Orange County - The Jonna Group
RetailResearch M A R K E T Orange County
O V E R V I E W Third Quarter 2015
Smaller Multi-Tenant Retail Assets Become Buyers’ Target Excellent demographics and an accelerating rate of employment growth have bolstered an already surging Orange County retail market. Strong hiring in the education and health services sector pushed the countywide unemployment rate down to pre-recession levels. A larger workforce combined with a median household income that is well above the national median has generated significant demand for retail goods. This has spurred many retailers to expand their footprints, usually into preexisting space amid a slowdown in construction this year. Retailer growth along with lackluster deliveries helped drive vacancy to a post-downturn low. Average asking rent posted healthy gains this year as available space became increasingly scarce. High occupancy rates and steady rent growth have made retail properties attractive investment vehicles for cash-flow-oriented buyers. Limited listings and elevated interest from outside investors will keep buyer demand high through 2015, particularly for properties below the $4 million price point as investors target smaller assets. A lack of available product is the only headwind limiting deal flow in the county, creating a competitive bidding environment. Those who are listing are either taking profits or reshuffling their portfolios for yield plays. The county has also seen activity from multifamily investors who are selling their apartment holdings and trading into retail assets that are easier to manage and offer similar first-year returns. Off-market trading has picked up this year. Highly motivated buyers are approaching property owners with unsolicited offers at such high premiums that owners must consider them. Properties in wealthy coastal areas that see steady appreciation like Newport Beach and Costa Mesa are the most sought after. Cap rates for these properties average in the mid-3 to mid-4 percent range, although well-positioned properties with a nationally recognized tenant can reach sub-3 percent levels. Farther inland, assets trade about 100 to 150 basis points higher depending on location, tenant and lease structure.
2015 Annual Retail Forecast 2.8% increase in total employment
Employment: Businesses will grow the labor force 2.8 percent this year, through the creation of 42,000 jobs. In 2014, a gain of 44,800 positions was registered, led by gains in the professional and business services sector.
1.1 million square feet will be completed
Construction: Developers will ramp up construction in 2015 with the completion of 1.1 million square feet of retail space, expanding inventory by 0.9 percent. This is up from last year when only 273,000 square feet was delivered.
50 basis point decrease in vacancy
Vacancy: The vacancy rate will fall another 20 basis points since midyear, finishing 2015 at 4.3 percent, a year-over-year drop of 50 basis points. Last year, the market tightened 60 basis points on nearly 1 million square feet of net absorption.
5.1% increase in asking rents
Rents: In 2015, average rent will lift to $25.72 per square foot, a year-over-year increase of 5.1 percent. Last year, the county registered a gain of 7.2 percent, the biggest annual rate hike since before the recession.
Economy ■■ Orange County businesses expanded payrolls 3.6 percent in the last 12 months
Metro
Rent Trends ending inAsking June, through the addition of 53,100 jobs, the largest four-quarter hiring spreeMetro in moreUnited thanStates 15 years. During the same period a year earlier, 8% 29,900 positions were filled, a 2.0 percent increase.
United States
Year-over-Year ChangeYear-over-Year Change Square Feet CompletedSquare (millions) Vacancy Rate Feet Completed (millions) Year-over-Year Change Vacancy Rate Square Feet Completed (millions)
6.0%
■■ The4% education and health services sector led gains this year, adding over 12,800
4.5% 3.0%
workers. Office-using employment also had significant growth, increasing 2.3 0% percent, or by 9,450 Asking Rent employees. Trends Workers in this sector generally have higher wages, a good for Orange County’s retail market. Metroindicator United States
Employment Trends Metro
1.5% 6.0% 0% 4.5%
United States
11
12
13
14
15*
Employment Trends Retail Completions Metro
0% 4.5%1.511 3.0%1.0
United States
12
13
14
15*
0 11 11
1.0
12 12
1313
1414
15* 15*
Metro
United States
12
1.0 6%Vacancy
13
14
15*
Rate Trends
Metro
United States
Vacancy Rate
1212
1313
14 14
15* 15*
15*
0% $360
127,000 square feet of retail space, a nominal expansion of inventory. This is -4% $420 $330 a slowdown from the previous 12-month period when developers added more than 307,000 square feet. -8% $390 $300
1111
1212
13 13
14 14
15* 15**
■■ Developers focused on the South County submarket, where more than 78
$300
$350 $390 11 12through 13 2016. 14 Quick-service 15** dates scheduled restaurants such as Dunkin’ Donuts and Panera are among those slated for delivery. An additional 1.1 million $300 $360 Multi-Tenant Trends square feet is in the Sales planning pipeline, indicating elevated construction activity in the coming years. $400
Metro
$350 of 1.1 million square feet of retail space, expanding inventory by 0.9 percent. $200 $300 11 15** 1212 1313when 1414 This is 11 up from last year only15** 273,000 square feet were delivered. $300
Vacancy Rate Trends
Multi-Tenant Sales Trends Vacancy
United States
$250 $400
■■ In the last four quarters ending at midyear, vacancy slid 60 basis points to
0% 9% 11
12
13
14
15*
4.5 $200percent, $350 11
the lowest rate the market has seen since the recession. A loss of 13 14 80 basis points12was registered in the15** previous four-quarter period, signaling a trend of countywide tightening.
$300
6%
■■ Vacancy in the Airport Area submarket fell 90 basis points to 2.5 percent,
making $250
it the most occupied submarket in the county. The most vacant area is in northern Orange County, where 6.1 percent of retail space is empty.
3%
11
12
* Forecast Source: CoStar Group, Inc.
page 2
14
■■ Outlook: Developers will ramp up construction in 2015 with the completion
0% 0 11 9% 11
0%
13
$250 $330
0.5 3% 12%
3% 12%
12
Construction
■■ There is 1.2 million square feet of space currently underway with completion
1.50 9% 11
6%
-8% $390 11 4%
percent of all annual deliveries came online. Completions were overwhelming$360 SalesTrends Trends ly Single-Tenant forMulti-Tenant single-tenant Sales properties; multi-tenant construction has been somewhat subdued in recent years. $330 $400 $420
Vacancy Rate Trends Retail Completions
0.5 2.0 12%
points -8% to 4.3 percent in the last four quarters. This marks the lowest rate since 4% 11 recession. 12 13 15* four-quarter period, vacancy fell 70 before the During the14previous basis points year over year. 0% Asking RentSales Trends Single-Tenant Trends ■■ Outlook: Businesses will grow the labor force 2.8 percent this year, or by Metro United States -4% 42,000 jobs. In 2014, a gain of 44,800 positions was registered, led by hiring $420 8% in the professional and business services sector.
■■ In Single-Tenant the last 12-month period ending in June, builders finished more than Sales Trends
Retail Completions
2.0 1.5% 0.5 1.5 0%
-4% 8%
■■ The accelerated pace of hiring drove the unemployment rate down 130 basis
3.0%
1.5% 2.0 6.0%
Average Price per Square Foot Price per Square Average Foot Price per Square Year-over-Year ChangeYear-over-Year Change Average FootPrice per Square Average Foot Average Price per Square Foot Average Price per Square Foot Year-over-Year Change
Employment Trends
13
14
15*
$200 ■■ The South County submarket 11 Orange 12 13 14 15** is the only area that recorded a vacancy
increase, due to the elevated construction activity in the area.
■■ Outlook: The vacancy rate will fall another 20 basis points from midyear,
finishing 2015 at 4.3 percent, a year-over-year drop of 50 basis points. Last year, the market tightened 60 basis points on nearly 1 million square feet of net absorption. Marcus & Millichap
u
Retail Research Report
Rents ■■ Overall market tightness has put upward pressure on marketed rent. Average
■■ The most expensive space offered is in4.5% the Airport Area submarket, where retail
space is marketed at an average of $31.24 per square foot, yet well-positioned, 3.0% small-boutique sites can reach between $60Employment and $72 per square foot. Trends
States ■■ Properties on the north side of Orange CountyMetro offer the United most affordable space 1.5% 6.0%
with new tenants paying on average $29.35 per square foot, more than 20 percent below the county rate. 0% 4.5% 11
12
13
14
15*
■■ Outlook: In 2015, average rent will lift to $25.72 per square foot, a year-
over-year increase of 5.1 percent. Last3.0% year, the county registered a gain of 7.2 Retail percent, the biggest annual rate hike since before theCompletions recession. Employment Trends 1.5% 2.0 6.0%
Metro
Single-Tenant Sales Trends** 0% 1.5 11
12
United States
13
14
15*
4.5% ending in June; sales activity was ■■ Deal flow has slowed in the last 12 months
down 5 percent year over year. The North 1.0 and Central Orange County sub3.0% markets drew the most investor attention with nearly half of all sales taking Retail Completions place in these two areas. In the previous 12-month period, trading increased 2.0 0.5 1.5% more than 8 percent.
1.5 0% 0 the average price for these prop■■ Despite a slowdown in single-tenant sales, 11
12
13
14
15*
11 foot.12This is13 14 a 2 per15* erties edged up 4 percent to $415 per square following 1.0 cent advance in 2014. Quick-service restaurants are among the most expensive Rate Trends product types with an average sale price in Vacancy the $600 per square foot range. Retail Metro Completions United States 0.5 2.0 ■■ Cap rates for fast-food restaurants with a nationally recognized tenant can dip 12% into the mid- to high-3 percent range whereas drugstores typically trade in the 0 1.5 9% 4.5 to 5 percent area. 11 12 13 14 15*
■■ Outlook: Transaction velocity should remain elevated through 2015. Buyers 6% 1.0 Vacancy Rate Trends will continue to look throughout the county for investment opportunities, Metro United States particularly South County and the coastal communities. 3% 0.5 12%
0% Multi-Tenant Sales Trends** 9%0 11
11
12 12
13 13
14 14
15* 15*
■■ The multi-tenant market held firm in the last year. Sales activity showed no
6% movement in the last 12 months. Transactions were spread throughout the Vacancy Rate Trends Central, South and West County submarkets. Metro
3%
United States
■■ Average sale price lifted 3 percent to12% $390 per square foot in the last four Vacancy Rate
quarters, with stiff competition driving 0%price growth that outpaced national 11 12 13 14 15* 9% inflation rates. Buyers will pay a hefty premium for real estate in the Airport Area submarket, the most expensive region in the county. These properties generally trade for more than $820 per 6% square foot.
■■ First-year yields have fallen to the low-53% percent bracket, down about 25 basis
points year over year. Coastal properties generally trade at cap rates between 100 and 150 basis points below their inland 0% counterparts. 11
12
13
14
15*
■■ Outlook: Investors will remain active through 2015 particularly for properties
with a strong anchor tenant and high traffic counts. In-state investors are the primary buyers in the county, and both private family trusts and real estate firms dominate sales.
Marcus & Millichap
u
Retail Research Report
Asking Rent Trends Metro
United States
8% Average Foot Average FootPrice perChange Change Average Priceper perSquare Square Foot Price per Square Average SquareYear-over-Year Foot Year-over-Year Change Average Price per Square Foot Price per Square Average Price Foot Year-over-Year
Year-over-Year Change Vacancy Rate Feet Completed (millions) Year-over-Year Change Vacancy RateSquare Square Feet Completed (millions) Year-over-Year Change Square Feet Completed (millions)
Trends asking rent rose 5.3 percent to $24.65 per Employment square foot in the last 12 months Metro United States ending in the second quarter. In the previous 12-month cycle rent jumped 3.0 6.0% percent year over year.
4% 0%
Asking Rent Trends Metro
-4% 8% -8% 4% 11
United States
12
13
14
15*
0%
Single-Tenant Sales Trends Asking Rent Trends Metro
-4% $420 8% -8% $390 11 4%
12
United States
13
14
15*
$360 0%
Single-Tenant Sales Trends
$330 $420 -4% $300 $390 -8%
11 11
12 12
13 13
1414
15** 15*
$360
Multi-Tenant Sales Trends Single-Tenant Sales Trends
$400 $330 $420
$350 $300 $390 11
12
$300 $360 Multi-Tenant
13
14
15**
Sales Trends
$250 $400 $330 $200 $350 $300 11 11
12 12
13 13
14 14
15** 15**
$300
Multi-Tenant Sales Trends $250 $400 $200 $350 11
12
13
14
15**
$300 $250 $200
11
12
13
14
15**
* Forecast ** Trailing 12-month period through 2Q Source: CoStar Group, Inc.
page 3
COLOR LINE VERSION
Capital Markets By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
■■ Several macroeconomic headwinds, including the strong dollar and lower en-
BLACK TEXT VERSION Visit www.NationalRetailGroup.com or call: Bill Rose Vice President, National Director National Retail Group Tel: (858) 373-3100 [email protected]
ergy prices, have recently dropped the yield on the 10-year U.S. Treasury to the low-2 percent range. Despite weakness abroad, U.S. economic data remains robust as existing home sales hit levels not seen since 2006 and retail sales growth indicates a willingness by consumers to spend in areas beyond the essentials. Additionally, jobless claims are just above a 41-year low and more than WHITE TEXT VERSION 200,000 positions have been created in 14 of the last 16 months, providing further evidence of broad strength in the labor market. ■■ The Federal Open Market Committee has committed to a policy of “lower for
longer” as it assuages fears surrounding a possible interest rate increase this fall. The initial policy rate change is expected to be just 25 basis points, the first hike since 2006, with measures remaining accommodative for several years.
■■ Life insurance firms are underwriting with terms of up to 25 years for retail
loans. Their 10-year pricing ranges between 4 and 4.25 percent with average LTVs from 60 to 65 percent. Meanwhile, CMBS lenders are offering 10-year terms at rates between 4.4 and 4.65 percent, with LTVs at 75 percent. Commercial banks are also active in the sector, generally offering shorter-term loans from 3.75 to 4.75 percent for 70 percent leverage. Floating bridge loans for stabilized assets will require LTVs of 70 percent and price with a spread between 250 and 425 basis points over LIBOR, while value-add transactions will be underwritten at 80 percent LTV (60-65 percent of cost) with a 300- to 475-basis-point spread.
■■ Total CMBS issuance reached $52 billion by the end of the second quarter, rep-
Prepared and edited by Connor Devereux Research Associate Research Services For information on national retail trends, contact John Chang First Vice President, Research Services Tel: (602) 687-6700 [email protected] Newport Beach Office: Robert Osbrink Regional Manager [email protected] 19800 MacArthur Boulevard Suite 150 Irvine, California 92612
resenting a sizable uptick from last year. More than $600 billion in CMBS is expected to come to market during the next few years as pre-crisis loans come due, prompting owners to renegotiate their capital structure at much lower interest rates. Many of these owners may choose to list their assets instead, providing investors an opportunity to place capital in highly sought-after markets.
Local Highlights ■■ The largest construction project currently underway is the Outlets at San Cle-
mente. The 250,000-square-foot development will deliver more than 70 retailers including Nike, H&M and Calvin Klein as well as a range of dining options. The 52-acre shopping center will come online later this year.
■■ Grocers Albertsons, Pavilions and Vons will hire 300 new employees in Orange
County in the coming months. The move is part of a larger hiring spree in the Southern California area aimed at handling the recent rise in demand.
■■ The Anaheim City Council recently approved a 30-year ticket tax exemption
Tel: (949) 419-3200 Fax: (949) 419-3210
for Disney in exchange for renewed investment in the area. The massive entertainment company has committed to $1 billion worth of construction and expansion that could provide substantial economic lift to surrounding areas.
Price: $150
■■ Tustin may be receiving a new 22-acre retail center in the coming years. The
© Marcus & Millichap 2015 www.MarcusMillichap.com
Planning Commission approved the design of a new 250,000-square-foot development in Tustin Legacy that includes a grocery store, pharmacy, day-care center and medical facilities.
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Triple-net rents are used. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Economy.com; Real Capital Analytics; TWR/Dodge Pipeline; U.S. Census Bureau.
O V E R V I E W Third Quarter 2015
Smaller Multi-Tenant Retail Assets Become Buyers’ Target Excellent demographics and an accelerating rate of employment growth have bolstered an already surging Orange County retail market. Strong hiring in the education and health services sector pushed the countywide unemployment rate down to pre-recession levels. A larger workforce combined with a median household income that is well above the national median has generated significant demand for retail goods. This has spurred many retailers to expand their footprints, usually into preexisting space amid a slowdown in construction this year. Retailer growth along with lackluster deliveries helped drive vacancy to a post-downturn low. Average asking rent posted healthy gains this year as available space became increasingly scarce. High occupancy rates and steady rent growth have made retail properties attractive investment vehicles for cash-flow-oriented buyers. Limited listings and elevated interest from outside investors will keep buyer demand high through 2015, particularly for properties below the $4 million price point as investors target smaller assets. A lack of available product is the only headwind limiting deal flow in the county, creating a competitive bidding environment. Those who are listing are either taking profits or reshuffling their portfolios for yield plays. The county has also seen activity from multifamily investors who are selling their apartment holdings and trading into retail assets that are easier to manage and offer similar first-year returns. Off-market trading has picked up this year. Highly motivated buyers are approaching property owners with unsolicited offers at such high premiums that owners must consider them. Properties in wealthy coastal areas that see steady appreciation like Newport Beach and Costa Mesa are the most sought after. Cap rates for these properties average in the mid-3 to mid-4 percent range, although well-positioned properties with a nationally recognized tenant can reach sub-3 percent levels. Farther inland, assets trade about 100 to 150 basis points higher depending on location, tenant and lease structure.
2015 Annual Retail Forecast 2.8% increase in total employment
Employment: Businesses will grow the labor force 2.8 percent this year, through the creation of 42,000 jobs. In 2014, a gain of 44,800 positions was registered, led by gains in the professional and business services sector.
1.1 million square feet will be completed
Construction: Developers will ramp up construction in 2015 with the completion of 1.1 million square feet of retail space, expanding inventory by 0.9 percent. This is up from last year when only 273,000 square feet was delivered.
50 basis point decrease in vacancy
Vacancy: The vacancy rate will fall another 20 basis points since midyear, finishing 2015 at 4.3 percent, a year-over-year drop of 50 basis points. Last year, the market tightened 60 basis points on nearly 1 million square feet of net absorption.
5.1% increase in asking rents
Rents: In 2015, average rent will lift to $25.72 per square foot, a year-over-year increase of 5.1 percent. Last year, the county registered a gain of 7.2 percent, the biggest annual rate hike since before the recession.
Economy ■■ Orange County businesses expanded payrolls 3.6 percent in the last 12 months
Metro
Rent Trends ending inAsking June, through the addition of 53,100 jobs, the largest four-quarter hiring spreeMetro in moreUnited thanStates 15 years. During the same period a year earlier, 8% 29,900 positions were filled, a 2.0 percent increase.
United States
Year-over-Year ChangeYear-over-Year Change Square Feet CompletedSquare (millions) Vacancy Rate Feet Completed (millions) Year-over-Year Change Vacancy Rate Square Feet Completed (millions)
6.0%
■■ The4% education and health services sector led gains this year, adding over 12,800
4.5% 3.0%
workers. Office-using employment also had significant growth, increasing 2.3 0% percent, or by 9,450 Asking Rent employees. Trends Workers in this sector generally have higher wages, a good for Orange County’s retail market. Metroindicator United States
Employment Trends Metro
1.5% 6.0% 0% 4.5%
United States
11
12
13
14
15*
Employment Trends Retail Completions Metro
0% 4.5%1.511 3.0%1.0
United States
12
13
14
15*
0 11 11
1.0
12 12
1313
1414
15* 15*
Metro
United States
12
1.0 6%Vacancy
13
14
15*
Rate Trends
Metro
United States
Vacancy Rate
1212
1313
14 14
15* 15*
15*
0% $360
127,000 square feet of retail space, a nominal expansion of inventory. This is -4% $420 $330 a slowdown from the previous 12-month period when developers added more than 307,000 square feet. -8% $390 $300
1111
1212
13 13
14 14
15* 15**
■■ Developers focused on the South County submarket, where more than 78
$300
$350 $390 11 12through 13 2016. 14 Quick-service 15** dates scheduled restaurants such as Dunkin’ Donuts and Panera are among those slated for delivery. An additional 1.1 million $300 $360 Multi-Tenant Trends square feet is in the Sales planning pipeline, indicating elevated construction activity in the coming years. $400
Metro
$350 of 1.1 million square feet of retail space, expanding inventory by 0.9 percent. $200 $300 11 15** 1212 1313when 1414 This is 11 up from last year only15** 273,000 square feet were delivered. $300
Vacancy Rate Trends
Multi-Tenant Sales Trends Vacancy
United States
$250 $400
■■ In the last four quarters ending at midyear, vacancy slid 60 basis points to
0% 9% 11
12
13
14
15*
4.5 $200percent, $350 11
the lowest rate the market has seen since the recession. A loss of 13 14 80 basis points12was registered in the15** previous four-quarter period, signaling a trend of countywide tightening.
$300
6%
■■ Vacancy in the Airport Area submarket fell 90 basis points to 2.5 percent,
making $250
it the most occupied submarket in the county. The most vacant area is in northern Orange County, where 6.1 percent of retail space is empty.
3%
11
12
* Forecast Source: CoStar Group, Inc.
page 2
14
■■ Outlook: Developers will ramp up construction in 2015 with the completion
0% 0 11 9% 11
0%
13
$250 $330
0.5 3% 12%
3% 12%
12
Construction
■■ There is 1.2 million square feet of space currently underway with completion
1.50 9% 11
6%
-8% $390 11 4%
percent of all annual deliveries came online. Completions were overwhelming$360 SalesTrends Trends ly Single-Tenant forMulti-Tenant single-tenant Sales properties; multi-tenant construction has been somewhat subdued in recent years. $330 $400 $420
Vacancy Rate Trends Retail Completions
0.5 2.0 12%
points -8% to 4.3 percent in the last four quarters. This marks the lowest rate since 4% 11 recession. 12 13 15* four-quarter period, vacancy fell 70 before the During the14previous basis points year over year. 0% Asking RentSales Trends Single-Tenant Trends ■■ Outlook: Businesses will grow the labor force 2.8 percent this year, or by Metro United States -4% 42,000 jobs. In 2014, a gain of 44,800 positions was registered, led by hiring $420 8% in the professional and business services sector.
■■ In Single-Tenant the last 12-month period ending in June, builders finished more than Sales Trends
Retail Completions
2.0 1.5% 0.5 1.5 0%
-4% 8%
■■ The accelerated pace of hiring drove the unemployment rate down 130 basis
3.0%
1.5% 2.0 6.0%
Average Price per Square Foot Price per Square Average Foot Price per Square Year-over-Year ChangeYear-over-Year Change Average FootPrice per Square Average Foot Average Price per Square Foot Average Price per Square Foot Year-over-Year Change
Employment Trends
13
14
15*
$200 ■■ The South County submarket 11 Orange 12 13 14 15** is the only area that recorded a vacancy
increase, due to the elevated construction activity in the area.
■■ Outlook: The vacancy rate will fall another 20 basis points from midyear,
finishing 2015 at 4.3 percent, a year-over-year drop of 50 basis points. Last year, the market tightened 60 basis points on nearly 1 million square feet of net absorption. Marcus & Millichap
u
Retail Research Report
Rents ■■ Overall market tightness has put upward pressure on marketed rent. Average
■■ The most expensive space offered is in4.5% the Airport Area submarket, where retail
space is marketed at an average of $31.24 per square foot, yet well-positioned, 3.0% small-boutique sites can reach between $60Employment and $72 per square foot. Trends
States ■■ Properties on the north side of Orange CountyMetro offer the United most affordable space 1.5% 6.0%
with new tenants paying on average $29.35 per square foot, more than 20 percent below the county rate. 0% 4.5% 11
12
13
14
15*
■■ Outlook: In 2015, average rent will lift to $25.72 per square foot, a year-
over-year increase of 5.1 percent. Last3.0% year, the county registered a gain of 7.2 Retail percent, the biggest annual rate hike since before theCompletions recession. Employment Trends 1.5% 2.0 6.0%
Metro
Single-Tenant Sales Trends** 0% 1.5 11
12
United States
13
14
15*
4.5% ending in June; sales activity was ■■ Deal flow has slowed in the last 12 months
down 5 percent year over year. The North 1.0 and Central Orange County sub3.0% markets drew the most investor attention with nearly half of all sales taking Retail Completions place in these two areas. In the previous 12-month period, trading increased 2.0 0.5 1.5% more than 8 percent.
1.5 0% 0 the average price for these prop■■ Despite a slowdown in single-tenant sales, 11
12
13
14
15*
11 foot.12This is13 14 a 2 per15* erties edged up 4 percent to $415 per square following 1.0 cent advance in 2014. Quick-service restaurants are among the most expensive Rate Trends product types with an average sale price in Vacancy the $600 per square foot range. Retail Metro Completions United States 0.5 2.0 ■■ Cap rates for fast-food restaurants with a nationally recognized tenant can dip 12% into the mid- to high-3 percent range whereas drugstores typically trade in the 0 1.5 9% 4.5 to 5 percent area. 11 12 13 14 15*
■■ Outlook: Transaction velocity should remain elevated through 2015. Buyers 6% 1.0 Vacancy Rate Trends will continue to look throughout the county for investment opportunities, Metro United States particularly South County and the coastal communities. 3% 0.5 12%
0% Multi-Tenant Sales Trends** 9%0 11
11
12 12
13 13
14 14
15* 15*
■■ The multi-tenant market held firm in the last year. Sales activity showed no
6% movement in the last 12 months. Transactions were spread throughout the Vacancy Rate Trends Central, South and West County submarkets. Metro
3%
United States
■■ Average sale price lifted 3 percent to12% $390 per square foot in the last four Vacancy Rate
quarters, with stiff competition driving 0%price growth that outpaced national 11 12 13 14 15* 9% inflation rates. Buyers will pay a hefty premium for real estate in the Airport Area submarket, the most expensive region in the county. These properties generally trade for more than $820 per 6% square foot.
■■ First-year yields have fallen to the low-53% percent bracket, down about 25 basis
points year over year. Coastal properties generally trade at cap rates between 100 and 150 basis points below their inland 0% counterparts. 11
12
13
14
15*
■■ Outlook: Investors will remain active through 2015 particularly for properties
with a strong anchor tenant and high traffic counts. In-state investors are the primary buyers in the county, and both private family trusts and real estate firms dominate sales.
Marcus & Millichap
u
Retail Research Report
Asking Rent Trends Metro
United States
8% Average Foot Average FootPrice perChange Change Average Priceper perSquare Square Foot Price per Square Average SquareYear-over-Year Foot Year-over-Year Change Average Price per Square Foot Price per Square Average Price Foot Year-over-Year
Year-over-Year Change Vacancy Rate Feet Completed (millions) Year-over-Year Change Vacancy RateSquare Square Feet Completed (millions) Year-over-Year Change Square Feet Completed (millions)
Trends asking rent rose 5.3 percent to $24.65 per Employment square foot in the last 12 months Metro United States ending in the second quarter. In the previous 12-month cycle rent jumped 3.0 6.0% percent year over year.
4% 0%
Asking Rent Trends Metro
-4% 8% -8% 4% 11
United States
12
13
14
15*
0%
Single-Tenant Sales Trends Asking Rent Trends Metro
-4% $420 8% -8% $390 11 4%
12
United States
13
14
15*
$360 0%
Single-Tenant Sales Trends
$330 $420 -4% $300 $390 -8%
11 11
12 12
13 13
1414
15** 15*
$360
Multi-Tenant Sales Trends Single-Tenant Sales Trends
$400 $330 $420
$350 $300 $390 11
12
$300 $360 Multi-Tenant
13
14
15**
Sales Trends
$250 $400 $330 $200 $350 $300 11 11
12 12
13 13
14 14
15** 15**
$300
Multi-Tenant Sales Trends $250 $400 $200 $350 11
12
13
14
15**
$300 $250 $200
11
12
13
14
15**
* Forecast ** Trailing 12-month period through 2Q Source: CoStar Group, Inc.
page 3
COLOR LINE VERSION
Capital Markets By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
■■ Several macroeconomic headwinds, including the strong dollar and lower en-
BLACK TEXT VERSION Visit www.NationalRetailGroup.com or call: Bill Rose Vice President, National Director National Retail Group Tel: (858) 373-3100 [email protected]
ergy prices, have recently dropped the yield on the 10-year U.S. Treasury to the low-2 percent range. Despite weakness abroad, U.S. economic data remains robust as existing home sales hit levels not seen since 2006 and retail sales growth indicates a willingness by consumers to spend in areas beyond the essentials. Additionally, jobless claims are just above a 41-year low and more than WHITE TEXT VERSION 200,000 positions have been created in 14 of the last 16 months, providing further evidence of broad strength in the labor market. ■■ The Federal Open Market Committee has committed to a policy of “lower for
longer” as it assuages fears surrounding a possible interest rate increase this fall. The initial policy rate change is expected to be just 25 basis points, the first hike since 2006, with measures remaining accommodative for several years.
■■ Life insurance firms are underwriting with terms of up to 25 years for retail
loans. Their 10-year pricing ranges between 4 and 4.25 percent with average LTVs from 60 to 65 percent. Meanwhile, CMBS lenders are offering 10-year terms at rates between 4.4 and 4.65 percent, with LTVs at 75 percent. Commercial banks are also active in the sector, generally offering shorter-term loans from 3.75 to 4.75 percent for 70 percent leverage. Floating bridge loans for stabilized assets will require LTVs of 70 percent and price with a spread between 250 and 425 basis points over LIBOR, while value-add transactions will be underwritten at 80 percent LTV (60-65 percent of cost) with a 300- to 475-basis-point spread.
■■ Total CMBS issuance reached $52 billion by the end of the second quarter, rep-
Prepared and edited by Connor Devereux Research Associate Research Services For information on national retail trends, contact John Chang First Vice President, Research Services Tel: (602) 687-6700 [email protected] Newport Beach Office: Robert Osbrink Regional Manager [email protected] 19800 MacArthur Boulevard Suite 150 Irvine, California 92612
resenting a sizable uptick from last year. More than $600 billion in CMBS is expected to come to market during the next few years as pre-crisis loans come due, prompting owners to renegotiate their capital structure at much lower interest rates. Many of these owners may choose to list their assets instead, providing investors an opportunity to place capital in highly sought-after markets.
Local Highlights ■■ The largest construction project currently underway is the Outlets at San Cle-
mente. The 250,000-square-foot development will deliver more than 70 retailers including Nike, H&M and Calvin Klein as well as a range of dining options. The 52-acre shopping center will come online later this year.
■■ Grocers Albertsons, Pavilions and Vons will hire 300 new employees in Orange
County in the coming months. The move is part of a larger hiring spree in the Southern California area aimed at handling the recent rise in demand.
■■ The Anaheim City Council recently approved a 30-year ticket tax exemption
Tel: (949) 419-3200 Fax: (949) 419-3210
for Disney in exchange for renewed investment in the area. The massive entertainment company has committed to $1 billion worth of construction and expansion that could provide substantial economic lift to surrounding areas.
Price: $150
■■ Tustin may be receiving a new 22-acre retail center in the coming years. The
© Marcus & Millichap 2015 www.MarcusMillichap.com
Planning Commission approved the design of a new 250,000-square-foot development in Tustin Legacy that includes a grocery store, pharmacy, day-care center and medical facilities.
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Triple-net rents are used. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Economy.com; Real Capital Analytics; TWR/Dodge Pipeline; U.S. Census Bureau.
