Strong recent job growth in Orange County has led to a major pickup in demand for quality retail space. The county’s low development profile has resulted in correspondingly high long-term occupancy levels. Thus, the recent recession with its negative absorption drove the local community neighborhood shopping center rate no higher than the 7 percent peak it reached in the first quarter of 2010. Descent has been the trend ever since. The rate has dropped to 5.5 percent by the end of the second quarter, down 40 basis points year-over-year amid modest additions to supply. The second quarter National Community neighborhood sector rates, by comparison, were notably higher at 10.5 percent. Orange County power centers’ vacancy rates are also lower than the national rate. There have been no power center projects completed in the county since 2007. The vacancy rate for power centers in Orange County is 3.9 percent, compared to 5.7 percent nationally. Orange County’s typically strong economy, positive population growth and high levels of affluence bode well for local retailing and the local retail real estate market. All of Orange County’s cores will see new retail development delivered in 2014 and beyond. Some of the new development will be …
California
Optimism is returning to the Inland Empire office market. With an overall vacancy rate of 18.3 percent at the end of the third quarter, the office sector is slowly improving. It’s down from a 19.4 percent vacancy rate, which was recorded in the second quarter of 2013. The declining vacancy number shows activity is increasing throughout the Inland Empire as tenants feel now is the time to take advantage of below-market rental rates for Class A and B properties. Landlords are also competing to lower their vacancy levels. They’re negotiating rental rates, tenant improvements and free rent concessions. Nevertheless, it’s a tenants’ market. There is an absence of new construction throughout the region and, as occupancies continue to improve, renewal negotiations will become tougher for tenants as the market is expected to gradually favor landlords as fundamentals continue their positive momentum. With that said, tenant urgency is returning to the market as absorption levels increase and options for quality product diminish. In fact, we’re starting to see rent growth in certain sectors of the market. The average overall asking lease rate ended the quarter at $1.73 per square foot, increasing by 1 cent from the previous quarter. CBRE forecasts that …
The Inland Empire’s commercial real estate market is seeing large big box industrial buildings of 300,000 square feet or more being built on a speculative basis — and they are being absorbed by a healthy market. There is nearly 10.4 million square feet of industrial space currently under construction in this region. Once completed, this new space will increase the total inventory of industrial properties by 2 percent, or from 509 million square feet to 520 million square feet. At the same time, unemployment is above 7 percent for the nation and almost 9 percent in California, with many questioning the strength of the economy. If it seems like a big gamble for developers of these big projects to be building in such uncertain times, think again. This money will likely fare better than it would in the bank. These large projects are being leased and sold. Since 1982 — when only 3.5 million square feet was constructed for the year — the Inland Empire has seen average construction levels of about 13 million square feet annually. Some years it seemed like construction could not keep up with demand. This was the case in 1989, when 34.3 million square feet …
International trade is a driving force behind one of the most vibrant industrial markets in the nation. There are more than 1.7 billion square feet of industrial space in Los Angeles County, Orange County and the Inland Empire, with 18.2 million square feet of additional space under construction at the end of the third quarter. The South Bay and Central Los Angeles markets are leading the way in new development in Los Angeles County. The LA Basin’s occupancy gains of 12.7 million square feet during the first nine months of the year dropped its overall vacancy rate to 4.9 percent, from 5 percent last quarter and 5.3 percent a year ago. As the logistics hub of Southern California and the big-box capital of the U.S., international trade is especially critical to the Inland Empire’s industrial market. As a result of increased demand for modern warehouse facilities, warehouse construction in the Inland Empire more than doubled from a year ago to 16.4 million square feet. It was the most active in the nation. Increased demand for industrial space in the Inland Empire lowered the overall vacancy rate to 6.2 percent in the third quarter. This was 60 basis points lower than …
The San Diego apartment market is doing unsustainably well. About 400 buildings will sell this year, which is the average volume of the past 30 years. Sellers are obtaining prices near peak levels, while buyers are capturing cash flow twice as good as the stock market — and with less risk. There are three sources of buyers: cash that was sitting on the sidelines; investors who bought houses and condos at half price and are now ready to move up; and 1031 buyers. Investors are tired of going broke safely. Hundreds have had cash in the bank that was paying a pittance while inflation and taxes slowly dissolve capital. Apartments deliver cash returns that are two to three times what stocks offer. Additionally, over the past few years there have been more than 30,000 homes and condos sold at distressed prices. Many of those owners have doubled their equity and are ready to re-leverage their equity and trade up. This is creating a significant number of 1031 buyers again. It is not quite a chain reaction, but the ripple is helpful. Apartment financing is easy and interest rates are cheaper than they have been for 48 of the past 50 …
Orange County's industrial marketplace doesn’t quite favor owners just yet, but it’s getting close. Our industrial inventories are at historic lows and, with a few exceptions, we have not seen any new construction since 2007. There are a couple new projects planned — and a few more are under construction — but they’ve mostly been large warehouses north of 100,000 square feet. The projected asking rents for these big boxes is $0.50 or more per square foot, triple net; a very expensive rent for a commodity. In general, as these big box rents approach or exceed $0.50 triple net, occupants tend to seek cheaper environs. In Orange County’s case, this usually means they migrate east of town in the Inland markets or beyond. Smaller, newer inventory (20,000 square feet to 50,000 square feet) that hits the market these days is gobbled up quickly, sometimes with multiple suitors. Incubator space (less than 10,000 square feet) has also rebounded nicely with absorption at a blistering pace. We haven’t seen a great deal of rent growth or price appreciation to date, although the latest round of transactions that are in escrow now should bring some evidence of upward change. During the depths of …
The Orange The Orange County apartment market continues to rebound. Operations have improved so far in 2013, with vacancy below equilibrium and asking rents nearly 10 percent above the low point during the recession. The healthy performance of the apartment market is a result of Orange County’s strategic location, population growth, low unemployment rate, high occupancy and shortage of available housing, which has greatly benefited multifamily investors. According to Hendricks-Berkadia Research, the county is one of the most densely populated areas in the United States. Orange County is 2.5 times denser than Contra Costa and Santa Clara counties, and five times denser than San Diego County, which has nearly the same population. The population in Orange County has grown consistently, and reached 3,055,800 residents at the end of 2012, up 26.7 percent from 1990. The unemployment rate for Orange County in the second quarter of 2013 averaged 5.6 percent, 130 basis point below what it was at the end of 2012. According to Moody’s Analytics, the local jobless rate is lower than state and U.S averages. This would be the lowest rate since 2008, indicative of the improving economy in Orange County. Employment growth in the county is also expected …
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 …
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 …