2019 Economic Forecast...Impact of Cannabis on the Power Inn Submarket Industrial $0.32 $0.36 10.3%...
Transcript of 2019 Economic Forecast...Impact of Cannabis on the Power Inn Submarket Industrial $0.32 $0.36 10.3%...
2018 Commercial Real Estate Recap and 2019 ForecastBob Shanahan, Senior Research Analyst
Randy Dixon, Managing Director
January 25, 2019
Presentation Title
Agenda
▪Employment Growth
▪Population Growth
▪Office Market
▪ Industrial Market
▪Multifamily Market
▪Retail Trends
Employment & Population Growth
Presentation Title
Employment Snapshot
• Government and
Education/Healthcare
make up 41% of the
Sacramento region’s
1,002,000 jobs
• 69% of the new jobs
added in the last 12
months were in
Government,
Healthcare, or
Education
• Slower annual job
growth in 2019 closer to
1%Source: California Employment Development Department
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
700,000
750,000
800,000
850,000
900,000
950,000
1,000,000
1,050,000
Sacramento MSA - Total Nonfarm Jobs & Unemployment Rate
Total Jobs Unemployment Rate California Unemployment Rate
3.5%
4.1%
Presentation Title
Bay Area Business Migration
PenumbraAlameda-based
Leased 160,000 SF in Roseville
(expansion) in October 2017
Medical technology manufacturer
250-300 jobs ($50K avg. salary)
Anton DevCoFoster City-based
Leased 5,000 SF at the Ice Blocks
where it will move its HQ from
Foster City
Multifamily developer will employ
about 20 at Sacramento HQ
CorefactHayward-based
Leased 4,546 SF in Roseville
Real estate marketing company
named one of fastest-growing
privately-held companies in the Bay
Area for three years in a row
CPUC San Francisco-based
Future hiring to occur in
Sacramento
800 San Francisco employees
100 Sacramento employees
And …
Presentation Title
U-Haul Growth Cities are calculated by the net gain of
one-way U-Haul trucks entering a city versus leaving
that city during a calendar year. Migration trends data is compiled from more than 2
million one-way U-Haul truck sharing transactions that
occur annually.
Population Growth
1. Sacramento/Roseville, CA2. Spring, TX
3. Manhattan, NY
4. Harrisburg, PA
5. Grand Rapids/Wyoming, MI
6. San Francisco, CA
7. Greenville, SC
8. Fort Lauderdale, FL
9. Madison, WI
10. Kissimmee, FL
11. McKinney, TX
12. Pittsburgh, PA
13. Springfield, VA
14. Palm Springs/Cathedral City, CA
15. St. George, UT
U-Haul U.S. Growth Cities for 2018“This market is an attractive
option for those who have
been priced out of the Bay
Area,” stated Aaron Anderson,
U-Haul Company of East
Sacramento president. “There
has been out-migration from
parts of the Bay Area in recent
years, but many movers are
remaining in-state because
they can find affordability in
Sacramento and Roseville.
Commuters can be 90 minutes
from their jobs and enjoy
close-knit communities.”
20,000 people each year relocate from
the Bay Area to the greater Sacramento
region (US Census Bureau)
+25,000 residents
from July 2017 to
July 2018 (+1.1%)
Presentation Title
Millennial Migration
Sacramento ranks third in the nation in net
Millennial migration
Presentation Title
Bay Area Spillover
Sacramento #1 for San Francisco
households looking to relocate
Table: Top 10 Metros by Net Inflow of Users and Their Top Origins
Rank Metro* Net Inflow
Net Inflow
2017 Top Origin
Top Out-of-
State Origin
1 Sacramento,
CA
7,029 5,081 San
Francisco,
CA
Las Vegas,
NV
2 Atlanta, GA 5,466 2,993 New York,
NY
New York,
NY
3 Phoenix, AZ 5,258 3,200 Los
Angeles,
CA
Los Angeles,
CA
4 Portland, OR 3,904 983 San
Francisco,
CA
San
Francisco,
CA
5 San Diego, CA 3,206 5,979 Los
Angeles,
CA
New York,
NY
Office Market Off The Charts
Presentation Title
Annual Rent Growth
+5%Annual Net Absorption
807k SF
Vacancy Rate
12.4%
Office Market Fundamentals Q4 2018 Market
Statistics
Office
13.0% 13.7%15.3%
17.2%
19.2%20.2% 20.6%
19.2%17.7%
16.4%14.7% 13.9% 13.4%
12.4%
-12.0%
-8.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
28.0%
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Colliers International Research
Total Net Absorption New Supply Total EOY Vacancy %
Presentation Title
Class A / B Office Rents & Sale Prices
Office
$176.67 $183.33 $241.07 $207.94 $178.05 $116.21 $116.39 $83.66 $114.24 $143.06 $139.50 $163.52 $151.19 $174.27
$1.87$1.95
$2.05
$1.87$1.81
$1.73 $1.70 $1.69 $1.71$1.76
$1.79$1.84 $1.84
$1.94
$2.27$2.34
$2.48
$2.27
$2.17$2.10 $2.11 $2.09 $2.08
$2.19$2.23
$2.30 $2.30
$2.42
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
$50
$100
$150
$200
$250
$300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Colliers International Research Avg. $ Paid/Bldg. SF Class B Class A
Presentation Title
Downtown Class A Rates vs. Suburban Class A Rates
Office
$2.16
$1.82
$2.08
$3.07
$2.70$2.66
$1.50
$1.70
$1.90
$2.10
$2.30
$2.50
$2.70
$2.90
$3.10
$3.30
20182017201620152014201320122011201020092008200720062005
Suburban Class A Downtown Class A
Presentation Title
2018 Office Headlines
Ice Blocks
1610 R Street / Midtown
• 100,000 SF office completed May 2018
• 100% leased to EA, Spaces, Accenture, Dudensing Law
Firm, Anton DevCo, ConSol/CHEERS
• Heller Pacific developed three-block mixed-use project
including 142 apartment units, 60,000 SF retail
Office
Centene West Coast Headquarters
4201 E Commerce Way / North Natomas
• 1.25M SF two-phase office campus (540K SF first phase)
• Hines closed on 68-acre site in September
• St. Louis-based Centene will bring as many as 5,000 jobs to
the new campus
• 1,500 new apartment units proposed within a three-mile
radius of Centene campus
Presentation Title 14
Demand driven by government and healthcare
Office
629,970
157,119 115,000
45,000 30,000
Government Insurance Healthcare Coworking Education
Office Tenant Demand by Industry
67 active 5,000-plus square foot
tenants in the market as of January
2019 totaling 1.85M SF of demand
5 of the 10 largest leases signed in 2018 were government or
healthcare tenants
Presentation Title
Top Sales of the Year
621 Capitol Mall 336K SF Class A / Downtown
Sale Price $161M
Price / SF $439.49
Buyer Shorenstein Properties
Seller David S Taylor
Sale Date January 9th
The Senator 163K SF Class A / Downtown
Sale Price $46.9M
Price / SF $260.38
Buyer Seagate Properties
Seller Swift Real Estate
Sale Date December 28th
770 L Street 170K SF Class A / Downtown
Sale Price $44.5M
Price / SF $261.35
Buyer New York Life
Seller AMP Capital / PB&J
Sale Date February 20th
HP Innovation Center Three building portfolio / Roseville
Sale Price $93.5M
Price / SF $209.00
Buyer Stonemont Financial
Seller Strada Investment
Sale Date June 7th
Office
Presentation Title 16Presentation Title
Lorem Ipsum
State of California
• P Street Building = 700K SF
• 1215 O Street = 255K SF
• State Occupies 9.6M SF, or 41%, of Downtown’s existing inventory (23.4M SF)
New Development Dominated by Build-to-Suits
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Office
Healthcare BTS
• Adventist Health = 242K SF
• Kaiser Roseville = 194K SF
• Dignity Health = 68K SF (October)
New Natural Resources Building
Adventist Health
Presentation Title 17
Future Development Pipeline
Tower 301
301 Capitol Mall / Downtown
Owner / Developer CalPERS / CIM Group
RBA 730,000 SF
Pre-Lease Requirement 40% (292,000 SF)
Timing 2022 Completion
Office
The Foundry at The Railyards
5th/6th @ Railyards Blvd / Downtown
Owner / Developer LDK Ventures
RBA 300,000 SF (two buildings)
Pre-Lease Requirement 30-40% per building
Timing 2023 Completion
Presentation Title
What will 2019 bring?
Office
• New spec development, under 100K SF
• More Bay Area migration of companies and
residents
• Increased attention from investors seeking
higher yields
• New coworking space
• Decreasing vacancy rate
• Downtown vacancy will drop below 10% for
the first time since 2003
• Rising rents (4-6% annual growth)
• Fewer landlord concessions
Urban Hive’s new coworking space in
The Cannery on Alhambra Blvd
Presentation Title
Annual Rent Growth
+5%Annual Net Absorption
807k SF
Vacancy Rate
12.4%
Office Market Fundamentals Q4 2018 Market
Statistics
Office
13.0% 13.7%15.3%
17.2%
19.2%20.2% 20.6%
19.2%17.7%
16.4%14.7% 13.9% 13.4%
12.4%
-12.0%
-8.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
28.0%
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Colliers International Research
Total Net Absorption New Supply Total EOY Vacancy %
Presentation Title
What will 2019 bring?
Office
• New spec development, under 100K SF
• More Bay Area migration of companies and
residents
• Increased attention from investors seeking
higher yields
• New coworking space
• Decreasing vacancy rate
• Downtown vacancy will drop below 10% for
the first time since 2003
• Rising rents (4-6% annual growth)
• Fewer landlord concessions
Urban Hive’s new coworking space in
The Cannery on Alhambra Blvd
Increasing Industrial Development
Presentation Title
Annual Rent Growth
+37.2%
Annual Net Absorption
3.5M SF
Vacancy Rate
4.2%
Industrial Market Fundamentals Q4 2018
Warehouse Market
Statistics
Industrial
Presentation Title
Industrial Rents & Sale Prices
Industrial
Nov. 2016: California voters
approve to legalize cannabis for
recreational use starting in 2018
Presentation Title
Impact of Cannabis on the Power Inn Submarket
Industrial
$0.32$0.36
$0.8610.3%
5.1%
3.7%
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0
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4
6
8
10
12
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
Average Warehouse Asking Rates Total Vacancy Rate
+65% rent growth year-over-year
+ 139% rent growth since Q4 2016,
when California voted to legalize
cannabis
Presentation TitleColliers International
Industrial Trends
Transportation50.30%
Inventory Carrying21.80%
Labor9.50%
Customer Service7.80%
Rent4.30%
Supplies2.70%
Other1.20%
Administration2.20%
Supply Chain Cost Breakdown
Top U.S. Industrial Growth Markets
(percentage of net absorption vs. overall warehouse inventory, as of Q2 2018)
Market Total Whse Inventory 2018 YTD Absorption Growth %
1 Inland Empire 513,735,100 14,358,400 2.8%
2 Stockton 109,146,490 2,731,582 2.5%
3 Central New Jersey 325,568,003 6,043,351 1.9%
4 Sacramento 157,400,804 2,834,810 1.8%
5 Charlotte 213,897,209 3,733,787 1.7%
Industrial
Presentation Title
2018 Completions
3510 Carlin Drive 387K SF Warehouse / West Sac
Developed by Ridge Capital
Completed June 2018
100% occupied by Veritiv
Bixby Land Co. acquired for $33.4M
7701 Foothills Blvd 316K SF Warehouse / Roseville
Developed by Panattoni
Completed June 2018
100% occupied by McKesson
10-year lease expires in 2028
920 Stillwater Rd 105K SF Warehouse / West Sac
Developed by Harsch
Completed May 2018
Factory Motorparts (41,441 SF),
ArjoHuntleigh (10,058 SF), and 27,560
SF still available for lease
Industrial
New 2018 supply = 861,788 SF (97% leased)
Under construction (Q4 2018) = 1,043,894 SF
Presentation Title
2019 Development
2400 McClellan Park Drive417K SF spec development / McClellan
Developer McClellan Park / LDK
Tenant Spec (100% available)
Completion May 2019
Sacramento Logistics Center500K SF development / Metro Air Park
Developer Buzz Oates
Tenant Spec (100% available)
Completion Q4 2019
3085-3095 Mary Place348K SF spec development / West Sac
Developer Ridge Capital
Tenant Spec (100% available)
Completion Q4 2019
3575-3640 Ramos Drive407K SF spec development / West Sac
Developer NorthPoint
Tenant Spec (100% available)
Completion February 2019
Industrial
Presentation Title 28
An emerging industrial submarket
Metro Air Park
• 1,320 developable acres
• 7.34M SF proposed
• 855K SF Amazon distribution center
• 500,770 SF ready to start construction
Presentation Title
Industrial
Presentation Title
What’s going to happen in 2019?
Industrial
• More spec development will break ground
(500K+ SF to start construction by Q2 2018)
• Approx. 1.5M SF of new supply – 75% of
which (1.12M SF out of 1.5M SF) will be
leased by year-end
• Slight increase in vacancy in the first six
months as new spec product delivers
• Moderating rent growth with cannabis’
impact lessening, but still double digit growth
• Increased attention from investors
• Strong tenant demand and new occupiers
coming to the market
Making Sense of Multifamily
Presentation Title
Multifamily Market Fundamentals
5-year quarterly average
occupancy rate = 96.2%
Multifamily
#1 annual rent growth market in the
nation from Q4 2015 – Q4 2017
Q4 2018 Monthly Rent = $1,405 (+4.6% YOY)
Presentation Title
Multifamily Development
Multifamily
2,503 units under construction as of December 2018
Presentation Title
2018 Completions
The Crossings225 units, 750 beds / Southeast Sac
Developer AMCAL
Type Student Housing
Lease-Up 95.6%
Completion August 2018
Ice House142 units / Midtown
Developer Heller Pacific
Type Market-Rate
Lease-Up 95%
Completion July 2018
The Hardin137 units / Downtown
Developer CFY Development
Type 61% Affordable
Lease-Up 91%
Completion June 2018
BDX at Capital Village 199 units / Rancho Cordova
Developer AG Spanos
Type Market-Rate
Lease-Up 50%
Completion July 2018
Multifamily
Presentation Title
Urban Apartment Development
34Presentation Title
Multifamily
Apartment projects under
construction in Downtown,
Midtown, East Sac, and West Sac
1,097 units under construction
as of December 2018
Presentation Title
Suburban Apartment Development
Units Under Construction 1. Folsom = 650 units
2. Roseville = 486 units
3. Natomas = 232 units
Multifamily
Pique at Iron Point
HUB Apartments
Talavera Ridge
Mesa at Laguna Ridge
Sutter Green
Presentation Title
Top 2018 Sales Transactions
Slate Creek at Johnson RanchRoseville
Sale Date May 29
Price $148.7M
Price / Unit $242,973
Units 608
Buyer Blackstone
Seller Kennedy Wilson
The UDavis
Sale Date December 3
Price $76M
Price / Unit $575,757
Units 132
Buyer Tilden Properties
Seller Carmel Partners
3-Property PortfolioCitrus Heights & Elk Grove
Sale Date December 1
Price $170M
Price / Unit $237,430
Units 716
Buyer MG Properties Group
Seller Fairfield Residential
Villagio Apartment HomesNorth Natomas
Sale Date September 5
Price $70M
Price / Unit $257,352
Units 272
Buyer Oakmont Properties
Seller JCM Partners
Multifamily
Presentation Title
Sacramento multifamily sales volume hit $1.72 billion
in 2018, finishing the year with a strong $591.9
million in fourth quarter sales volume Multifamily Sales Volume
Multifamily
$591.9M
Presentation Title
In November, California voters rejected Prop 10, the
repeal of Costa Hawkins, which would have allowed
local jurisdictions to implement rent control in
apartment properties built prior to 1995. As
Sacramento renters continue to spend more than the
recommended amount of their incomes on rent, local
activists have put a rent control initiative on the ballot
for 2020 that would tie rent increases to regional CPI
and cap annual increases at 5 percent.
STUDIO RENT GROWTH YEAR-
OVER-YEAR
ONE-BEDROOM RENT GROWTH
YEAR-OVER-YEAR
TWO-BEDROOM RENT GROWTH
YEAR-OVER-YEAR
THREE-BEDROOM RENT GROWTH
YEAR-OVER-YEAR
4.1% 4.8% 4.9%
Rent Growth or Rent Control?
4.8%
Multifamily
According to the City of Sacramento’s Comprehensive Housing Affordability Strategy, of the 94,055 renters in the city of
Sacramento, 51% (47,505) spend more than 30% of their income on rent and 27% (25,770) spend more than 50%
Presentation Title
In 2019, we will see…
Multifamily
• Rent control continue to be an ongoing
topic of conversation
• Moderating rent growth in the 5 to 6
percent annual range
• 2,000+ new units complete and 1,000
more units break ground
• Condos coming to Capitol Mall,
apartments in the Railyards, and a new
apartment project at 8th & K
• Occupancy levels will drop closer to 95%
with new units coming online
• Less annual sales volume than 2018, but
still more than $1B for the year
New apartments under
construction at 3675 T Street
Retail’s Renaissance
Presentation Title
Annual Rent Growth
+3.0%
Annual Net Absorption
778K SF
Vacancy Rate
7.8%
Retail Market Fundamentals Q4 2018 Retail
Market Statistics
Retail
Presentation Title
Bars and Restaurants
42Presentation Title
Retail
There are 37 new places to eat
and drink at DOCO, The Bank,
and the 700 K Block
Presentation Title
Other thriving retailers? • Bargain grocery stores
• Grocery Outlet
• Dollar Tree
• Discount apparel stores
• TJ Maxx
• Fitness centers / health clubs
• LA Fitness
• 24 Hour Fitness
• Orangetheory Fitness
• Planet Fitness
• Entertainment / experiential concenpts
• Movie theaters
• Trampoline parks
• Bars with mini-golf
• Bars with axe-throwing?
Retail
Questions?