Land of Opportunity
The Pacific Coast entices investors with new development.
Fundamentals along the Pacific Coast remain stable in most
commercial real estate sectors and are seeing growth in others. New
construction - especially in the form of multifamily high-rises - is occurring
in several parts of the region. In downtown Los Angeles alone, 32 new
properties are being considered for construction, and revitalization is planned
for downtown Portland, Ore., as well.
The office sector is performing well in several parts of
the region. Orange County, Calif., San Francisco, and Los Angeles all are
experiencing low vacancy rates. Orange County had the nation's greatest
year-over-year decrease in availability for 2Q05, falling 4.6 percentage points
to 12.9 percent. San Francisco and Los Angeles followed close behind with the
third and fourth greatest decreases respectively.
Further north, in Washington State's Puget Sound region,
job and population growth are driving the multifamily rental market. Vacancy is
down, and rent prices are up. Vacancy rates are expected to fall 5 percent by
2006 and rents are expected to rise by 4 percent, CB Richard Ellis reports.
The region's retail market also has shown strength. In
Hawaii, the market will continue to improve with new shopping centers in the
pipeline. Portland retail property sale prices are predicted to increase by 2.5
percent this year and rents are climbing as well. In Sacramento, Calif., major
retailers such as Wal-Mart and Home Depot are moving into the market.
Industrial sector prices are rising across the region as
well. In Orange County, industrial property prices have risen 25 percent to 35
percent during the past few years, according to Rich McEvoy, CCIM, commercial
leasing and sales specialist with Lee & Associates in Irvine, Calif. Small
industrial properties especially are in high demand.
In Anchorage, Alaska, the construction of an expanded
civic and convention center is predicted to kick up more business travel and
increase the state's already healthy hospitality market.
CCIM Market Snapshot
"Small industrial properties in South Orange County appreciated at unbelievable rates this
year. Buildings 4,000 sf to 12,000 sf are driving the market. Four years ago
these properties cost $120 psf to $135
psf and now it's more like $225 psf to $250 psf. Sale prices are so high
because of the demand and lack of supply."
-Rich McEvoy, CCIM, commercial leasing and sales
specialist with Lee & Associates, Irvine, Calif.
Honolulu retailers looking for prime shopping center
locations are finding a lack of availability. By midyear 2005, 163,962 sf of
retail space had been absorbed since the beginning of the year, the highest
amount in a six-month period in more than a decade, reports Colliers.
Rents jumped 10.2 percent from $2.35 psf per month to
$2.59 psf per month between 2Q04 and 2Q05. The retail vacancy rate fell to 4.46
percent, the lowest level
in eight years.
Positive economic trends are keeping investors active in
the retail market. In Honolulu, more than $600 million in retail shopping
centers has changed hands since the beginning of the year. The fast absorption
is encouraging new construction and development, and more than 1.3 million sf
of new retail space is under consideration.
Oahu's retail market is especially active. With more than
4.5 million visitors each year, Waikiki Beach is one of the world's most
productive retail venues, according to Western Real Estate Business. The island
generates more than $1 billion in retail, dining, and entertainment sales each
Scenic beaches and luxury hotels, such as the Royal
Hawaiian Hotel on Waikiki Beach, attract more than 6 million visitors-and their
spending power -to the Hawaiian Islands each year.
Scenic beaches and luxury hotels, such as the Royal Hawaiian Hotel on
Waikiki Beach, attract more than 6 million visitors -- and their
spending power -- to the Hawaiian Islands each year.
Office Prices Rise
During the dot-com boom, many San Francisco industrial
warehouse spaces were converted into offices, only to sit vacant after the
market crashed. Now these abandoned spaces are being converted into multifamily
condominiums, reducing the amount of office product in the San Francisco
market, says G. Cody Winchester, senior leasing and sales adviser with Charles
Dunn in San Francisco.
With condominium demand high, developers are capitalizing
by taking office product off the market for conversion. "San Francisco has
seen an increase in net
absorption over the last several quarters due to office
product conversions - not to new tenants entering the market," Winchester
says. More than 700 condominium conversions had been approved in San
Francisco's central business district as of 2Q05, according to the San
With office demand still intact, rents continue to
increase, Winchester says. Class A space with bay views jumped 50 percent in
asking rents over the past year, CB Richard Ellis reports.
With hopes of furthering downtown Bellevue's redevelopment, the $1 billion Wasatch Superblock
mixed-use project's first phase broke ground in early August. It includes two
22-story residential towers, a 757-space parking garage, and 20,000 sf of
retail space. When complete the development will include three additional
condominium towers, a hotel, and more than 150,000 sf of retail and dining
space. "We envision the Wasatch Superblock as a pedestrian-friendly
community that will make downtown Bellevue both more livable and vibrant," says Dell Loy
Hansen, chief executive officer and president of Wasatch Development, the
Utah-based project developer.
construction is driving owners of older retail properties to rehab and update.
For example, Washington Square, already one of the state's largest malls, is
adding 28 new retailers to stay competitive with new construction such as the Streets
of Tanasbourne and Bridgeport Village.
grocery stores thrive on the community's distaste for big-box retailers.
Wal-Mart faces difficulty finding its niche in this market, and residents
continue to oppose developments that include big-box chains.
- This year is
set to close with slightly more than 1 million sf of new retail construction,
down 40 percent from 2004. Portland's urban growth boundaries also create some
barriers to big-box construction.
- Rents are
projected to rise to $19.19 psf by year-end, 2 percent higher than 2Q05 rates.
Steady demand and retail sales allowed landlords to raise rents throughout the
Source: Marcus & Millichap
Capitalizing on Conventions
Alaska attracts more than 1.1 million travelers each year
- nearly 900,000 of which visit Anchorage - and that number is increasing in
part due to business and convention travel. With the planned expansion of a
civic and convention center, the revenue from conventions, meetings, trade
shows, and other events is expected to increase to $250 million over the
previous year's $117 million.
The $93 million, 190,000-sf expansion linked to existing
convention facilities will be funded in part by a voter-approved 8 percent to
12 percent hotel/motel bed tax increase. The expansion includes a 50,000-sf
exhibit hall as well as a ballroom and additional meeting rooms. The new
facilities' first event already has been booked for 2011.
photo: Anchorage CVB
photo: Fisher Plaza
Fishing for Office
For the first time since it was constructed in 2003,
Fisher Plaza in Seattle, owned by Fisher Communications, reached more than 90
percent occupancy during 3Q05.