San Francisco Bay Area Retail Outlook - Q3 2014

REAL ESTATE OUTLOOK
SAN FRANCISCO
BAY AREA RETAIL
THIRD QUARTER 2014
Vacancy nears historic lows
Retail Market stays hot amid frothy local economy
B AY A R E A
Wealth effect kicking in
T RENDL INES
The retail real estate market has continued to thrive along with the Bay Area
economy. The region is riding the economic wave created by the surging tech
industry. The rising tide of tech is lifting all boats in the local economy. Home
prices continue to appreciate and homeowners are feeling the wealth effect
of equity. Stock portfolios are growing. Consumers are back. However this
newfound wealth is being spent in different ways.
7- YE A R TR E ND
Traditional hard good retailers are finding it increasingly challenging to grow
market share and retain customers. Consumers continue to move spending on
these items online in search of more convenience and lower cost. The balance
of power has shifted toward food services and experiential retail. Quick serve
restaurants continue to expand at a fast pace drawing consumers away from sit
down restaurants and trading up from fast food. Experiential retail, in the guise
of salons, gyms, and personal services also continue to grow as these services
cannot be replicated online.
ABSORPTION
Vacancy remained minimal across the region. The 3Q 2014 Bay Area vacancy
rate of 4.0% is down 0.2% from the previous quarter. The region had 205,677 SF
of positive net absorption. Average asking rent were down $0.02 to $25.15 PSF
on a triple net basis.
VAC A N C Y
4.0%
Vacancy falls further
205,677 SF
Absorption increases
due to large users
R E N TA L R AT E
$25.15 PSF
Rents remain flat from
prior quarter
UNDER CONSTRUC TION
526,808 SF
More projects fill
pipeline
SAN FR ANCISCO
New urban concepts line up for space in the city
Residential Real Estate firm Pacific Union took 29,000 square feet on Van Ness.
Target’s new urban concept Target Express signed leases for spaces in the
Financial District, along Ocean Ave, and on Shattuck Ave across the Bay in
Berkeley. The concept will average around 18,000 SF and target daily needs
shoppers.
San Francisco had 44,213 SF of positive net absorption. The city’s average
asking rents climbed $0.01 to $48.22 PSF. Vacancy fell from 2.7% to 1.9%.
C U R R E NT Q UART E R
AV E R AG E S A L E S P R I C E
$361
Sale prices rise
dramatically
JOB GROW TH
3.8%
Tech economy fuels
Bay Area jobs engine
SAN FRANCISCO BAY AREA RETAIL
THIRD QUARTER 2014
PENINSUL A
UNEMPLOYMENT RATE
New users fill vacant boxes
BAY AREA
UNITED STATES
12%
9%
6%
3%
0%
07
08
09
10
11
12
13 14 YTD
SOURCE CA EDD
Diddams Party Store leased 14,000 SF at Westlake Center in Daly City. Also in Daly
City, Bed Bath & Beyond will move into a 61,000 SF location at Gellert Market Place.
Michael’s leased 25,000 SF in a former Border’s Books in San Mateo.
The vacancy rate on the peninsula climbed slightly from 2.3% to 2.4%. Average
asking rents climbed to $32.78 PSF. The Peninsula had 13,350 SF of negative net
absorption.
S O U T H B AY
Vacancy declines as more large users move in
Bass Pro Shops leased their first Bay Area location at Almaden Ranch in San
Jose, taking 145,000 SF.
JOB GROWTH
BAY AREA
UNITED STATES
6%
4%
2%
0%
-2%
-4%
-6%
07
08
09
10
11
12
13 14 YTD
SOURCE BLS
CAP RATES
BAY AREA
UNITED STATES
9
7.5
Sprouts Farmers Market took occupancy in a 21,000 SF former Petsmart location
in Cupertino. The Cupertino store will mark the eighth Bay Area location the
chain has opened in the past two years. Stein Mart also signed a major lease in
Cupertino leasing 32,000 SF in what will be their first Bay Area store. In South
San Jose, Party City leased 10,000 SF at the new Village Oaks project. Also at
Village Oaks, Bank of America leased a 7,000 SF location for a new branch. Total
Women Gym & Day Spa lease 9,700 SF in Sunnyvale. In Fremont, Dress Barn
leased 6,500 SF at the Block at Pacific Commons. Also at Pacific Commons,
Dick’s Sporting Goods leased 100,000 SF of new construction.
Vacancy declined from 4.9% to 4.4% in the South Bay. The
region had 200,674 SF of positive net absorption. Average
asking rents climbed by $0.13 to $26.28 PSF.
6
4.5
E A S T B AY
3
Demand shifts east
1.5
0
07
08
09
10
11
12
13 14 YTD
SOURCE RCA
Outdoor retailer Guns, Fishing & Other Stuff leased 28,000 SF in a long vacant
former Good Guys location in Dublin. Sprouts Farmers Market leased 27,000 SF
in Albany and will anchor the new Shops at Monroe project.
San Francisco Bay Area Retail Market Indicators
PROPERTY CLASS
INVENTORY
UNDER
CONSTRUCTION
QTR NET
ABSORPTION
YTD NET
ABSORPTION
DIRECT
VACANCY
SUBLEASE
VACANCY
TOTAL
VACANCY
AVERAGE
RATE PSF
San Francisco
5,407,461
–
44,213
29,754
1.9%
0.0%
1.9%
$48.22
Peninsula
8,398,352
61,277
-13,350
2,773
2.4%
0.0%
2.4%
$32.78
South Bay
31,947,015
410,331
206,123
337,845
3.9%
0.5%
4.4%
$26.28
East Bay
31,101,419
55,000
-25,860
69,786
3.9%
0.4%
4.3%
$20.68
Bay Area
76,854,247
526,608
205,677
434,709
3.6%
0.4%
4.0%
$25.15
2 R E A L E S TATE OUTLOO K SAN FRA NC ISC O BAY A REA RETAIL Q3 2 0 1 4
E A S T B AY (C O N T I N U E D)
Crunch Fitness leased 20,000 SF in San Lorenzo.
County Market opened an Asian grocery store
in 17,000 SF in Antioch. Walgreens leased
14,000 SF in an upcoming development in East
Oakland. CVS leased 8,000 SF in Pleasanton
at Rose Pavilion. Lazy Dog leased a former
7,300 SF Macaroni Grill at Hacienda Crossings
in Dublin. Famous Dave’s leased 6,000 SF at
Alameda Landing. Livermore Cyclery leased
6,000 SF at Alamo Plaza in Alamo. Also at
Alamo Plaza, Panera Bread leased 5,200 SF. In
Downtown Hayward, Bank of America leased
6,000 SF. Tomatina leased 5,100 SF at Union
Landing in Union City.
Average asking rents fell by $0.43
to $20.68 PSF in the East Bay.
Vacancy rates climbed to 4.3%
from 4.2% in the prior quarter. The
region had 25,860 SF of negative
net absorption.
INVESTMENTS
Cap rates climb from previous quarter
The investment market remained active in the
Bay Area. During the 3Q 2014, $1.8 billion of
retail property was sold, up from $700 million in
the previous quarter.
The average price per square foot
climbed by 41% to $348.76 PSF.
Average cap rates also climbed
to 7.84% from 6.52% in the prior
quarter.
SAN FRANCISCO BAY AREA RETAIL NET ABSORPTION AND VACANCY THOUSAND SF
NET ABSORPTION
VACANCY
1000
6%
500
4%
0
-500
2%
-1000
-1500
07
08
09
10
11
12
13
0%
14 YTD
SOURCE: Transwestern
SAN FRANCISCO BAY AREA RETAIL ANNUAL ASKING RENTS TRIPLE NET
SAN FRANCISCO
PENINSULA
SOUTH BAY
EAST BAY
$150
$120
$90
$60
$30
$0
07
08
09
10
11
12
13
14 YTD
SOURCE: Transwestern
SAN FRANCISCO BAY AREA RETAIL DEVELOPMENT PIPELINE THOUSAND SF
UNDER CONSTRUCTION
COMPLETED
1200
1000
800
600
400
200
0
07
08
09
10
11
12
13
14 YTD
SOURCE: Transwestern
R E A L E STATE OU TL OOK SAN FR ANC I SC O B AY AR E A R E TA I L Q 3 2 0 1 4 3
SAN FRANCISCO BAY AREA RETAIL
THIRD QUARTER 2014
San Francisco Bay Area Market Indicators
INVENTORY
UNDER
CONSTRUCTION
QTR NET
ABSORPTION
YTD NET
ABSORPTION
DIRECT
VACANCY
SUBLEASE
SPACE
TOTAL
VACANCY
AVERAGE
RATE PSF
Union Square/Downtown
3,263,809
–
34336
25,888
2.07%
–
2.07%
$65.35
San Francisco
2,143,652
–
9,877
3,866
1.61%
–
1.61%
$30.76
San Francisco
5,407,461
–
44,213
29,754
1.89%
–
1.89%
$48.22
North San Mateo County
4,395,610
61,277
-7,112
77,053
1.65%
–
1.65%
$32.51
Central San Mateo County
2,069,699
–
-6,238
-83,976
5.18%
870
5.22%
$21.75
South San Mateo County
1,933,043
–
–
9,696
1.18%
–
1.18%
$38.11
Peninsula
8,398,352
61,277
-13,350
2,773
2.41%
870
2.42%
$32.78
San Jose
11,472,387
246,786
58,260
210,088
2.56%
27,760
2.80%
$31.21
Palo Alto/Mountain View
2,002,416
–
45,036
42,206
1.09%
2,808
1.23%
$36.54
Santa Clara
2,522,585
163,545
9,130
12,317
0.62%
33,350
1.94%
$46.03
Sunnyvale/Cupertino
3,291,193
–
57,146
57,024
2.53%
33520
3.55%
$31.58
Campbell/Los Gatos
1,336,108
–
16,760
11,728
3.85%
2,842
4.06%
$30.69
Milpitas
2,712,558
–
–
-1,700
6.27%
2,940
6.37%
$26.93
Fremont/Newark
5,849,417
–
21,453
-5,024
7.05%
64,341
8.15%
$19.98
Gilroy/Morgan Hill
2,760,351
–
-1,662
11,206
6.67%
–
6.67%
$21.44
31,947,015
410,331
206,123
337,845
3.86%
167,561
4.38%
$26.28
1,623,380
55000
–
5,122
4.40%
–
4.40%
$26.63
985,545
–
–
1,731
0.99%
–
0.99%
–
Tri Valley
6,576,132
–
-2,246
52,921
5.77%
23,500
6.13%
$20.13
South Alameda County
5,846,270
–
-877
16,057
3.01%
10,625
3.19%
$21.67
Central Contra Costa County
7,086,102
–
4,905
43,509
2.05%
–
2.05%
$30.79
East Contra Costa County
5,608,152
–
-28,456
-50,090
5.52%
46,163
6.34%
$15.36
West Contra Costa County
3,375,838
–
814
536
3.65%
34,821
4.68%
$24.52
East Bay
31,101,419
55000
-25,860
69,786
3.91%
115,109
4.28%
$20.68
San Francisco Bay Area
76,854,247
526608
205,677
434,709
3.59%
283,540
3.96%
$25.15
SUBMARKET
South Bay
Oakland/Alameda
Berkeley/Emeryville
CONTACT
METHODOLOGY
Brian Landes
GIS Analyst | West Region
925.357.2021
[email protected]
The information in this report is the result of a compilation of information on office
properties located in the Bay Area. Transwestern obtained the information from a variety
of primary and secondary sources including Costar. This report includes single-tenant
and multi-tenant office properties 10,000 sq. ft. or larger, excluding office condominiums,
medical office facilities, flex and owner-occupied properties.
500 Ygnacio Valley Road, Suite 100
Walnut Creek, CA 94596
CA BROKERAGE LIC 01263636
T 925.357.2000
F 925.357.2001
www.transwestern.com/walnutcreek
Copyright © 2014 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by
Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any
responsibility for any inaccuracy contained herein.

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