The retail commercial real estate market is showing consistent improvement. We are seeing reduced vacancy, upward pressure on rents, and higher prices per square foot being paid along major commercial
streets in the Spring of 2014. The most recent graphs from Voit Commercial illustrate the gradually improving market conditions throughout San Diego. We are also seeing significant downward pressure on the capitalization rates of triple net leased investments.
Capitalization rates for fast food restaurants are currently under 5% for well located national chains in San Diego County.
The San Diego Multiple Listing Real Estate Data Service, SANDICOR, has successfully launched its new system Paragon this week. Paragon was designed to be mobile friendly, work on all kinds of devices
and browsers, allow for multiple searches at one time, the uploading and display of slide shows, and new tools that allow appraisers to analyze data in greater detail. The new MLS system includes embedded training videos and they will do training sessions
at larger real estate sales and appraisal offices on request. My appraisal office started using and testing the system when they rolled it out as a transitional system. Paragon has worked very well on our new computer systems using multiple browsers and is
a major improvement over the prior MLS real estate data portal in terms of the new search tools and speed. Congratulations and our thanks to SANDICOR for such a successful and well planned launch.
Cassidy Turley Commercial Brokerage has released its San Diego 2014 Commercial Real Estate Forecast publication. This real estate market forecast discusses industrial, office, retail, apartment,
hotel, and investment market trends for San Diego County. The report goes into detail about vacancy rates, absorption, and commercial rental rates. Because the report includes year end statistics, compiled from many sources, this publication is typically released
in the Spring. Their Research Department always does an excellent job and this publication is constantly improving. Below is a synopsis from this report and a link to the complete report.
Commercial Real Estate Market Forecast Synopsis
Office: In 2014, the negotiating power between landlords and tenants in the Class A central core submarkets is expected to shift further supported by strengthening leasing fundamentals
and moderate new construction. Countywide office vacancy is forecasted to decline 40 bps to 14.3% by the end of 2014 and Class A vacancy is expected to drop below the pre-recession level of 11.7%.
Industrial: The industrial market continued its growth in 2013 with its 10 consecutive quarters of positive net absorption. Until new speculative construction returns, the steady
absorption of existing available inventory will continue to drive vacancy rates lower. The countywide direct vacancy rate is forecasted to decrease by 120 basis points to 5.9% by the end of 2014 and fall below the pre-recession level.
Retail: Continued pressure on asking rents and competitive concessions offered by landlords will support positive leasing activity in 2014 resulting in a moderate decrease in the
countywide total vacancy rate from 4.5% in 2013 to 4.3% in 2014. The recovery is underway, albeit sluggish, and is much more evident in the prime coastal submarkets compared to the rest of the county. Retailers will continue to compete for the most visible
locations, investors will continue upgrading existing properties, and new ground-up construction projects have begun.
Investment: The San Diego commercial real estate investment market transaction volume reached $5.1 billion in 2013, marking the 4 consecutive year-over-year gain in volume, a trend
that is expected to continue in 2014. The Federal Reserve Committee’s reassurance of a highly accommodative stance of monetary policy, an increased availability of capital and easing lender standards will positively support the investment environment. Demand
for top products in secondary markets including San Diego will remain strong, but will be met with a shortage of large scale offerings.
Multi-Family: Development activity has heated up, making the multi-family sector the first to fully recover and begin sustainable expansion. Fueled by pent up demand and historically
low interest rate financing, investment activity in this sector is forecasted to remain fierce. With household formation and employment poised for moderate improvement, San Diego should expect to see vacancy dip to 2.5% and rental rates rise slightly by the
end of 2014.
Overall, we expect 2014 to be a stable year for San Diego’s commercial real estate market. San Diego will increasingly be a relatively attractive market for investors to place their money in 2014.
There will be attractive leasing opportunities for tenants/users that do not need to be in large Class A projects in the core markets.