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 (but not quite yet) retail space.
The retail industry continued to recover at a cautious, but steady pace in 2015, spurred on by consumer spending.
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 more quickly 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 Los Angeles retail sector, which was negative in the fourth quarter (Q4) of 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; 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 fourth quarter (Q4) of 2015, with a low vacancy rate and nearly 25 million square feet under construction.
However, the Inland Empire’s office market is struggling through its slow recovery, with a high vacancy rate (soon to be remedied due to low levels of construction) and a sluggish absorption rate.
The region’s retail real estate industry was mostly level with recent quarters, with general retail space faring far better than specialty retail.
The Los Angeles area saw 3.6 million square feet of office space under construction in the fourth quarter (Q4) of 2015, the most of any commercial sector. However, the lowest vacancy rate by far was in LA’s industrial sector, at just 2%. It’s a good time to own industrial space in LA, as vacancies are down and lease rates are up. Retail space in malls was also very low, at 3.2% at the end of 2015.
A strong outlook prevails for Orange County’s retail market in the fourth quarter (Q4) of 2015, with a low vacancy rate and 600,000 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 2.4%, soon to be countered by high levels of construction.
While not as recovered as Orange County’s other commercial markets, the office real estate market continued to improve in Q4 2015, and new construction is expected to pick up in the coming year.
San Diego’s industrial market gave a solid showing in the fourth quarter (Q4) 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.