Following trends in the domestic and global economy, conditions in the Los Angeles office market continued to deteriorate this summer. Los Angeles County’s unemployment rate reached 11.9 percent in July, up from 7.7 percent 1 year earlier, and the Bureau of Labor Statistics estimated that 172,100 non-farm jobs were lost between July 2008 and July 2009. Area companies have conceded to a difficult business environment and lower revenue forecasts by shedding employees in record numbers and, in turn, reducing their need for office space. At mid-year, total vacancy was 14.7 percent, up from 12.5 percent at the end of last year. The market experienced negative net absorption of 3.3 million square feet through the first half of the year, and preliminary third quarter data indicates that vacancy continues to rise, albeit at a slower pace than has been witnessed during the past 18 months. While previous real estate downturns in Los Angeles were triggered by excessive speculative office construction, the current rise in vacancy has stemmed from a collapse in demand. Construction has been relatively limited in the current cycle; however, a handful of large projects have been delivered this year, most notably The Pointe (480,000 square feet) and 2300 …
Western Market Reports
Since the beginning of 2009, six new office projects containing 254,000 square feet of space have been delivered. As of the second quarter, these projects were 53 percent occupied. This strong absorption came primarily from one tenant, Fidelity Investments, which moved into a 112,000-square-foot build-to-suit project designed to handle the firm’s human resources outsourcing work. This project was developed by Forest City Covington in Mesa Del Sol, a master-planned, mixed-use community located just south of the airport on a mesa overlooking the Rio Grande Valley. In a rare occurrence, no multi-tenant office projects were under construction during the second quarter. This is good news for these recently completed office projects. New speculative projects are likely to remain on the drawing board as developers face financing challenges with high pre-leasing requirements. The excess amount of unsold office condominiums on the market (approximately 300,000 square feet) may aggressively compete for tenants by offering lease-to-purchase options. The Albuquerque metro area is poised for growth during the next few years. It has earned some high rankings by national media, placing it among the top metro areas. The bottom line is the Albuquerque metro area is being discovered for its excellent climate, strong workforce and …
At the end of the second quarter, the total industrial square footage in Salt Lake City was more than 110.7 million with an available square footage of 7.6 million, creating a vacancy of 6.89 percent. Big box space in Salt Lake has a 7.29 percent vacancy rate, compared to 5.62 percent in second quarter 2008. Current lease rates are down 2.38 percent from the second quarter of 2008. The hardest hit industrial segment is in the 0 to 5,000-square-foot size increments, which experienced an 11.54 percent decrease in average rents from second quarter 2008. The market is down from the record years of 2007 and 2008, both in speculative development and leasing activity. Like most markets, vacancy rates climbed through the second quarter of 2009, with approximately 1.5 million square feet of existing product coming back to the market. However, the Salt Lake industrial market is in a strong position in the West; third quarter projections are strengthening. Reckitt Benckiser just broke ground on the 200-acre Phase I of Miller Sports Park Industrial Development, a $25 million, 650,000-square-foot distribution center. Another project to note is the planned groundbreaking by The Rockefeller Group on a 365,000-square-foot distribution center on a 71-acre …
The key indicator in the retail market in Reno/Sparks is that vacancy rates have increased and are expected to continue increasing for the remainder of 2009. Vacancy rates have reached nearly 15 percent at the mid-point of 2009 and net absorption continues to be negative. The amount of space available continues to increase due to unemployment, bankruptcies, relocations and acquisitions. Area home prices continue a downtrend with the majority of sales coming from distressed properties. The good news is that unit sales are up year over year, and home affordability has never been better. Retail lease rates continue to decrease as an estimated 2.4 million square feet of space is currently available in Reno/Sparks. Cap rates have increased steadily since a low in 2007, but the increase appears to have slowed down. The Legends at Sparks Marina held a grand opening in June 2009 and will be one of the major retail locations in the Reno/Sparks metropolitan area when it is completed. Developed by RED Development, the 2 million-square-foot shopping and entertainment destination is located on 147 acres in Sparks fronting Interstate 80 and will be highly visible to out-of-state travelers passing through the area. Because the project is estimated …
San Diego has historically been a strong retail market with low vacancy and barriers to entry that restrict the supply of new centers. However, the market has not been immune to these difficult times. Rising unemployment and decreased home values have made consumers more cautious, leading to lower sales volumes for many retailers and restaurants creating slightly more vacancy throughout the area. Expo Design Center, Linens ‘N Things, Circuit City and Mervyns are just a few of the big boxes that sit empty along with several former gas stations, Starbucks Coffee, Banner Mattresses, Baja Fresh and La Salsa locations. However, these vacancies created opportunities for Wal-Mart, Kohls, Best Buy, yogurt shops, taco shops and others to enter projects or trade areas that had proven difficult to enter. Many of these former restaurant locations still include the furniture, fixtures and equipment and have created excellent opportunities for new tenants to reopen with little upfront investment. This is particularly true in South County as many experienced restaurateurs and other business owners from Mexico are crossing the border to open businesses. Tenants such as Autozone, Chase Bank, CVS/pharmacy, Gamestop, 7-Eleven and Five Guys are now taking advantage of the lower rents and increased …
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 …
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 …