The commercial real estate environment is continually improving in California as our economy has finally entered a period of expansion. Jobs surpassed their peak pre-recession level a year ago and the rate of new employment is exceeding the hot pace of the late 1990s, with upwards of 40,000 new jobs added each month in California. All this employment is increasing demand for office space, apartments and eventually retail space.
As residents’ wallets become full once more, the retail industry is recovering at a more cautious, but steady pace in mid-2015.
Vacant commercial property was mostly down across the state, a good sign for future construction and prices. Once vacancies fall on demand for more space, prices will rise and builders and their lenders will seize the opportunity to begin new construction.
Absorption – the amount of space becoming occupied each quarter – was positive across most California markets, with the exception of the Inland Empire office sector, which was negative in the second quarter of 2015 (Q2 2015).
How did your region fare? Industrial, office and retail are covered across the following regions, courtesy of Voit Real Estate Services:
- the Inland Empire;
- Los Angeles;
- Orange County;
- Sacramento; and
- San Diego.
Check out the details that follow, or visit Voit for even more specifics (you’ll need to sign up for a free Voit account to access their data).
The Inland Empire’s commercial market is defined by its sprawling industrial buildings, by far its largest commercial sector. Industrial showed healthy activity in the second quarter (Q2) of 2015, with a low vacancy rate and 25 million square feet under construction.
However, the Inland Empire’s office market was not doing so well, with a high vacancy rate and negative net absorption, meaning more office space became unoccupied in Q2 than became occupied.
The region’s retail real estate industry was mostly level with recent quarters, with a 7.7% vacancy rate and positive (though declining) net absorption.
The Los Angeles area saw 3.6 million square feet of office space under construction in the second quarter (Q2) of 2015, the most of any commercial sector. However, the lowest vacancy rate by far was in LA’s industrial sector, at 2.8%. Retail space in malls was also very low, at 3.2% in Q2.
Orange County’s retail market was in a strong position in the second quarter (Q2) of 2015, with a low vacancy rate and over one million square feet of retail space under construction. Industrial is also heading into a period of expansion, as it rested at an all-time low vacancy rate of just under 3%, countered by high levels of construction—the most, in fact, of any quarter since 2008.
The office real estate market continued to improve in Q2 2015, but is still on its way to a recovery from the 2008 Great Recession.
Sacramento’s commercial real estate market varies wildly across the region, with the strongest submarkets in Benicia and Fairfield. However, positive absorption continues in each Sacramento commercial sector, and the recovery from the 2008 Great Recession continues.
San Diego’s industrial market was in a strong positive in the second quarter (Q2) of 2015, with a low vacancy rate and a steady flow of new construction. The office market is not quite recovered, as vacancies remain somewhat high and thus construction and sale and lease transactions remain low.
Expect to see more new construction of retail space in the coming quarters, as today’s low vacancy rate and low level of construction is a recipe for higher rents, and builders will undoubtedly notice.