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 …
Western Market Reports
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 …
The capital market crash of 2007 and the global recession still cast a pall over Sacramento’s industrial landscape. Landlords are paying close attention to the State of California, the city’s biggest tenant, and its desire to extend leases where landlords will reduce rent (by up to 30 percent in some cases). There are no speculative developments of any significance underway in Sacramento and only a few are under development in the San Joaquin markets closer to the Bay Area, where greater population densities create some optimism. To date, the standout deal in Sacramento has been Buzz Oates Real Estate’s inking of Nestle Waters North America to a 215,000-square-foot deal on existing space at Younger Creek Drive in the Florin Fruitridge Industrial Park; the firm’s two-line bottling plant slated to open early next year. Sacramento’s traditional strength in securing large distribution commitments has recently been diverted south and west to Stockton, Tracy, Lathrop, Cordelia and as far south as Patterson. Dealmakers point to the availability of large tracts of land and closer proximity to bigger markets like the Bay Area and Southern California as key drivers. Right now, a geographic difference of 50 miles in one direction or the other is …
Three significant Portland multifamily buildings delivered downtown in the first two quarters: Cyan/PDX (352 units developed by Gerding Edlen Development) and the Ladd (332 units developed by Opus Northwest) and the Riva on the Park (294 units developed by Trammell Crow). Downtown Portland has historically been a healthy submarket for multifamily, and much recent construction has been centered there, so the area is now becoming very competitive. All three of the aforementioned projects are also pursuing LEED certification, which appeals to Portland’s urban tenant. Vacancy is an important factor in Portland’s multifamily market as it is an indicator of the overall market’s health. The vacancy rate has been trending upward in recent quarters, which should continue in the second half of the year. It’s important to note that the increase in vacancy is due to economic pressure on tenants, not migration of people out of the metro area. Expect vacancy to regain its footing next summer or when economic conditions improve. Portland’s Urban Growth Boundary sets it apart from other multifamily markets in the West. The UGB has prevented overbuilding in both the single-family and multifamily markets in the last 5 years. This means that despite the recession, Portland’s apartment …
At nearly 1 billion square feet, the Los Angeles industrial market is one of the largest in the nation, and despite increasing vacancy in the past year, it remains one of the tightest. The Bureau of Labor Statistics has estimated that 172,100 non-farm jobs were lost between July 2008 and July 2009. Industrial-oriented jobs have been among the hardest hit during the past 12 months, including losses in trade, transportation and utilities (39,900 jobs); manufacturing (36,200 jobs); and construction (18,000 jobs). Slowing trade and reduced consumer spending is largely responsible for lower industrial demand in 2009. At the Port of Los Angeles, year-to-date TEU volume through August was 18.3 percent lower than the same period in 2008; at the Port of Long Beach, the TEU volume has declined 21.7 percent from 2008 levels. Container activity at the Los Angeles/Long Beach port complex peaked in 2006 when 15.76 million TEUs were handled. The forecast for 2009 is for 12.2 million TEUs, a decline of 22.6 percent. At mid-year 2009, total industrial vacancy in the area was 4.6 percent, up from 3.5 percent at the end of 2008. While vacancy remains low, availability has surpassed 9 percent, the highest rate in more …
Small box retail is the new Seattle trend, and small-shop local retailers are rising to the top. Investor groups are primed, seeing this market as a cherry-picking field of opportunities. Strong big box retailers are shopping a surplus of space that has gone dark. The vacancy rate in the Puget Sound area is 7 to 8 percent, with 4 percent being the norm in prior recessions. Retailers that have vacated without immediate replacement include Circuit City, Linens 'n Things and Joe's Sports & Outdoor. Developers and landlords have struggled to crunch numbers that mid-box retailers can digest. Retailers still seek “Main & Main” locations. Small shop space now commands 25 percent lower rents, but remains competitive due to lack of new construction. From small to large space, tenants should expect to see rates in the low teens, even the single digits in one-off markets. After many peaked at more than current market rates, renewal rates have now dropped in order for landlords to retain tenants. Often space that would have commanded $36 per square foot to $40 per square foot 2 years ago, now goes for around $30 per square foot. Both the upper-income suburban locations and the inner-city mixed-use …