The creative office building at 3930 Pacheco Blvd in Martinez is for lease. There is ±7,228 Sq. ft. located across 3 buildings available for lease.
The National Association of Realtors has released its March 2021 edition of its Commercial Market Insights. Here is a brief summary of some relevant highlights.
Commercial Transaction Volume
Commercial Sales Transaction Volume in March of 2021 was down 28% from the prior year on transactions in excess of $2.5 million. The only sector that saw an increase in transaction volume year-over-year was hotels. This is likely due to opportunistic investors moving into the space.
National Commercial Real Estate
Commercial Cap Rates
As the commercial market stabilizes, commercial cap rates will continue to decline. Lower cap rates contribute to higher prices. National cap rates for properties above $2.5 million, apartments averaged lowest cap rate at 4.9% with industrial properties averaging 5.9%.
For properties below $2.5 million Class A apartments had the lowest cap rate of 5.7%, Class B Apartments at 6.4%, and industrial averaged 6.8%
Office leasing continues its negative trend of absorption. Since Q2 of 2020 the cumulative total negative net absorption of 138.4 million square feet. This trend is not surprising as many companies are adjusting to Work From Home (WFH) and adapting their office use accordingly.
Industrial absorption rose 82.7 millions square feet in 2021 Q1 and was net positive 309.7 million square feet for the past 4 quarters. This trend is not surprising either as we have seen an increase in online shopping, which is dependent on warehouse and “last mile” storage.
Bay Area Commercial Real Estate
The commercial real estate market in the Bay Area contributes to national trends, but varies from national trends at many times. The old adage in real estate is “Location, location, location.” Trends in the San Francisco Bay Area very from area to area as well.
It is imperative that you work with a real estate professional that knows what is happening in your region and with your property type. For advice on how to navigate your specific commercial real estate question, please call Peter Maclennan at 925.385.8798.
Wishing that you and your loved ones have a blessed and healthy weekend. Hopefully you will find a way to be physically distant but socially engaged over the holiday weekend.
I have included a few items below to brighten your day or week. My current real estate listings and some art from my daughter.
Reasons for Optimism
These days there seems to be a shortage of good news in the world today. But here is why I am cautiously optimistic these days.
Social Distancing Physical Distancing Working? – Coronavirus Model Revised Down
CNN and other news sources are reporting that one of the influential models tracking the coronavirus pandemic has revised the total deaths number down.
The numbers for California have improved with peak utilization of hospital resources occurring on April 13 and without an overload of hospital resources.
This doesn’t mean that we can stop being vigilant with our handwashing and stop following CDC guidelines.
Auto Insurers Offering Rebates
I received notice that I will be getting a discount on my auto insurance due to the reduced driving. The EastBayTimes.com is reporting this is occurring with a number of carriers and lists some of the programs offered.
Some Good News by John Krasinski
John Krasinski (of The Office and Jack Ryan) has uploaded two episodes of Some Good News. In the videos he highlights good news from around the web. In the first episode he interviews The Office costar Steve Carell. In the latest installment he surprises a young girl with a Zoom call.
Maria Told Her Mother Gladly – Humor
Maria came home from Sunday School on Palm Sunday and told her mother that she had learned a new song about a cross-eyed bear named Gladly.
It took her mother a while before she realized that the hymn Maria had been singing was really: “Gladly The Cross I’d Bear.”
On Good Friday
“It was the single most horrible day in the history of the world.
No incident has ever been more tragic, and no future event will ever match it.”
And as they were frightened and bowed their faces to the ground, the men said to them, “Why do you seek the living among the dead? He is not here, but has risen.”Luke 24:5-6
Commercial Real Estate Listings
This open and bright space is ideal for the cabinet maker, the contractor, the plumber, the carpet installer, or other trade. The space contains a small office, a private restroom, and mezzanine space. Keep Reading
For Lease – Martinez R&D Space
±16,885 Sq. Ft. of beautiful, bright R&D space. Warehouse and office space. Two roll up doors. Find Out More
UCLA real estate experts recently published an analysis of the commercial real estate industry as part of the monthly UCLA Economic Letter, in which senior economist David Shulman dishes out “the good, the bad, and the ugly.”
While the commercial sector sees ups and downs just like the residential sector, commercial construction spending has grown steadily–and substantially–since 2010. However, spending has recently plateaued around $140 billion annually, as shown by the chart below.
Apartments & Industrial
Shulman points out the positive trends in two of the four largest commercial categories: apartments and industrial. A decline in homeownership from 64.8% to 64.2% means more people are renting (possibly due to delayed marriage and child-bearing among Millennials). This is why rental rates continue to rise by 3-4% per year and developers are building more apartments now than ever: 380,000 units annually over the last four years compared with 114,000 in 2010.
Median rent in Contra Costa County is well ahead of the rest of California, at nearly $1,766/mo across all housing types as of 2017 Q4. Respective state median rent is at $1,447 (Source: Department of Numbers).
Industrial rents rose at nearly double the rate according to the UCLA Economic Letter, between 6-8% annually. This is due in part to the rise in eCommerce business and the corresponding need for warehouse and distribution centers.
Shulman identifies the threat that the coworking effect has on the office sector: declining square-footage per employee. The average employee has only 150 square feet of office space, down from the previous average of over 200 square feet. Office users’ decreasing space per employee results in higher office vacancy: now up to 16.6%.
The retail sector is what Shulman calls “the ugly” of the current commercial climate. The eCommerce boom has led nearly 6,000 retail locations to announce they’re closing in 2019. And although many online retailers are now opening physical locations, they maintain a fraction of the square footage of the retailers they are replacing. Shopping centers and malls are experiencing vacancy rates of 9-10%, comparable to recession-level rates.
As we can see, the commercial sector does not always ebb and flow as one, but each category is affected differently by shifts in the economy at large. As an investor, broker, or developer, it is important to keep a finger on the pulse of the market in order to make the best decisions for long-term success.
Effect on Commercial Real Estate Values
Trends in rental demand and usage will likely affect the value investors apply to individual real estate sectors. Those sectors with increasing vacancy will see declining values as investors weigh the greater risk and demand less of it for their portfolios or a greater return to offset the greater risk.
Those sectors with strong rent growth and lower vacancy (currently industrial and multi-family), will likely see strong demand from investors as the vacancy risk is lower and investors foresee rent growth. How soon investors start to make these adjustments is yet to be seen.
If you want to know how changes in the commercial market may affect the value of your commercial real estate, reach out to Maclennan Investment Group by email: email@example.com or phone: (925) 385-8798 and see how we can assist you.