Market Data

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.

Hawaii
Retail Powerhouse


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 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.

caption: 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.

photo: Starwood

San Francisco
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 Francisco Chronicle.

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.

Bellevue, Wash.
Superblock Development

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.

Portland, Ore.
Retail Resistance

  • New 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.
  • Traditional 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 year.

Source: Marcus & Millichap

Anchorage, Alaska
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

Seattle
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.

Carolyn Bilsky

Area report is written by Carolyn Bilsky, associate editor of Commercial Investment Real Estate. Contact her at (312) 321-4507 or cbilsky@cciminstitute.com.

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