Retail, Industrial Real Estate Buck Trends
Despite abnormally high fuel prices, a falling housing market and high levels of debt, commercial real estate held its own through the first half of the year. According to real estate services company Grubb & Ellis, shopping center construction is strong in fast-growing suburbs and on in-fill sites in urban areas as an appetite for lifestyle shopping concepts continues to grow.
Grubb & Ellis projects retail real estate to perform strongly over the next year, with rents and prices increasing by 4 percent to 5 percent.
In high demand areas such as Beverly Hills, Calif., that is holding true, concurred real estate broker Bruce Dembo of Dembo & Associates.
“The vacancy rates are at about 2 percent,” he said, “and that is for properties that have some type of abnormal layout or landlord issues. Everything else is being snapped right up. People still want to be in Beverly Hills.”
Dembo’s firm reported average rents along Rodeo Drive at about $30 per square foot with Beverly Drive at about $15. Other less popular avenues can be had for about $6 per square foot.
Grubb & Ellis Senior Vice President Michael Dee said in the company’s summer report that the emergence of mixed-use (residential/retail) and lifestyle shopping centers has been hugely popular with investors and has helped to sustain the real estate market. In addition, Dee said, consumers are looking for quality and value as gas prices remain high, which bodes well for growth retailers such as Kohl’s, Target, Wal-Mart, Ross Dress for Less and Marshall’s that are based mainly in suburban malls and strip centers.
Additional support is coming through a strong job market and consumer spending power. Housing sales are slowing, but not crashing, Dee said.
Warehouse and industrial real estate is also continuing strong through the second quarter, according to CB Richard Ellis. The company reported that industrial space vacancies in Los Angeles County fell from 1.9 percent to 1.4 percent. Average leases increased to 61 cents per square foot from 56 cents for the second quarter a year ago. The lack of available space in greater Los Angeles continues to push apparel and textile companies out to the Inland Empire for space. Close to 70 percent of the buildings available there have more than 100,000 square feet.
The market has lots of construction activity, with 18.5 million square feet under development. Vacancy rates have held steady, varying only 1 percentage point from the past quarter to about 3.1 percent. Average lease rates are about 41 cents per square foot, decreasing 1 percentage point over the previous quarter. —Robert McAllister
