The Orange County retail market, which consists of about 140 million square feet of space, continues to thrive as it sees an overall vacancy rate of just 5.5 percent. With strong income demographics, an improving job market and a limited supply of retail property, Orange County continues to be a target for both retailers and investors. As job growth is an indicator of a positive retail market due to increasing demand from the county’s consumer base, the positive data coming supports a well-held belief that the investor protects his or her downside risk by targeting ideally located retail property in Orange County. Through this, they benefit from consistent appreciation by virtue of owning retail property in a market characterized by very high barriers to entry. In its 2013-2014 Economic Forecast & Industry Outlook, the Los Angeles County Economic Development Corp. says that the county’s job market over the next couple of years will be strong. It anticipates an increase of nearly 52,000 jobs. LAEDC also reports that retail jobs will increase, and that taxable retail sales reached $39.3 billion last year. Those sales are expected to reach $42 billion this year and $43.7 billion next year. With that said, from …
California
A multi-speed economic and real estate recovery is occurring in Northern California’s office markets. San Francisco and Silicon Valley have been in recovery mode for more than two years with strong growth in both rents and occupancies. The technology industry is the driving force and has produced about 50,000 jobs in the Bay Area since 2010, according to CBRE’s analysis of data provided by the state of California. This has generated high volumes of office space demand that is concentrated mostly in San Francisco and Silicon Valley. These two markets have seen overall average rents grow by more the 60 percent in the most popular submarkets like South of Market (SOMA) in San Francisco, where prices have reached $53.91 per square foot, and Sunnyvale/Mountain View in Silicon Valley, where they hover at $54.36 per square foot. As conditions tightened, activity fanned out to neighboring submarkets, causing new development in popular submarkets to ramp up. The southern portions of the San Francisco Peninsula, northern portions of San Jose and southern portions of the East Bay markets adjacent to Silicon Valley have all benefited from overflow demand. San Francisco has not yet produced significant overflow demand, although further rental rate increases are …
The San Francisco Bay Area’s major warehouse/distribution and manufacturing hub can be found along the I-880 corridor in the East Bay. This region’s industrial market has enjoyed steady growth with both overall vacancy rates and asking rental rates improving by about 10 percent year-over-year. The overall vacancy rate in the first quarter of 2013 was 10.22 percent — a three-year low — while the asking rental rate was $7.44 per square foot, triple-net, annually. Interestingly, the most significant growth this year came from the market’s largest segment: the warehouse sector. The warehouse market’s vacancy rate dropped by more than 25 percent year-over-year, to just 8.27 percent. In fact, the vacancy rates in all I-880 warehouse submarkets, aside from Newark, now sit at less than 10 percent. Asking rental rates in the warehouse market increased by nearly 8 percent to $4.80 per square foot, triple-net, annually. Several properties were listed during the second quarter of 2013 and therefore not included in these statistics. However, these properties boast asking rates as high as $5.76. Cornish & Carey Commercial Newmark Knight Frank believes these latest trends indicate an imminent spike in asking rates in the warehouse market. Third-party logistics providers, or 3PLs, are …
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 …
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 …
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 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 …
The San Diego office market continues in the direction of a slow, but steady recovery as we move into 2013. With virtually no new construction of office inventory delivered in 2012, and no projects in the immediate pipeline, the overall occupancy in the county for all office product has risen to about 85 percent. The majority of the leasing activity and positive net absorption has occurred in the Class A market, particularly in the Central San Diego suburban markets. About 85 percent of the absorption over the past three years has been in the Central San Diego office markets, including UTC, Sorrento Mesa, Kearny Mesa and Del Mar Heights. Overall, the Central San Diego office market vacancy sits at 9 percent. As a result, building owners of Class A buildings in these select markets have been able to lower concession packages and hold tight on rents when compared to the previous few years. Lease rates have also stabilized and are poised to increase as the supply tightens for quality space. Class A asking rates had an overall average of $2.58 per square foot (full-service gross) at the end of 2012. This was unchanged from the previous two quarters while Class …
The San Diego retail market has always been one of the strongest markets in the nation with respect to commercial real estate indicators. Many regions greatly affected by the housing downturn like Las Vegas and Phoenix are still experiencing double-digit retail vacancy rates, while San Diego ended 2012 with an overall vacancy rate of 7.1 percent. Even the overall availability rate dropped to 9.5 percent, down from 9.7 percent last quarter and 10.6 percent at the end of fourth quarter 2011. Since the beginning of 2012, both power centers and community centers have outperformed the rest of the market. Vacancy rates came in at 2.4 percent and 6.1 percent, respectively, with both rates representing decreases compared to last quarter and last year. Net absorption for these two products accounted for about 82 percent of the total activity in 2012. Other center types, such as specialty centers and strip centers, have experienced mixed results throughout the year. The drop in vacancy rates can primarily be attributed to basic supply and demand. Many sectors of the retail market are becoming more creative and took advantage of market conditions during the downturn. Discount retailers are expanding in Southern California as Wal-Mart, Dollar Tree …
The San Francisco apartment market is exceptionally active. It features extremely low vacancies, rapidly rising rents and tremendous demand for a very limited inventory of assets. Fueling this demand is San Francisco’s thriving technology sector and young professionals, which will maintain the metro’s stature as one of the premier rental markets in the country well into 2013. While nearby Silicon Valley lures large software and information companies, San Francisco has become the incubator for tech start-ups. More than 94,000 people in the metro area have jobs pertaining to the tech industry, which is up 10 percent from last year. Small but influential firms such as Zynga, Dropbox and Airbnb are continuously hiring young professionals in the core of the metro. These high-paid individuals prefer renting, and are waiting longer to enter the single-family home market. Employment this year has been primarily driven by San Francisco’s technology industry. Major firms such as Facebook and Twitter continue to hire as their businesses evolve. By year’s end, employers will have hired a total of 29,000 workers, a 3 percent increase in total employment. Vacancies are currently some of the lowest on record, as the tech industry flourishes. In the last 12 months, the …