Vacancy is rising and rents are falling in Orange County’s office market. To maintain occupancy, landlords are lowering their rent rates and reducing lease terms. The total amount of office space available in Orange County was 22.41 percent at the end of first quarter 2009, which is an increase of 3.72 percent from the vacancy rate at the end of first quarter 2008. Many tenants are either downsizing or consolidating due to the declining economy and shrinking job market. However, as demand drops off and lease rates decline, some companies are capitalizing on some of the opportunities arising in Orange County’s office market. Orange County’s popularity with businesses and its strong labor base has always made it a popular destination for companies to expand into, but its high rent rates prevented many from doing so. In the current economic climate, businesses such as loan modification companies and call centers have actually expanded and are moving to the area. Now that rents have fallen, these companies that would previously have been uninterested in office space within Orange County due to its high prices are opting to move to the area. While there are some great opportunities for tenants in the current …
Western Market Reports
The prominent trend in retail development thus far in 2009 has been its absence. Developers are either completing projects already underway or remodeling existing properties to maximize marketability. Only 15 new buildings were delivered in first quarter, totaling approximately 156,000 square feet (another 856,000 is slated for delivery later in the year). The overall vacancy rate for retail space in the first quarter was 9.2 percent, with negative net absorption of nearly 850,000 square feet. Rental rates climbed to $21.06 per square foot per year (approximately $1.75 per monthly). That represents a 1.9 percent increase in rental rates in the current quarter, and a 6.13 percent decrease from first quarter 2008. Asking rents do not reflect market activity, which is being affected by tenants demanding and owners making major concessions in order to close transactions. As for hot spots, everyone is watching Sacramento’s K Street redevelopment with a hopeful eye toward an emerging downtown entertainment district. The city has redevelopment funds to draw the attention of potential tenants and it could be successful, even if it means buying the tenants. Newly delivered retail projects include 5065 Quinn Rd., a 37,914-square-foot general freestanding building occupied by Camping World; a 20,000-square-foot building …
Last year brought rapid change to the Inland Empire industrial market, which finished 2008 with increased vacancy rates, rising cap rates, negative absorption and negative rent growth. Throw in the region’s unemployment rate of 10 percent — one of the highest in the country — and it’s no surprise that the Inland Empire industrial sector will continue to have its challenges in 2009. That said, this market is viewed by most as having strong long-term fundamentals, which will continue to attract institutional capital and drive tenant demand. Industrial leasing is expected to remain soft this year with landlords going to great lengths to secure and retain occupancy. Vacancy rates, currently at 22 percent in the east and 12 percent in the west, will continue to trend upward as leases expire and companies continue to downsize. Effective rental rates have dropped 20 to 25 percent in the last 9 months, with flat to negative rent growth expected for 2009. As retailers continue to downsize and outsource their distribution function, third-party logistics providers will pick up the slack. Southern California is home to more than 21 million people, who may be buying fewer jet skis and flat-screen TVs, but will still need …
Office As with many markets around the country, office development in San Diego has ground to a near halt. Many projects are stalled in the pre-development phase or are just completed, but new groundbreakings are scarce. Cash flow is king, and landlords, who were happy to purchase partially vacant buildings a couple of years ago, are now eager to lease up their buildings as quickly as possible and have come to terms with the fact that they need to lower lease rates in order to do so. The average downtime for vacant space is 1 year and then some, so landlords are willing to make concessions, including more months of free rent and increased tenant improvements. Overall, tenants can expect to enjoy a 15 to 20 percent total lease value reduction compared to a year ago, and many tenants who signed at high lease rates several years ago are opting to re-structure their leases early in exchange for reduced rates. Exceeding 25 percent in vacancy, the Carlsbad submarket has been especially hard-hit by the economic downturn, mostly due to overbuilding in that area. The ever-popular Del Mar and UTC submarkets have probably fared among the best, but still hover near …
The northern Nevada office market remained weak in 2008 with all four quarters recording increased vacancy and negative net absorption, a continuation of a trend that began in 2007 when three out of four quarters finished with negative net absorption. Last year finished with negative 116,000 square feet of leased office space and vacancy exceeding 20 percent. Directly related to the drastic downturn in the residential real estate market, Reno’s office performance had been fueled by the national homebuilders, mortgage companies and title companies, who saw their requirements for office space drop as quickly as the demand for their products and services. The area’s office sector quickly changed from growth and high demand to nearly non-existent demand and increasing vacancy, thus leaving investors and developers scrambling for tenants. With rising vacancy and demand declining, many office property owners are willing to slash effective lease rates to secure tenants. The average asking rate for Class A properties at year-end 2008 was $22.08 per square foot, a $1.56 less than a year earlier, and Class B was down to $16.68 per square foot. During the highs of late 2006, the effective rates for class A product exceeded $27 per square foot. With …
The Reno-Sparks apartment market will continue to face occupancy challenges due to job losses at local casinos, hotels and other gaming-related companies due to the current recession. Effective rents will remain flat in 2009 and in some cases decrease, while occupancies are expected to decline, building on a trend established in second half 2008. Landlords will be forced to offer concessions as they compete for new and existing tenants. Apartment owners across the market are vying to attract new tenants and retain existing ones. As a result, concessions are ranging from reductions in deposits to a full month of free rent, especially at properties with management issues. Remaining flat, the local economy was experiencing unemployment of approximately 8 percent in November 2008 due to layoffs in many sectors, including the leisure and hospitality industry. In the 1970s, 30 percent of the employees in Reno worked in the gaming industry, but today only 17 percent are involved in that sector. In fact, the leading employers of Reno’s increasingly diversifying economy are the Washoe County School District, IGT, Catholic Healthcare West and the gaming-hospitality industry. Looking at fundamentals, fourth quarter 2008 vacancy was 9.4 percent in the Reno-Sparks MSA, reflecting an increase …
The Seattle market is currently experiencing the lowest tenant demand in 30 years. Both early stage companies and strong credit corporations are tightening their belts and are reluctant to commit capital. Large companies with strong credit usually look for cost saving consolidation opportunities, but unfortunately, this requires some up-front capital, which is being frozen by financially savvy executives. Many new developments commenced 2 to 3 years ago as Seattle was rated one of the top five real estate markets in the nation. Those projects broke ground without the foresight of the recession that followed. There are currently four new vacant office buildings complete or close to completion. Those buildings include West 8th, 1918 Stewart, 2201 Westlake and 1100 Eastlake. All of their anxious landlords and investors are competing for a small pool tenants. Additionally, the downfall of Washington Mutual has brought thousands of additional square feet onto market. JP Morgan Chase refuted most leases through its bankruptcy acquisition of Washington Mutual. This perfect storm of over supply totals more than 6,500,000 square feet of class A and B office space available for lease. The Eastside markets have been saved from excessive vacancy owing to Microsoft’s expansion last year. However, overall …
The proverbial good news–bad news scenario is at play when it comes to land values and transactions in Albuquerque, New Mexico. As always, the good news first. Albuquerque did not experience the effects of mammoth overbuilding and the resulting plummeting disintegration of value that has infected many other markets. The 180 degree reversal of values that commenced in the run-up to 2008 in areas like Phoenix and Las Vegas and continues as we write is in stark contrast to current Albuquerque price levels, where generally most commercial property and land in particular have suffered far less than in those areas and other markets nationally. There is, however, still bad news if you’re a local owner, prospective seller or broker trying to make a living in the land business. Historically Albuquerque has lagged behind most other areas of the country in economic timeline trends. If you subscribe to the theory that a housing sales slump is the precursor of a commercial real estate decline it’s easy to extrapolate why non-residential land here is beginning to experience a current decrease in demand. Current reports from appraisers and brokers in the residential subdivision business provide a gloomy picture of north of 10,000 lots …
If there’s any good news to be had in today’s challenging economic climate, perhaps it’s that now is an opportune time to be an apartment investor in metropolitan Phoenix. While the credit crunch has undeniably put a dent in sales activity — the difference between $52 million so far this year compared to $600 million for all of 2008 and $3.5 billion during 2007 — interest from well-capitalized private investors hunting for bargains among the rising selection of lender-owned properties for sale may provide a boost moving forward. The number of distressed properties has crept into the double digits since early 2009. Offerings in good locations, where the pricing reflects the market correction, can easily garner 15 to 20 offers, on par with bidding activity occurring even during the best of economic times. Active investors are primarily individuals and private capital sources searching for positive leverage and high returns. Meanwhile, REITs and advisors looking to firm up balance sheets, developers needing to pay off maturing construction loans, and lenders hoping to unload distressed properties make up the bulk of sellers. Another piece of good news: tighter lending requirements, coupled with a downturn in population and job growth, have effectively put …
Odds are that Las Vegas developers, landlords and brokers did not mind putting 2008 in the rear-view mirror. Unfortunately, odds are also good that 2009 will be even more challenging. Commercial real estate certainly finds itself in unprecedented times. At the end of 2008, the Las Vegas office market had about 5.5 million square feet of vacant space, with the vacancy rate rising to 17.24 percent. This number doesn’t include the increasing amount of sublease space on the market or what is even harder to track, shadow space — unused space not being marketed. Even with the amount of vacant space on the market, there is roughly 2.2 million square feet under construction, most of which will hit the market in 2009. Based on historical absorption averages, the estimated supply of existing vacant space now would take about 5 years to absorb. The average asking lease rate ended 2008 at $2.40 per square foot, but is expected to decrease during first quarter 2009. Landlords have tried to maintain their face rates, but will generally bend significantly to make a deal. Available shell space on the market has more leasing challenges than second-generation space. With the cost of construction exceeding the …