2010 Global Market Report - NAI Commercial Real Estate

Sacramento, CaliforniaSan Diego, CaliforniaContactNAI Global+1 609 945 4000Metropolitan AreaEconomic Overview2009Population2014 EstimatedPopulationEmploymentPopulationHouseholdAverage IncomeMedianHousehold Income2,138,1822,255,358944,031$75,478$61,395Located in the north-central region of California, the SacramentoValley has benefited from the migration of Bay Area companiesseeking high quality facilities, affordable rental rates andlower employment costs. Additionally, the Sacramento Valleymarket is accessible to major thoroughfares (I-80, US-50, I-5 and Highway 99). The Port of Sacramento is an inland portthat handles mainly agricultural commodities.Sacramento Valley office vacancy closed Q3 2009 at 17.2%,more than a 300 basis point increase from a year ago. Totalavailability grew 2.8 million SF during this time to 13.7million SF. A substantial amount of new construction hasplayed a key role in the vacancy/availability increase. Theaverage asking rate was $23.76/SF full service, a sizabledecrease of $3.36/SF, or 12%, from a year ago. The marketcontinues to remain favorable for tenants as landlords offerrental rate discounts plus other concessions such as freerent and higher TI allowance dollars. Lease terms alsoremain shorter, typically ranging between one and two years.The R&D/manufacturing/warehouse market ended Q3 2009with a vacancy of 10.4%. Total availability in the industrialmarket was 14.5 million SF, composed predominantly ofdirect space accounting for 92% of the total. Subleasespace increased nearly 700,000 SF in Q3 2009 alone, tomore than 1.15 million SF. This surge was mainly attributedto Optisolar’s massive industrial facility hitting the market.The average industrial asking rate was $4.56/SF NNN, down$0.84, or 15% from a year ago.Office construction continued to trickle on to the market duringQ3 as projects that were funded over a year or two ago arejust now being completed. The development pipeline, however,is quickly tightening as today’s developers wait on thesidelines until market conditions become favorable again.ContactNAI San Diego+1 619 497 2255Metropolitan AreaEconomic Overview2009Population2014 EstimatedPopulationEmploymentPopulationHouseholdAverage IncomeMedianHousehold Income3,040,3883,202,1431,460,337$81,825$60,331The San Diego County commercial real estate market hassoftened significantly during the past year, but with a glimmerof positive indications towards Q4 2010. Overall, rentalrates, occupancy rates and new construction have trendeddownward, as has net absorption in retail and industrialproperties. But positive net absorption of almost 300,000SF of office space in Q3 provided some welcome positivenews in an otherwise very difficult year.At the end of Q3 2009, office vacancy rates were 15.3%,retail vacancy rates 5.1% and industrial vacancy was 10.9%.Both retail and industrial properties experienced substantialnet negative absorption, approximately 1.5 million SF and3.75 million SF, respectively, resulting in reduced asking rentalrates across all product types.Investment sales and owner user sales have continued to beslow compared with sales from two to four years ago, asthe credit environment has remained challenging. Loan tovalue ratios have decreased to 50-60% of appraised values,increasing equity requirements substantially, with theexception of SBA financing. Owner users are waiting on thesidelines for prices to drop further, leading to fewer SBAfinanced transactions.Among the largest office lease signings this year is the lawfirm Procopio, Cory, Hargreaves & Savitch downtown for102,000 SF, eBioscience for 49,000 SF in North City and theDepartment of Homeland Security for 45,000 SF. Industrialleases include 200,000 SF by MOR Furniture and 129,000SF by FedEx Ground, both in Otay Mesa near the MexicoBorder. The largest sale was the 175,000 SF office buildingpurchased by Kaiser Permanente for approximately $52million, just under $300/SF. Excluding small buildings (under15,000 SF), six office buildings totaling $61 million sold inthe first half of 2009 for an average of $140/SF, down froman average price of $230/SF in 2008.Sales activity for 2009 has been especially slow due to thecombined forces of the aforementioned credit tightening andbuyer reluctance. Continued downward pressure from pricesis forecast for 2010 as concessions and capitalization ratesrise, rents decline, CMBS loans mature and refinancingbecomes problematic.Total PopulationMedian Age35Total PopulationMedian Age35Sacramento At A Glance(Rent/SF/YR) Low High Effective Avg. VacancyDOWNTOWN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)SUBURBAN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)INDUSTRIALIndustrial & WarehouseRETAILDowntownNeighborhood Service CentersCommunity Power CenterRegional Malls$$$$$$$$$$33.0028.2015.0023.4016.689.60N/A7.206.6015.4821.00$$$$$$$$$$37.8039.6042.3632.4037.8036.72N/A34.2037.4437.5636.00$$$$$$$$$$$37.5634.0824.7227.3625.2022.204.5620.4018.3624.4827.0061.4%9.6%10.7%49.1%25.3%19.0%10.4%2.8%12.9%7.1%26.8%DEVELOPMENT LAND Low HighOffice in CBD (per buildable acre)Land in Office Parks (per acre)Land in Industrial Parks (per acre)Office/Industrial Land - Non-park (per acre)Retail/Commercial Land (per acre)Residential (per acre)$$$$N/A217,800.00130,680.0087,120.00174,240.00N/A$$$$N/A435,600.00348,480.00217,800.00522,720.00N/ASan Diego At A Glance(Rent/SF/YR) Low High Effective Avg. VacancyDOWNTOWN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)SUBURBAN OFFICENew Construction (AAA)Class A (Prime)Class B (Secondary)INDUSTRIALBulk WarehouseManufacturingHigh Tech/R&DRETAILDowntownNeighborhood Service CentersCommunity Power CenterRegional Malls$$$$$$$$$$$$N/A27.0021.0030.0024.0018.004.684.809.0021.1812.0020.0030.00$$$$$$$$$$$$N/A36.0030.0033.0030.0030.0012.0018.0014.4060.0036.0028.0044.47$$$$$$$$$$$$N/A31.5025.5031.5027.0024.008.349.249.0033.3323.0028.0738.50N/A18.00%13.20%N/A21.00%11.00%9.40%10.90%16.20%6.60%7.10%5.80%1.80%DEVELOPMENT LAND Low/Acre High/AcreOffice in CBDLand in Office Parks$ 4,356,000.00N/A$13,000,000.00N/ALand in Industrial ParksOffice/Industrial Land - Non-parkRetail/Commercial LandResidential$$$$436,500.00436,500.00871,200.00100,000.00$ 1,000,000.00$ 1,300,000.00$ 2,000,000.00$ 4,000,000.002010 Global Market Report ■ www.naiglobal.com 77