-panel and wind-turbine manufacturers continued to make large investments in the Front Range. As a result, the area is experiencing a ripple effect as smaller tenants are entering the market to fulfill the raw-material requirements and installation needs of these manufacturers. In addition, the U.S. Department of Energy recently awarded more than $75 million in advanced energy manufacturing funds through the Recovery Act to six Colorado clean-tech companies. Hopefully these tax credits will be the foundation for continued job creation and reinforce the Colorado manufacturing industry in 2010-2011. The major development projects currently underway are two buildings totaling 660,000 square …
The metropolitan Phoenix market differs from other western cities in terms of its affordability of housing, from first-time buyers to retirees. As the market comes out of this recession, Phoenix is poised with available, affordable residential and commercial properties. Also, there still is plenty of land area in which to expand, unlike our counterparts, who are bounded geographically from growth. Columbus, Ohio-based Glimcher Properties is developing the $270 million Scottsdale Quarter, a mixed-use, destination development that opened its first phase in March 2009. Phase II is scheduled to open this March. Located at the southeast corner of Scottsdale Road and the Greenway-Hayden Loop in the North Scottsdale submarket, the entire three-phase project totals nearly 1.25 million square feet and features retail, entertainment, residential/hotel and office components. While many other new Phoenix-area developments have been put on hold or canceled altogether, Scottsdale Quarter’s development continues. Located across from Kierland, Glimcher’s major infill development is able to piggyback on the first successful lifestyle center on the West Coast. Currently, Scottsdale Quarter has attracted national tenants new to Arizona, such as Williams-Sonoma Home, H&M, Brio Tuscan Grille, Oakville Grocery and west-elm. Others tenants, such as Gold Class Cinemas, Nike and Sunglass Hut, are …
The Orange County industrial market continues to suffer from the effects of the national recession — widespread job losses, corporate downsizing, a lack of liquidity and an overall resetting of property values. Local businesses are postponing capital expenditures, reducing workforces and attempting to shed excess space, which has caused the availability rate for industrial product to increase by 70 percent since the first quarter of last year. North Orange County has experienced seven consecutive quarters of negative net absorption. The vacancy rate is just shy of 6 percent, while the availability rate is approaching 11 percent. The sharp increase in availability, coupled with an overall lack of demand, has created a tenant’s market where landlords are forced to be creative and are offering substantial rate reductions, free rent and moving allowances to entice tenants. Despite the aggressive attempts by landlords to lure tenants to their vacant buildings, many tenants do not have the confidence in their businesses to justify a large-scale move and are working with their existing landlords to complete short-term renewals. Although asking lease rates haven’t moved much given the lack of velocity and tenant demand, recently completed deals show that lease rates are down 25 to 30 …
There's no doubt that the Mile High City has been reeling lately from the country’s current economic downturn. At a time when other cities have experienced a significant decline, Denver has held on to a majority of its retail due in large part to business sectors, such as renewable energy and governmental agencies, choosing Denver for their headquarters and the unemployment rate remaining at around 7 percent, which is below the national average. While vacancy rates also remain below national averages, hovering around 10 to 12 percent, supply for retail space remains higher than demand. Although construction projects are happening downtown and in areas with high residential populations, developments have slowed greatly. Most projects currently under construction started either before the downturn with tenants already committed or were put on hold. One such project in the final stage of completion is the redevelopment of SouthGlenn Mall in Centennial. The entire mall—except for anchor stores Sears and Macy’s—was demolished in 2006 and completely rebuilt as a mixed-use center called The Streets at SouthGlenn. With nearly 1 million square feet of retail space, 140,000 square feet of office space and 200 luxury residences, the first phase of The Streets at SouthGlenn opened …
With a population of 2.2 million, Portland is the 28th largest metropolitan area in the country, the fourth largest city on the West Coast and the largest city in Oregon. Sportswear and equipment businesses Nike, Adidas-America and Columbia Sportswear are all headquartered in Oregon. National publications often cite the Portland area for its coolness factor. In 2009, Men’s Journal named Portland the third “Best Beer Town in the U.S.,” the Wall Street Journal dubbed it the fourth best “Youth Magnet City” and it was third in the Forbes annual list of safest major cities. Unfortunately, it’s not all positive news for the area. Oregon has the fourth highest statewide unemployment rate in the country. During the past year, Oregon has lost 100,000 jobs, and the unemployment rate is now holding steady at 11.5 percent. However, for the real estate sector, the state had the foresight to have well thought out land-use planning laws, and this has benefited the region in these tough times. In the early 1970s, Governor Tom McCall commissioned a study on the future of the Willamette Valley, whose farms and forests were being threatened by a wave of new growth and poorly planned development. Knowing that Oregon’s …
The retail sector continues to struggle as consumer confidence remains relatively low. Until the job market perks up, Orange County residents will maintain low levels of spending. This nervous sentiment has crossed over to prospective investors in retail properties because of the potential for weak cash flow. Leasing activity is at a virtual standstill, with no anticipated movement for at least the next 6 to 9 months. With the exception of Kohl’s and Forever 21 leasing up former Mervyn’s stores and Marshalls taking up large space at previously occupied locations, most of the vacated big box spaces are sitting empty. As of August, the Orange County vacancy rate increased to 7.7 percent, up 8 percent from the previous quarter. Further evidence of a weak market, the average asking rent declined $0.05 to $2.56 per square foot from the previous quarter. Sales activity during the third quarter has lacked large trendsetting transactions. Due to rising vacancies and declining rental rates, potential investors have been hesitant to acquire large properties; this explains why most of the deals have been small or mid-sized. Cap rates have shifted from 5 percent during the market peak in 2007 to 8 percent or higher for large, …
The declining job market continues to take a toll on the Orange County multifamily sector. With unemployment reaching 9.6 percent in August, the market is showing little signs of life. Relief will not come until new jobs are created and the unemployment level begins to descend. Orange County’s apartment vacancy increased 36 percent during the 12 months following second quarter 2008, from 4.5 to 6.1 percent. Asking rents fell 1.9 percent since second quarter 2008, from $1,566 to $1,537, while effective rents during the same time frame decreased at a higher rate of 3.6 percent from $1,519 to $1,465. Despite the downturn in rental rates, tenants are vacating the apartment market in search of less expensive housing. Orange County residents are moving in with their parents, taking in roommates or seeking respite in neighboring markets or even out of state. Rising vacancies have led to a decline in values by more than 20 percent since 2007. According to CoStar’s year-to-date numbers, the average price per unit for buildings with 16 or more units is $129,704 with average cap rates at 7.83 percent, compared to 2007, when the average price per unit was $179,260 with average cap rates at 4.43 percent. …
National retailers have taken a step back this year and have begun looking at opening up new locations in the San Jose area in 2011 and 2012. There are fewer retailers currently active in the San Jose retail market, which can have a negative effect on the absorption of large blocks of space that come into the market as retailers downsize. Former Mervyns sites continue to be the largest weight in the market due to the substantial size of each space — sites average 85,000 square feet. It is difficult to find tenants to occupy the entire store, and it is often cost prohibitive to subdivide these properties. Retail vacancy increased in the second quarter of this year. Year-over-year, Silicon Valley’s overall vacancy rate has gone to 6 percent from 3 percent at the end of the first half of 2008. Anticipate retail vacancy to climb to 7.5 percent by year’s end. The good news is that compared with other retail markets on the West Coast, the Silicon Valley retail market has not experienced a tremendous amount of overbuilding. The amount of jobs lost so far has been less extreme when compared with San Francisco, San Mateo and Alameda. Since …