By THOR KAMBAN BIBERMAN, The Daily Transcript
Thursday, June 23, 2011
A new PricewaterhouseCoopers and Reis Inc. investor survey states San Diego has the lowest apartment vacancy rate of any major metropolitan area in the country and even has a strengthening office market.
The investor survey report subtitled "Optimism Prevails Despite Economic Unease" said the average apartment vacancy rate here was 3.9 percent during the first quarter of 2011 -- a full percentage point stronger than the 4.9 percent recorded during the like period a year earlier.
The 3.9 percent figure was stronger than all other major metropolitan areas surveyed. It was followed by Los Angeles at 4.5 percent and Baltimore at 4.7 percent, according to the survey that examined 18 of the largest metropolitan areas in the United States.
The survey said San Diego County's apartment investment market is in a strong recovery period for this year and next and will see a significant growth in demand in 2013 and 2014 -- likely fueling significant construction in those years.
San Diego's MarketPointe Realty Advisors has reached similar conclusions, but placed the average vacancy rate at 5.06 percent as of the end of March, with a 5 percent level considered to be ideal by the industry. Even at that, San Diego would still rank among the top five apartment markets in the country.
The PricewaterhouseCoopers report said the county absorbed 446 rentals in the first quarter of 2011, compared to 679 units in the fourth quarter of 2010 and 422 in the first quarter of 2010.
The report didn't stop at apartments. It said San Diego's office market, while decidedly less impressive, demonstrated some surprising strength during the first quarter of the year.
"Strengthening economic conditions, positive net absorption and a decline in sublease space are creating momentum in the San Diego office market," the report states.
The report adds that the technology services, hospitality, and education/health employment sectors are showing signs of growth in San Diego.
"In particular, the biotechnology and renewable energy sectors are attracting attention from venture capitalists, leaving these sectors poised for near-term expansion," the report continues.
It also helps that the unemployment rate has been on a slow but steady decline, currently at 9.6 percent, according to the state Employment Development Department.
The office vacancy rate tightened by a full 100 basis points to 16.8 percent year-over-year in March, according to Cushman & Wakefield. The amount of sublease space declined by 26.2 percent, while the total net absorption increased by 17.3 percent during the same one-year period.
Not everything is as office landlords would wish, however.
"The leasing market is remarkably slow for owners marketing 2,000- to 10,000-square-foot spaces," describes a survey participant.
That hasn't stopped landlords from seriously considering significant rent increases to augment their balance sheets.
"Further evidence of investors' optimistic outlook for this market is the growing use of rent spikes. The percentage of surveyed participants using rent spikes in their cash flows rose from 60 percent to 80 percent over the past three months," the report said.
San Diego's office market is presently in a recovery mode that will strengthen in 2013 and 2014, according to the report.
Retail is a mixed bag. Although many formerly empty large retail boxes continue to be refilled by such retailers as Kohl's, Best Buy, Dick's Sporting Goods and Discount Tire, the PricewaterhouseCoopers report said the retail market is still effectively in recession here and will continue to be so through next year. The report is projecting a retail recovery happening in San Diego County in 2013 and 2014.
Nationally, the report says stabilized real estate investment trust retail assets are faring the best in this economy, though malls have had their troubles. While there are many high-quality assets, few high-quality retail properties are being placed on the market -- at a time when "a flood of lower quality malls are being offered for sale ..."
In one case, Fashion Valley mall owner Simon Property Group (NYSE: SPG) has placed four malls for sale in Florida and Tennessee that have an average age of 27 years. What's more, it has been an average of 13 years since a major renovation occurred at the malls.
Power centers have been trading. In one of some 70 power centers that have traded thus far this year, Rancho Bernardo-based Excel Trust acquired the 325,431-square-foot Gilroy Crossing in Gilroy for about $210-per-square foot.
Source: The Daily Transcript
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