West Coast Commercial Real Estate Recovery Strengthens.
The recovery is spreading west, which had been a deeply affect region of the country by the residential housing collapsed combined with the deep recession.
There has been a few technology and/or energy based markets in California and Texas that have done well over the last couple of years and that strength is broadening to large areas of the west. Plus, this includes all segments of the commercial market from retail to multifamily. Triple net or absolute net, single tenant retail has been hot all year with cap rates falling well below 6% in the coastal California market. Absolute net McDonalds have traded in the sub four cap rate range in California. Triple net retail 7-11s have been trading in the mid fives for months now. Even new construction is starting to show an uptick.
The most recent CoStar Commercial Repeat Sales Indexes found that the west posted the biggest gains of the four U.S. regions. The increase for second quarter Composite Index was a strong 5.5% with the west posting an 11.4% gain for the first half of 2012.
Commercial prices bottomed in the Northeast two years ago, but the CCRSI Composite Index has risen a cumulative 16.6% out ranking the rest of the nation. However, the west’s apartment retail composite indexes have risen considerably by the end of second quarter 2012. This has translated into strong positive net absorption and occupancy at midyear 2012.
“Clearly the strongest markets are being driven by technology related job growth, which is impacting the San Francisco, San Jose and Austin markets, with a smaller impact upon Orange County and Seattle,” said Walter Page, director of office research for Property and Portfolio Research (PPR), a CoStar company. “While this has been a strong demand driver, because of slowing venture capital funding, slumping stock prices for some tech firms, and the national elections, we are preparing for a slower second half of 2012 for nearly all office markets.”
Rent growth of office properties in the San Francisco bay area led the nation at 16.8% in the second quarter. The Los Angeles metro and Silicon Valley weren’t far behind.
The San Francisco Bay area, Silicon Valley, Denver and Houston are some of the tightest markets in the United States due to strong absorption coupled with rent growth leading to a balanced market and fueling a new wave of speculative development.
Lackluster job and GDP growth will likely soften these numbers somewhat through the remainder of 2012, but it’s still looking like a pretty good year