Residential, Tech Drive West Coast Markets
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LOS ANGELES—Encouraged by low interest rates and pent-up demand, the West continued its slow journey toward recovery in 2012. The Golden State is still attractive to residents and businesses, even though the combination of Proposition 30 and higher federal taxes makes some ask, “Should I stay or should I go?”
In Los Angeles, cheap debt is exerting upward pressure on multifamily sales prices as investors become willing to pay more for apartment assets here. Han Widjaja Chen, SVP of Lee & Associates’ investment-services group here, says, “As the multifamily investment market trends upward, more sellers are ready to transact at market price.”
Available industrial space is dwindling throughout the county. According to David Grote, a partner in the local office of Klabin Co./CORFAC International, “sale prices have increased at a faster rate than lease rates, fueled by a low supply of buildings and low interest rates.”
A little farther south in Orange County, both workforce and senior housing are seeing new development for affordable prices. Jamboree Housing Corp. recently broke ground on the second phase of Doria Apartment Homes, a multifamily community in Irvine for those who earn between 30% and 60% of the area median income. And Vivante on the Coast by Nexus will be the first luxury retirement community at a less-than-luxurious price. “Normally, when you have a community that has the amenities and the higher-end design that we have, you associate that with a $100,000 to $3-million buy-in,” says Nexus VP Phill Barklow. “We didn’t want to go that route, so we just did market-rate apartments.”
According to Ian Britton, managing director of Voit Real Estate Services’ Anaheim office, for the Orange County industrial market, “a sharp increase in both buyer and tenant demand overshadowed the pessimism associated with looming tax increases and federal spending cuts.”
And up north, in Silicon Valley, Jeff Fredericks, managing partner with Colliers, is optimistic in his commercial real estate outlook for the region in 2013. His optimism centered on the office market here. “2013 looks very good for office product, thanks in large part to done deals in the absorption pipeline,” he says.
The prospects of good net absorption year owe partly to less supply coming on the market, Fredericks adds. “We have a lot more users taking space than leaving space today.”
One of the key players in the region, John Kilroy Jr., president and CEO of Kilroy Realty, says that Generation Y—consisting of about 80 million people who don’t want to go to work at 8 a.m.—is huge here. It is important to response “facility-wise and locationally” to that Gen Y trend, he says. “Silicon Valley has what it needs in terms of resources but it must rethink where it is downstream to be competitive with the rest of the world.”
Seattle, another West Coast hot spot, is moving up on the list of “strategic locations” for life sciences. According to Jones Lang LaSalle’s Patricia Raicht, director of research for the Seattle and Portland markets, “Access to world-class research institutions, facilities and intellectual capital are priorities for R&D-focused organizations. Proximity to these resources, continues to command a premium in terms of rents and facilities investments.”
Raicht says Seattle has one of the fastest growing life sciences markets in the nation and has become one of the core cancer research markets in the nation. “Puget Sound’s life sciences is comprised of nearly 1,000 firms employing more than 22,000 directly in the industry, with an additional 191,000 people employed in the hospitals and the medical field,” she says. “One of the distinguishing features of the Seattle-area life sciences market is that very little manufacturing is done in the region.”
Nearly all Puget Sound-area life sciences activities, she explains, are based on research and development. “Unlike areas with a strong concentration of life sciences manufacturing jobs, when a growing Puget Sound company is purchased by a larger company, the frequent trend has been the employees and the companies to remain intact and local to Seattle.”
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