Recovery Ahead For San Diego, Waning In SoMa
Start each day with GlobeSt.com's California AM Alert for original coverage of the latest transactions and trends shaping the commercial real estate industry. Sign Up Today!
LOS ANGELES-Some office markets are already in the mature stage of recovery, while others are starting to heat up and may be at the beginning or middle of their recovery, Tony Natsis, chairman of the real estate practice at law firm Allen Matkins’ Century City, CA, office, tells GlobeSt.com. The recently released Allen Matkins/UCLA Anderson California Commercial Real Estate Survey points to recovery in key markets, but each market is at a different point in the recovery cycle, Natsis explains. “The first market to recover has been South of Market in San Francisco,” Natsis says. “This market is pretty much at its mature stage now, mostly because there’s not a lot more to buy and pricing is so high. The recovery is waning because there’s not a lot of supply on the investment-sale side.”
Lack of supply has been the case in San Francisco for about the past two years. As GlobeSt.com reported in May, high-tech demand is intense and tenants have been snapping up creatively configured office environments in San Francisco, and there are very few large blocks of space available to accommodate additional growth, according to Colin Yasukochi, northwest director of research for Jones Lang LaSalle. “With rents rising, we are now at the point where new construction—for those with access to capital to build—is coming to the drawing board,” Yasukochi said at the time.
Natsis tells GlobeSt.com that the San Francisco CBD is doing well, but pricing outside of SoMa isn’t spiking much as it’s spiking in SoMa and Silicon Valley because the latter are driven by tech, social media and entertainment tenants, while the San Francisco CBD is more driven by professional firms. SoMa and Silicon Valley in particular are taking over as the strongest office markets in the state.
“During 2004-2007, 65% of the state’s activity in investment sales was in Southern California, and the rest was in Northern California,” says Natsis. “Now that’s flipped from where it was.”
Within the Silicon Valley, Mountain View is the belle of the ball. “Mountain View is the best market in the world,” says Natsis. “Everybody wants to buy something there.”
While other Silicon Valley markets are “on fire,” he predicts a longer gestation period for these areas with lower spikes in pricing. “It’s like SoMA was a-year-and-a-half ago.”
Heading south to Southern California, Santa Monica west of the I-5 freeway is hot, with little supply. “That area has tech, entertainment and social media, but not a lot of dollar volume because not a lot is selling,” says Natsis.
In San Diego, he predicts North County—Carmel Valley especially—to be the next hot market due to those tenant profiles. Meanwhile, in other western markets, Seattle and Bellevue are launching up for the same reason, but again pricing is not expected to reach SoMa or Santa Monica levels.
Aside from the office market, the Matkins/UCLA survey of multifamily housing developers revealed that multifamily development on the whole is on the upswing in California, particularly in the Bay Area and Los Angeles. In fact, 70% of the survey participants in San Francisco, Silicon Valley and Los Angeles plan to begin new multifamily housing developments in the next 12 months, thanks to high occupancy rates and rising rents. “This growth in multifamily housing is encouraging,” said John Tipton, a partner at Allen Matkins, said in a prepared statement. “It is in markets where there have been substantial job gains—especially for younger workers who prefer to rent apartments in urban areas and where property values are high.”
Also, industrial growth is being driven by California manufacturing, the Matkins survey shows. Despite uncertainty about Europe’s economic future and moderate growth in California import activity, there is strong optimism in California’s industrial space markets, which should generate new building activity in the next 12 months as well. Industrial space occupancy has risen to 96% in both L.A. and Orange County, driven by growth in California manufacturing exports. Opportunities for new development have also emerged in the industrial space market in these regions.
Be sure to visit GlobeSt.com's NEW Sectors-to-Watch page for in-depth looks on the Hotels, Industrial, Multifamily, Office, Retail, Student Housing, Net Lease and Healthcare Real Estate markets.
You can now be notified via email if this story is updated by clicking on the "Follow this Story" link. You must be a registered member to take advantage of this "members only" benefit.