Commercial Real Estate in Nevada County | SVN Highland Commercial

Lock Richards B&W union crop smNew Supply Meeting Demand

This Market Outlook was provided by SVN International Corp. bringing you the latest industry trends, economic outlooks and markets to watch as we head into the second half of 2016.

The national multifamily market is experiencing peak levels of new supply as developers, investors, and lenders con­tinue to start new projects in many metros across the na­tion. Thus, this sector, more than any other, is the subject of speculation about the potential for a bubble in pricing or physical oversupply or both. However, demographic data and economic indicators both show an increasing need for apartment units across the nation and new supply is meet­ing new demand. In fact, many markets are prone to under­supply as population and job growth are moving faster than developers can deliver units.

The national multifamily market set new all-time record highs in 2015 once more with over $151.7 billion in sales representing a 34% year over year gain, according to Real Capital Analytics®. National cap rates fell below 6% to 5.9% for the lowest average cap rate ever. Gains in both sales volume and lower cap rates were seen in both Garden and Mid/Highrise sub-sectors with 40% and 24% increases over 2014, respectively, and cap rates for the two types averag­ing 6.1% and 5.1%, respectively. The persistently low cap rates are making some investors nervous that pricing could see a reversal if interest rates rise. Thus, it is likely that some of the interest in multifamily acquisitions will move to other property types in 2016; however, multifamily is still poised to have a very good year.

Student housing is another unique form of multifamily that  had an amazing 2015. Sales volume was up 70% from 2014 with over $5.4 billion in transactions at an average cap rate of 6.1%. Given the demographic flood of high school grad­uates entering college, this sector is poised to see more growth in 2016 with rising rents and very low vacancies.

The performance of multifamily assets will likely remain steady in 2016 as demographics favor renting versus buying. However, as rents grow (which has happened dramatically in some markets) owning will be cheaper and thus demand growth could be tempered. Thus, if a developer can supply units that can be rented at relatively affordable rents, they will likely be able to maintain very high occupancy for the long term. Any downward pressures would be experienced in the expensive Class A products first; however this is not expected to happen in 2016.

Lock Richards B&W union crop smGlobal Pressures Weigh on Growth

This Market Outlook was provided by SVN International Corp. bringing you the latest industry trends, economic outlooks and markets to watch as we head into the second half of 2016.

Industrial real estate made significant progress in 2015 as nationwide vacancies fell to 8.5%, a level not seen since 2000 according to commercial real estate research firm REIS®. This is the result of a steady, consistently growing economy that has set new records in GDP almost every year since the end of the recession. At the start of 2016, there is ever-growing concern that economic declines and slow growth in markets like Asia and Europe will cause declines in domestic manufacturing and trade operations. Thus, this sector will face unique risks in the coming years.

While global risks are topical discussions today, 2015 was an all-time record year for industrial real estate transactions, according to Real Capital Analytics® (RCA), who reported over $77.5 billion in deals closing with an average cap rate of 6.8%. This represents a 55% increase from 2014; how­ever, much of these gains came from the hot warehouse market which grew by 65% in 2014 compared with 30% in flex according to RCA. Warehouse also held an edge in aver­age cap rates of 6.7% versus 7.0% for flex. Given that trade and manufacturing could be impacted in 2016, it is uncertain if these sales records will be repeated this year; still, yield seeking investors are likely to desire industrial real estate given the low interest rate environment forecast to persist for the near term.

Where growth is most likely to occur in the industrial real estate market is in properties that are part of the domes­tic supply chain, especially those involved in goods man­ufacturing and delivery to consumers. The US has record employment and is starting to reinvest in everything from business equipment to housing; these activities often spur demand for industrial space.

The greatest source of weakness likely in 2016 are proper­ties and markets serving the oil and gas industry. The price declines in 2015 appear to be at least somewhat persistent and it is almost inevitable that investments into this sector will be reduced; especially with regards to new exploration. Of course, low energy prices help lower transit and produc­tion costs of many goods so the effect is somewhat mod­erated on a nationwide basis. Each market will be a relative “winner” or “loser” based on its production versus consump­tion of energy products.

Lock Richards B&W union crop smDiscovering a new normal

This Market Outlook was provided by SVN International Corp. bringing you the latest industry trends, economic outlooks and markets to watch as we head into the second half of 2016.

The retail real estate market continues to face some of the most difficult challenges as the basic business model of many retailers changes from physical storefront to online sales with direct to consumer delivery. Simultaneously, the broad macro economic recovery has created more employed consumers with large disposable incomes available to spend at retail merchants than ever in history. This dichotomy will make certain retail properties excel while rendering others nearly obsolete in 2016 and beyond.

Investment sales of retail real estate scored another record year in 2015 with $89.4 billion in transactions, up just 3% over 2014 which held the prior volume record. Cap rates averaged 6.5% according to Real Capital Analytics; however, the results vary substantially by sub-category.  Unanchored retail was up 27% year over year while anchored was down –10% and, perhaps more interestingly, unanchored traded at an average cap rate of 7.0% versus 7.1%  for anchored, implying that having an anchor was actually an increasing risk factor. Major gainers in sales volume include urban/storefront (22% YoY gain with an average 5.0% cap rate), single tenant (19% YoY gain with an average 6.1% cap rate), and grocery (7% YoY gain with an average 6.9% cap rate). Major losers in sales volume included lifestyle/power center (-34% YoY loss with an average 6.9% cap rate), big box (-13% YoY loss with an average 6.7% cap rate), and drug store (-8% YoY loss with an average 5.8% cap rate). Malls actually increased in sales volume by 23% with an average cap rate of 6.4%, however their volume is still significantly reduced from peak levels.

Sales trends indicate that investors are following the trends of urbanization as urban/storefront was the major winner with a trend that started after the recession; further, they traded at a cap rate nearly 100 basis points lower than other competitive retail investments. This will no doubt be a hot sector in 2016 and for years to come.

Lock Richards B&W union crop smThe Western Nevada County commercial real estate market in the second quarter of 2016 shows positive net absorption year-to-date across all product types – office, industrial and retail. With very little new construction, except for a couple of user-specific build-to-suits (e.g. Sierra Central Credit Union & DMV), vacancies continue to decrease, albeit slowly.  Rents are flat to slightly increasing.

Looking at the national macro economy, we are seeing stable but slow growth, with the growth rate currently trending slower. Employment and housing growth are the current indicators of concern for the coming several months and should be watched carefully. It is becoming difficult for employers to find qualified labor in the U.S.

Major markets (New York, San Francisco, Chicago, LA) have seen the fastest growth with the commercial property pricing index in these markets now at an all-time high (surpassing ’07-’08 levels). Non-major markets (including smaller tertiary markets like Nevada County) have seen less of a pricing run-up. Therefore, investors looking for good yield and stability will find their best opportunities in these smaller markets.

While the oft-quoted 8-year economic cycle is now supposedly at the end of its expansion phase, there remain positive signs for the economy.  The cap rate spread over 10-year treasuries is about 400 basis points (vs. 100 in ’06).  Additionally, leverage levels remain low and deal fundamentals remain strong.

Lock Richards B&W union crop smSlow Growth and Steady Gains

This Market Outlook was provided by SVN International Corp. bringing you the latest industry trends, economic outlooks and markets to watch as we head into the second half of 2016.

In 2016 office market outlook  shows slow growth and steady gains.  With many key office-using sectors of the economy in ex­pansion mode, the office space market appears relative­ly healthy and poised for growth in 2016 and beyond. The space market is improving with overall asking rents growing at over 3% and vacancies falling slightly nationwide, accord­ing to commercial real estate research firm REIS®. These factors combined with still relatively low levels of new sup­ply projected should mean growth in fundamentals for most of 2016.

The office sector transaction market has experienced steady growth in volume and pricing since the recession with 2015 being the best year since 2005 at over $148 billion in sales, according to Real Capital Analytics (RCA). In fact, the aver­age price per square foot sold in 2015 was $248, extremely close to the record set in 2007 of $256. Given that Net Oper­ating Incomes are likely to rise and cap rates to remain flat in 2016, it is highly plausible to see nationwide record pric­ing and sales volume this year. Many markets, especially the large 24/7 cities, have already experienced record pricing in past years.

While office properties in Central Business Districts (CBDs) remained popular in 2015 with 8% year over year growth, suburban property sales grew at 28% year over year to ac­tually beat CBD sales, with $80.2 billion in volume compared to $68.5. This increase in suburban demand was, no doubt, influenced by the all-time record price per square foot of $377 for CBD compared to the near record, relatively more modest, price of $190 per square foot in the suburbs. The suburbs also offered potential higher income yields with cap rates averaging 7.0% versus 5.8% in the CBDs.

Investments in the medical office sector also grew in 2015 according to RCA. This sub-specialty saw over $11.1 billion in volume in 2015 which represented a 13% year over year gain. Medical office properties traded at a respectable 7.0% average cap rate, equal to that of the suburban properties. Given the demographic shift of the United States population towards being ever older and thus demanding more medical care, it is highly likely that investments into this sector will increase at a growing rate. Overall, it is expected that sales in all office sectors and types will increase in 2016, with cap rates remaining fairly flat, as interest rates are not likely to increase substantially and may even fall slightly.

Lock Richards B&W union crop sm

The first quarter of 2016 in Nevada County and the Sierra Foothills has indeed been happy.  Many properties that have been on the market for an unduly long time are finally being placed into escrow, leased or sold.  The elimination of these last remaining “legacy” properties leftover from the Great Recession should begin to cause upward pressure on lease and sale prices across the board. Hopefully this upward pressure will begin to spur new commercial construction, especially in retail and industrial product categories where vacancies are below 5%.

Retail sales volume kicked up dramatically at the end of last year, although this was due almost entirely to the +- $38M sale ($174/sf) of the Pine Creek Shopping Center (Raleys, JC Penny) to Pine Tree Commercial Realty out of Illinois (a very rare large sale in these parts!).

Other encouraging signs at the start of this year include a drop of 25 basis points in overall vacancy; and office vacancy finally beginning to fall.

On the supply side, small spaces under 5,000 SF remain adequately available, however, units above 5,000 SF are becoming quite scarce.  There are only 7 commercial properties for sale in Grass Valley/Nevada City with contiguous space above 5,000 SF.  The number of retail or industrial properties with space for lease above 5,000 SF total 8, and Class A properties are but a small subset of these.  Speculative development remains non-existent, but as prices increase, “build-to-suit” development may commence as the best alternative for growing companies needing new or larger facilities.

FOR IMMEDIATE RELEASE

Lock Richards Is Named as a Top Advisor by SVN® Grass Valley, California — 23 March, 2016 — Sperry Van Ness International Corporation (SVNIC), a full-service commercial real estate franchisor of the SVN® brand, has announced its top 100 grossing Advisors of 2015. The year-end rankings were presented in front of a packed crowd of over 400 SVN Managing Directors, Advisors and staff at the 2016 SVN Annual Conference recently held in San Diego, California. Individuals named as an SVN Top Advisor represent SVNIC’s highest performers from across the world.

Lock Richards, Managing Director at SVN – Highland Commercial, was ranked as the number 66 SVN Top Advisor for overall performance in 2015. Lock, who specializes in office, industrial, retail and multi-family sales and leasing throughout Western Nevada County, CA, is excited to be ranked among SVNIC’s elite top producers on an international level.

Lock noted, “I was very pleased to make the Top 100 (representing the top 10% of all brokers at SVN), especially since I work in a tertiary rural market that is so much smaller than the majority of my colleagues. I appreciate that my market expertise has been beneficial to so many, and I want to offer a huge “thank you” to all of my clients!”

“These dedicated Advisors truly represent that through hard work and collaboration anything is impossible,” says SVNIC President and CEO Kevin Maggiacomo. “By actively embodying the SVN brand’s shared value principle, they create results not only for their clients, but for their marketplace, workplace and communities as well.”

SVN is the only major commercial real estate brand that markets all of its qualified properties to the entire brokerage and investment community. Participating in approximately $10.1 billion in sales and leasing transactions in 2015, SVN Advisors shared commission fees with co-operating brokers in order to close more deals in less time and at the right value for clients. Advisors also reap the benefits of our SVN Live™ Open Sales Meetings, cloud-based leading-edge technology, and national product councils. This open, transparent and collaborative approach to real estate is the SVN Difference.

For more information on how to leverage the SVN platform to increase your businesses’ bottom line, visit http://www.svn.com/why-svn/. For more information on Lock, please visit www.svnhighland.com.

About SVN®

Sperry Van Ness International Corp. (SVNIC), a full-service commercial real estate franchisor of the SVN® brand, is one of the industry’s most recognized names based on the annual Lipsey Top Brand Survey. With 200 locations serving over 500 markets, SVN provides sales, leasing, corporate services and property management services to clients across the globe. SVN Advisors also represent clients in auction services, corporate real estate, distressed properties, golf & resort, hospitality, industrial, investment services, land, medical, multifamily, office, retail, self-storage and single tenant investments. All SVN offices are independently owned and operated. For more information, visit www.svn.com.

Lock Richards B&WSince the beginning of 2014 until now, the Western Nevada County commercial real estate market, as a whole, has been slowly but steadily tightening and improving. Here’s a summary of 2015 mid-year commercial property review and a breakdown of each property sector:

 

Office Market

A notable anomaly to the positive overall trend mentioned above involved Grass Valley USA/Belden vacating 150,000 square feet in Nevada City and consolidating into approximately 50,000 square feet in Grass Valley. This event alone accounts for a roughly 3% increase in the office vacancy rate as shown in the chart below, and it obscures the improving situation most everywhere else in the office market.  Class A (i.e. the newest and best space) office vacancy is higher than overall office vacancy, but there is a real shortage of large contiguous Class A space with only one building containing over 10,000 square feet of available space.

Year-end 2013

Year-end 2014

Mid-2015

Overall Office Vacancy

11.96%

10.92%

14.35%

Median “Asking” Office Lease Rates – Gross per SF/Mo

$1.31

$1.24

$1.31

Median “Closed” Office Sale Prices per SF

$103

$111

$130

 

Industrial Market

The industrial market remains very tight with current vacancy below 4%.  This trend is starting to lead to industrial land sales, which had been non-existent the previous 7 years.  As with Class A office space, a larger industrial user looking for new space will have few options besides building anew from scratch.

Year-end 2013

Year-end 2014

Mid-2015

Overall Industrial Vacancy

3.78%

6.31%

3.26%

Median “Asking” Industrial Lease Rates – Gross per SF/Mo

$.62

$.60

$.62

Median “Closed” Industrial Sale Prices per SF

$86

$90

Insufficient data to render meaningful number.

 

Retail Market

The retail market remains the most stable of all commercial product types, with Class A retail locations/buildings in huge demand. Nevada County is finally on the radar of national retailers, but prime retail spots are very hard to come by due to topography and zoning limitations. On the other hand, online shopping continues to grow, increasing competition for “brick and mortar” retailers. Class B & C retail locations will need to offer competitive rental rates in order to maintain tenants.

Year-end 2013

Year-end 2014

Mid-2015

Overall Retail Vacancy

4.38%

4.61%

4.94%

Median “Asking” Retail Lease Rates – Gross per SF/Mo

$1.21

$1.44

$1.49

Median “Closed” Retail Sale Prices per SF

$112

$176

$160 (5 sales)

 

In summary, the Nevada County commercial real estate market has been slowly improving, but has yet to benefit from any meaningful spillover from the huge recovery occurring in the Bay Area. However, with commercial and residential real estate prices in the Bay Area now at all-time highs,we expect more reasonably priced tertiary areas like Nevada County to start benefiting from the fallout. With commercial banks flush with capital to lend and inflation appearing to be under control (at least in the short term) 2015 should end up being the most active real estate market in Nevada County since 2007.

For more information, please contact Lock at 530-470-1740 or visit www.svnhighland.com. Lock specializes in the leasing and sale of commercial/investment properties and has over 25 years of experience in the field, including over 15 years in the Grass Valley/Nevada City area. 

 

Commercial Real Estate Company Ranking – Sperry Van Ness ranks #6 in the 2015 Lipsey Survey Results of the most recognized CRE brands in commercial real estate.

Lipsey Top Commercial Real Estate Companies

1. CBRESVN-050_Lipsey_Badge_2014_r2
2. Cushman & Wakefield (tie)
2. JLL  (tie)
3. Colliers International
4. DTZ
5. NAI Global
6. Sperry Van Ness
7. Avison Young
8. Eastdil Secured
9. CoStar
10. Blackstone

The Lipsey Company once again produced their annual commercial real estate brand survey and the Sperry Van Ness brand continues to excel, moving up from last year.

Lock Richards B&W union crop sm

National economic indicators related directly to commercial real estate point to a strengthening market this year. However, markets can vary greatly based on even slight changes in geographic location. Here is a look at how Western Nevada County fared in 2014, which will hopefully shed some light on the outlook for 2015. The following information is based on analysis of approximately 6.9 million total square feet of office, industrial and retail space in Grass Valley, Nevada City and surrounding unincorporated areas. Below is a summary of how commercial real estate fared in 2014.

 

LEASE MARKET

After years of generally increasing office vacancy stretching back to the start of the Great Recession, Western Nevada County finally had some positive office absorption in 2014. However, the office market still remains the softest of the three product types and further upcoming consolidation of one of our largest private employers looms. The largest contributors to office absorption have been the government and non-profit sectors. Although the recession technically ended over 5 years ago, significant job growth remained elusive for Nevada County’s private sector in 2014.

The industrial market has seen slightly increasing vacancy over 2014. This is not necessarily surprising in light of California EDD figures showing a 10% loss in manufacturing jobs in Nevada County from 2013 to 2014. However, if our level of recent property inquiries is any indication, 2015 should see a positive reversal of this trend.

The retail market remains the strongest of all commercial product types, with Class A retail locations/buildings in huge demand. Nevada County is now on the radar of national & regional retailers, but prime retail spots are extremely hard to come by due to topography and existing zoning limitations. This will likely lead to more infill redevelopment projects where older retail buildings are razed and immediately replaced by new construction (ex. Dollar General). On the other hand, online shopping continues to grow thereby increasing competition for “brick and mortar” retailers. Class B & C retail locations will need to offer very competitive rental rates in order to maintain tenancy.

xxOffice Vacancy

Industrial Vacancy

Retail Vacancy

Start of 2014

11.9%

4.0%

4.4%

End of 2014

11.0%

6.4%

4.6%

 

The following figures represent median gross “asking” rents for the various product types.

Office Lease Rates

Industrial Lease Rates

Retail Lease Rates

Start of 2014

$1.26

$  .58

$1.37

End of 2014

$1.23

$  .59

$1.40

 

SALE MARKET

Commercial property sale transactions declined by approximately 20% year-over-year from 2013 to 2014.However, with Bay Area tech employment booming and commercial and residential real estate prices continuing to skyrocket in that area,we expect this growth to ripple and spread into more reasonably priced outlying regions such as Sacramento, which will in turn have a positive effect on tertiary areas like Nevada County. The following chart represents median prices per square foot for “closed” property sale transactions.

Office Sale Prices/SF

Industrial Sale Prices/SF

Retail Sale Prices/SF

2013

$116

$  90

$116

2014

$111

$  89

$160

 

Moving forward, I expect 2015 to be the most active commercial real estate market in Nevada County since the start of the Great Recession (barring any macro-economic calamities). We are now starting to see developers renew permits for projects stalled during the recession. Commercial banks remain flush with money to lend at extremely attractive rates. And with the inflation outlook projected to be moderate for the next 1-2 years, it is a very good time to consider investing in commercial real estate.

 Lock specializes in acquisitions, dispositions and leasing of commercial and investment properties. He has over 25 years of experience in the field, including over 15 years in the Grass Valley/Nevada City area. His “Commercial Property Review” newsletter,  full of current Nevada County market trends and specific property details related to industrial, office and retail properties, is available at www.svnhighland.com or by calling Lock at 530-470-1740.