The San Diego Industrial market ended the first quarter 2014 with a vacancy rate of 7.8%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 1,012,822 square feet in the first quarter. That compares to positive 1,107,723 square feet in…Continue Reading
Top Five Trends to Watch in 2014
Availability will continue its downward trend in 2014.
Keeping a finger on the pulse of the market is one of the most important requirements in identifying solid real estate solutions. As we move into February and look at the months ahead, Horizon Resources Inc. is predicting a few top trends for San Diego commercial real estate that are likely to emerge (or continue emerging) this year.
1) Lease and sale prices will climb 3 to 5%
Last year, we saw progressive economic improvement quarter after quarter, with GDP growth reaching 3% nationwide. We predict an increase in this progress in 2014, and expect that GDP growth will be closer to 4% by year’s end.
The good news: with ongoing economic growth comes business growth.
We are now seeing frequent expansion plans from businesses in various industries throughout the Western US, and are even seeing new businesses begin to emerge once again. As a result, there is increased demand for commercial product of all types.
This thriving demand, paired with a limited supply of many product types in major Western U.S. markets, will ultimately drive sale prices and lease rates up.
In 2014, we predict that lease rates and values for industrial/flex product will increase by 5% in the Western US, while office and retail product will likely grow by 3%.
In markets with extremely limited supply, such as the Orange County industrial market, we predict an even higher growth in sale pricing—likely 5% to 7%–especially for buildings that are 30,000 square feet and larger.
2) Availability will continue its downward trend
Availability will continue its downward trend in 2014. In Orange County alone, we predict more than a million square feet of positive absorption in the office market in 2014.
The trend of strong positive absorption is likely to continue throughout the Western U.S., and we predict that coastal markets will demonstrate more rapid growth than inland markets.
3) Competition Between Investors and Owner-Users Will Strengthen
With prices and lease rates increasing and availability decreasing in the major Western markets, we will continue to see investors and owner-users competing for the same deals.
Traditionally, investors expect to pay less for a property than an owner-user might. However, with the limited supply of quality product on the market, and with an increasing amount of investment money still chasing commercial product, we are seeing more and more investors willing to pay more for properties.
This will result in increased competition between investors and owner-users in 2014.
It’s important to note that this competition and buying confidence will depend heavily on interest rates remaining low.
4) Expect more build-to-suit and spec development in 2014
The lack of supply across all product types in the Western U.S. is driving the return of construction. However, prices will continue to restrict this to gradual growth, based primarily on an increase in the price of raw materials.
Construction in the office market in Orange County finished off the fourth quarter of 2013 at just over 1.3 million square feet. The most notable were two built- to-suit projects; a 469,000 square-foot office property for Hyundai in Fountain Valley, Calif., and a 479,800 square-foot PIMCO building at Fashion Island in Newport Beach, Calif.
In addition, there is a new 574,382 square-foot upscale brand manufacturers’ outlet center under construction in San Clemente, Calif., as well as a number of construction projects emerging in San Diego and Los Angeles.
5) Adaptive Use Will Continue to Be All the Rage
In 2014, we will also see an increase in the use of creative space throughout various industries. This trend of adaptive use is evident throughout many product types, and is especially prevalent in industrial properties.
For example, in San Diego, a traditional industrial space formerly used by a beer distributor was recently transformed into a trampoline center and indoor golf cart track.
There are a number of other Southern California companies converting industrial product into retail space, and we expect that this trend will continue to grow in 2014.
In addition, the office market will continue to flock toward adaptive use, as companies continue to seek properties that can be transitioned into creative office space.
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