Demand for Premium Space Pushes Up Retail, Industrial Rents
Despite some slowdowns in employment rates, demand for retail and industrial real estate remained strong in California during the third quarter.
According to real estate services company Marcus & Millichap, payrolls in the white-collar sector of Los Angeles County are projected to expand in 2007 at only half of last year’s rate. However, improved tourism and earlier employment growth is offsetting the negative impacts to sustain retail growth to match last year’s levels. Much of the demand is for boutique space. As a result, average rents are projected to end the year with a 6.2 percent increase to $29.68 per square foot.
In Orange County, vacancies are rising at some older properties, but new projects such as Vestar Development’s 1 million-square-foot District at Tustin Legacy recently opened fully pre-leased and featuring apparel clothiers including Madison Bleu, Vans, G-Stage, Zumiez and Heavenly Couture. Projectssuch as the District, built on part of the old Tustin Marine Corps Air Station, are expected to keep rates down to a modest gain of 4.5 percent. Vacancy at the end of the second quarter was 4.3 percent, 30 basis points higher than last year. Rents are expected to end the year with growth of 5.2 percent to $31.63 per square foot due to healthy tenant demand.
In San Francisco, availability is the story. Following the opening of the Westfield San Francisco Centre last year, new construction has been hard to come by, with activity projected to be at half last year’s rate. Vacancies, as a result, are projected to fall to 3.7 percent, a decrease of 100 basis points. Strong economic expansion in the area will keep rents high and demand strong with a 3.9 percent increase to average rates of $31.22 per square foot. —Robert McAllister
