A little perspective on the retail apocalypse

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Our friends at the listing and research platform CoStar have released another interesting report on the impending retail apocalypse.

The Amazon Effect, and the societal retreat into robotic Instagrat lifestyles, is turning 2019 into the heaviest year ever for retail store closures. However. If you read between the lines, you see that while more stores are closing, less square footage is involved.

More than 10,000 stores have announced a closure this year, almost twice last year, and 3,000 more than during the downturn in 2008. Yet while last year saw 155 million square feet close, this year that space is down roughly 30%.

So it appears the Sears, Kmarts, JCPenneys, and similar anchor tenants of yesteryear have gone through their New Economy purge, and now it’s time for the GNCs, Gymborees and Payless stores. E-commerce has its sights on 10,000 sqft and under this year.

But more importantly, these numbers do NOT show a death knell for retail. It’s really more of a cleansing and realigning. Deliverable retail goods — those that can’t be offered via a better user experience than direct-to-your-door convenience — are taking their mid-/small-/boutique stores down. But! There’s growth in the Un-Amazonable.

This includes personal services, restaurants, grocery/drug stores, fitness and sports, healthcare, and even movies and entertainment outlets. These retail establishments are all showing a healthy upward trend.

So. If you have a retail property — or you’re in the market to invest in one — but you’re uncertain about what tenants are promising and which might be at risk, then talk to us.

US Neighborhoods with the Best Property ROI

The San Francisco Business Times released this report yesterday after crunching some Zillow numbers, showing the 20 neighborhoods in the US that have delivered the best return on real estate investment in the past 10 years. 

Many of the most lucrative markets lie north of San Jose…right in our wheelhouse. 

Now granted, this list looks at residential real estate. But we’ve all heard that rumor about a rising tide lifting other boats. As the Bay Area and Northern California has grown, it has ALL grown.

Let’s walk through this logically. People want to live in the dynamic City of San Francisco, or near their jackpot job in Silicon Valley. But they don’t want to spend what it costs to live there. So they fan out into the perimeter, raising demand in Richmond, Stockton, Merced.

Well guess what? It’s not just home-buyers in that scenario. It’s renters of multifamily units too. And now those people want shopping centers and auto repair shops and chiropractic offices. 

So if you’re looking for an ideal spot for a commercial investment, you might look at where the people are. Here’s where demand has grown the most.

Want to think about buying or selling in these areas? Consult with one of our advisors. 

How to Make Profitable Investments Throughout the Real Estate Cycle

Opportunities for profitable investments exist at every stage of the real estate cycle. Here’s how to identify which strategy is best for where the market is now.

During the recovery phase, just after a recession or pullback in the market, there is low demand for housing and high vacancy rates. Prices and interest rates are low, so if you have the liquidity, it’s a great time to buy properties below value, or to refinance.

When the market starts to recover, we enter the expansion phase. New construction begins and interest rates are still comparatively low, so your value-add properties’ equity is ready to capture with a refinance. Reinvest in new development, re-development, or purchasing additional value-add assets.

In the hypersupply phase, the market has become overconfident. An abundance of inventory compared to the demand means prices are ready to decline, and construction slows. This is the tipping point for high sales prices; sell now or buy a stable asset for long-term cash flow to get you through the next cycle.

Time for trouble: the recession phase. Over-inflated growth causes demands to plummet and default rates on mortgages and loans to soar. This is your chance to buy properties for rock-bottom prices, especially distressed sales. Go for value add.

Of course, in order to take advantage of the opportunities offered in any stage of the real estate market, you need to know where we are currently; for an in-depth analysis and “You Are Here” guidance, contact one of our advisors.

Source: Million Acres

Market Pulse: North Bay, October 2019

Welcome to the NAI Northern California’s “Market Pulse” feature. We checked the pulse of the North Bay commercial real estate market to discover the ups and downs of the office, industrial, retail, and multifamily markets. Each market has four dimensions: current inventory, under construction, 12-month net absorption, and vacancy rate.

Check out our October 2019 North Bay Market Pulse infographic. If a dimension is on the rise, the pulse goes above the baseline; if it’s on the decline or negative, the pulse will dip below the baseline.

This month the North Bay office market’s inventory is at 40.8 million sq. ft. and holding flat with approximately 150,000 sq. ft. under construction, slightly up from last month but projected to decline. The 12-month net absorption rate is way down, at -21,000 sq. ft. compared to September’s 56,000 square feet. The vacancy rate is at 8.3 percent and expected to hold there.

For the industrial market, 106 million sq. ft. of space is in the inventory, the same as last month but expected to increase. The space under construction is also rising, at 2.3 million sq. ft. of industrial space. The 12-month net absorption is at 222,000 sq. ft., and the vacancy rate is at 4..1% and declining.

There are 65.8 million sq. ft. of retail space available, slightly more than last month and projected to increase. The sq. ft. under construction is at 94,000 sq. ft., up from September’s 72,000 sq. ft., but on a downward trend. The 12-month net absorption rate continues to plunge, now negative 42,000 square feet. Vacancy rates are up slightly from last month, at 3.6%, and are expected to continue to rise.

The multifamily market is holding steady at 60,000 units available in the inventory, but that number is projected to increase. Construction is expected to slow, at 542 units (the same as last month). The 12-month net absorption rate averages just 28 units across the North Bay area and is expected to rise, with a steadily rising vacancy rate of 5.5 percent.

The North Bay market includes Santa Rosa, Napa, Vallejo, Fairfield, San Rafael, Marin, and more. For more detailed updates or to find out how the North Bay’s submarkets are doing, contact one of our advisors. Whether you’re interested in officeindustrialretail, or multifamily properties, we can help.

Data source: CoStar Analytics

Market Pulse: South Bay, October 2019

Welcome to the NAI Northern California’s “Market Pulse” feature. We checked the pulse of the South Bay commercial real estate market to discover the ups and downs of the office, industrial, retail, and multifamily markets. Each market has four dimensions: current inventory, under construction, 12-month net absorption, and vacancy rate.

Check out our October 2019 South Bay Market Pulse infographic. If a dimension is on the rise, the pulse goes above the baseline; if it’s on the decline or negative, the pulse will dip below the baseline.

This month, the South Bay office market’s inventory is holding steady at 130 million sq. ft. but is expected to rise. Approximately 5.5 million sq. ft. are under construction, slightly down from September, but this figure is trending upward. The 12-month net absorption rate is up to 3.3 million sq. ft. of office space, an increase over last month. The vacancy rate is at 8.1 percent and is continuing to drop.

For the industrial market, 197 million sq. ft. of space is in the inventory, the same as last month, but this figure is expected to increase. The space under construction is also projected to rise, at 771,000 sq. ft. (the same as September and August). The 12-month net absorption is down from last month, at 884,000 sq. ft., but on an upward projection. The vacancy rate is slightly higher than September’s, at 5.8%, and is expected to go back on the decline.

There are 79.7 million sq. ft. of retail space available, a slowly decreasing trend. The space under construction has been the same for the last two months, at 1 million sq. ft., but is expected to decline. The 12-month net absorption rate is continuing to drop, currently -12,000 square feet. Vacancy rates are holding steady at 3.4%, but a drop is projected for November.

The multifamily market is holding strong at 145,000 units available in the inventory, slightly more than last month. Construction is at 9,000 units but is expected to increase. The 12-month net absorption rate is 2,800 units and has been rising steadily over the last few months. The vacancy rate is at 4.8%, up almost half a percent from last month, but is projected to decline.

The South Bay market stretches from Palo Alto down through Mountain View, San Jose, Morgan Hill, Gilroy, Hollister, and southeast through the mountains. For more detailed updates or to find out how the South Bay’s submarkets are doing, contact one of our advisors. Whether you’re interested in officeindustrialretail, or multifamily properties, we can help.

Data source: CoStar Analytics

Market Pulse: East Bay, October 2019

Welcome to the NAI Northern California’s “Market Pulse” feature. We checked the pulse of the East Bay commercial real estate market to discover the ups and downs of the office, industrial, retail, and multifamily markets. Each market has four dimensions: current inventory, under construction, 12-month net absorption, and vacancy rate.

Check out our October 2019 East Bay Market Pulse infographic. If a dimension is on the rise, the pulse goes above the baseline; if it’s on the decline or negative, the pulse will dip below the baseline.

This month the East Bay office market’s inventory is holding steady at 113 million sq. ft. with approximately 1 million sq. ft. under construction (slightly less than in September). The 12-month net absorption rate is at 1.1 million sq. ft. of office space, a minor increase from last month, and is expected to continue rising. The vacancy rate is higher than last month, but is expected to drop, at 8.6 percent.

For the industrial market, 266 million sq. ft. of space is in the inventory, the same as last month, but this figure is expected to rise. The space under construction, 5.3 million sq. ft., is down from last month and projected to continue to decline. The 12-month net absorption rate continues to drop and is currently at -1.2 million sq. ft. of industrial space. The vacancy rate is slowly increasing at 4.9 percent.

There are 124 million sq. ft. of retail space available, which is the same as August and September, but this is expected to increase, with 333,000 sq. ft. under construction. This is also the same as September, with a decrease expected. The 12-month net absorption rate is at -421,000 square feet. Vacancy rates are slightly down from last month, at 3.6%, but are expected to rise.

The multifamily market is holding strong with 171,000 units available in the inventory. Construction is up from last month, but is expected to go on a downswing, with 10,000 units in the pipeline. The 12-month net absorption rate is 2,000 units and has been the same for the last two months. The vacancy rate is steadily rising, up to 4.9% this month.

For more detailed updates or to find out how the East Bay’s submarkets are doing, contact one of our advisors. Whether you’re interested in officeindustrialretail, or multifamily properties, we can help.

Market Pulse: San Francisco, October 2019

Welcome to the NAI Northern California’s “Market Pulse” feature. We checked the pulse of the San Francisco commercial real estate market to discover the ups and downs of the office, industrial, retail, and multifamily markets.  Each market has four dimensions: current inventory, under construction, 12-month net absorption, and vacancy rate.

Check out our October 2019 San Francisco Market Pulse infographic. If a dimension is on the rise, the pulse goes above the baseline; if it’s on the decline or negative, the pulse will dip below the baseline.

This month, the San Francisco office market’s inventory is still at 176 million sq. ft., with 6 million additional sq. ft. under construction. This figure is up significantly from last month but is expected to decline. Twelve-month net absorption stands at 3.1 million sq. ft. of office space, which is also way up from last month. The vacancy rate is finally on the decline, standing at 5.9%.

For the industrial market, 95 million sq. ft. of space is in the inventory (the same as last month), but this number is expected to rise as the 1 million sq. ft. of industrial space under construction begins to reach completion. The amount of space under construction is expected to continue to rise as well, though it’s down slightly from last month. The 12-month net absorption rate is at 109,000 sq. ft., way down from September, and the vacancy rate is at 3.9% (also trending upward).

There are 82 million sq. ft. of retail space available in San Francisco, which is the same as last month. However, this figure is expected to drop. More is coming, with about 654,000 sq. ft. under construction (the same as last month), and the 12-month absorption rate is at 53,000 sq. ft., which is much lower than in September. Vacancy rates are up from last month but are expected to decline, at 2.7%.

The multifamily market is slowly growing, with up to 167,000 units available in the inventory. Construction is on the upswing here, both from last month and in future projections, at 6,900 units. The 12-month net absorption rate is down slightly at 1,700 units. The vacancy rate is 4.3%, which is higher than last month, but is projected to drop.

For more detailed updates or to find out how San Francisco’s submarkets are doing, contact one of our advisors. Whether you’re interested in officeindustrialretail, or multifamily properties, we can help.

Homes are Finally Getting More Affordable; Will Apartment Downside Risk Follow?

Housing price growth has moderated and mortgage rates have declined, leading to increased housing affordability at the same time as rising consumer confidence and incomes have prompted developers to start building more quickly. What will this mean for the apartment rental market?

According to CoStar Analytics, both existing and new home sales rose in August, with new single-family home sales increasing all summer and existing home sales increasing two months in a row. And single-family housing starts increased in August for the third month in a row despite continually rising costs, delays, and lot scarcity. This has resulted in the lowest home price growth since 2012, below 4% per year. Mortgages are getting cheaper as well due to monetary policy and 10-year Treasury yield changes; CoStar reports “NAR’s housing affordability index based on fixed rate mortgages was up more than 10% in July compared to a year ago.”

However, homeownership rates have not yet increased; overall, they continued to decline over the first half of the year. But as new data becomes available for the second half of the year, multifamily investors are advised to proceed with caution.

Source: CoStar Analytics