Commercial Investment Real Estate Quarterly Market Recap: Q1 2017

Ada Wong  /   May 15, 2017

If you’re a retail commercial property owner, there’s no doubt you have read or heard about the so called “Retail Armageddon” that is descending upon the market. Left and right major retailers are shuttering stores and declaring bankruptcy, at a rate that rivals closures in 2008. Our team recently watched an interesting webinar titled “Retail Armageddon? Not so fast…” by Garrick Brown that discussed this trend and the consensus was that it is far from a complete collapse in retail, but rather a radical shift in the make-up of large retail spaces such as B and C class malls. We have seen stories of entertainment venues and grocery stores moving into mall spaces and it will be interesting to see how this retail changeup affects other commercial real estate markets.

Understanding that the retail landscape is going to change dramatically over the next couple of years, it’s interesting to look back at the first quarter figures from CoStar for 2017. You will see we have included regional information regarding the greater Sacramento and the South Bay Area for retail, but also office, and industrial. It’s a quick recap of vacancy rates, rental rates, total transactions, and cap rates.

Please remember this is REGIONAL data so the local area your property(s) reside in will have information that differ from the regional info. Your buildings may also differ by class, location, desirability and demand so please reach out to Tanner Laverty to get more property specific, local market information.

 

Regional Market Info – Greater Sacramento

 

Retail

  • The vacancy rate has decreased from 7.7% in Q4 2016 to 7.2% in Q1 2017.
  • The average quoted asking rental rates have decreased from the previous quarter from $1.39/sf/m in Q4 2016 to $1.32/sf/m in Q1 2017.
  • For buildings larger than 15,000 sf, in Q4 2016, 17 retail transactions closed with a total volume of $91,960,500. The 17 buildings totaled 798,613 square feet and the average price per square foot equated to $115.15 per square foot.
  • Capitalization rates were lower in 2016, averaging 6.67% compared to 2015 when they averaged 6.80%.

 

Office

  • The vacancy rate saw a nominal increase from 11.1% in Q4 2016 to 11.2% in Q1 2017.
  • The average quoted asking rental rate has increased slightly from $1.75/sf/m in Q4 2016 to $1.77/sf/m in Q1 2017.
  • For buildings larger than 15,000 sf, in Q4 2016, 21 office transactions closed with a total volume of $422,900,600. The 21 buildings totaled 1,933,456 square feet with an average price per foot of $218.73.
  • Capitalization rates were higher in 2016, averaging 7.11% compared to the same time in 2015 when they averaged 7.03%.

 

Industrial

  • The vacancy rate decreased from 8.2% in Q4 2016 to 7.5% in Q1 2017.
  • The average quoted rental rates have remained the same at around $0.46/sf/m.
  • For buildings over 15,000 sf, 33 industrial transactions closed with a total volume of $102,429,700. The 33 buildings totaled 1,577,947 square feet and the average price per square foot was $64.91.
  • Capitalization rates were higher in 2016, averaging 6.99% compared to the same time in 2015 when they averaged 6.87%.

 

Regional Market Info – South Bay Area

 

Retail

  • The vacancy rate decreased from 4.9% in Q4 2016 to 4.8% in Q1 2017.
  • The average quoted asking rental rates increased from $2.53/sf/m in Q4 2016 to $2.56/sf/m in Q1 2017.
  • For buildings over 15,000 sf, in Q4 2016, 3 retail transactions closed with a total volume of $62,750,000. The 3 buildings totaled 251,308 square feet and the average price per square foot equated to $249.69 per square foot.
  • Capitalization rates were lower in 2016, averaging 4.96% compared to the same period in 2015 when they averaged 5.51%.

 

Office

  • The vacancy rate decreased from 7.8% in Q4 2016 to 7.6% Q1 2017.
  • The average quoted asking rental rates have decreased slightly from $3.43/sf/m in Q4 2016 to $3.39/sf/m in Q1 2017.
  • For buildings over 15,000 sf, in Q1 2017, 11 office transactions closed with a total volume of $561,325,000. The 11 buildings totaled 1,220,450 square feet and the average price per square foot was $462.39.
  • Capitalization rates were lower in 2016, averaging 5.9% compared to the same period in 2015 where they averaged 5.93%.

 

Industrial

  • The vacancy rate remained unchanged at 5.8% Q1 2017.
  • The average quoted asking rental rates have increased from $1.63/sf/m in Q4 2016 to $1.68/sf/m in Q1 2017.
  • For buildings over 15,000 sf, in Q1 2017 28 industrial transactions closed with a total volume of $467,888,000. The 28 buildings totaled 1,929,107 square feet and the average price per square foot was $242.54
  • Capitalization rates were higher in 2016, averaging 6.13% compared to the same time in 2015 when they averaged 5.59%.

 

Compared to Q4 of 2016, there haven’t been many major changes but there certainly is a difference between our 2 primary markets, Sacramento and the Bay Area. There has been continued growth in both regions and for a quick and easy comparison of where these markets have been and where they are now, jump back to our Commercial Investment Real Estate Quarterly Market Recap: Q4 2012 Also, don’t forget to engage with us on Twitter, Facebook, and LinkedIn! We look forward to hearing your thoughts.

-Ada Wong, Sales Associate

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