San Diego commercial real estate

[Escoguy]

http://www.cushmanwakefield.com/en/research-and-insight/unitedstates/san-diego-office-snapshot/

Nice trends in:

employment
vacancy rates
rent increases

The countywide average asking rent for all classes is now $2.86 per square foot (PSF) on a monthly full service basis. This metric has increased 2.5% over the past three months and is up 8.3% from where it stood a year ago. Both Class A and B product are experiencing rental rate growth while the leasing environment remains robust. Over the past 12 months, Class A rent has increased by 2.5% to $3.28 PSF and the Class B rate climbed by 9.6% to $2.73 PSF.

[gzz]

There is still a lot of vacant CRE in OB/Point Loma/Midway/Morena/Rosecrans areas I follow.

The area behind Sports Arena, Kurtz and Hancock streets, is at least half empty and costs less than $1/sf generally.

I like the area, if not the immediate vicinity, problem is there are multiple adult bookstores there. I do not want to be close to one of those. At some point though the Internet will put them all out of business like regular bookstores and Blockbuster.

Overall the trend is for people to do more at home: work from home and shop from home.

Visiting the midwest, you see a lot of older suburbs where every house has an owner or a tenant, every house has christmas lights on the facade and cars in the driveway, but then half the strip malls are boarded up and empty.

I’m sure San Diego’s big shopping malls with tourist business will continue to do well, but Amazon is getting very aggressive into every last aspect of retail, even furniture and groceries.

For these reasons I prefer residential over CRE.

[spdrun]

Buy in an area that has lots of illegal immigrants — they’re more likely to pay cash offline rather than shopping online with a credit card they don’t have. One of the great things about illegal immigration: it keeps the cash economy going strong!

Or look for something that’s professional vs retail.

[FlyerInHi]

Gzz, are those vacant buildings for sale?

More from home….. but why are big metros growing move than small town? The internet was supposed to allow people work from home and live in small towns.

I see the all over the world, people want to live in big metros. In USA, even if people and big houses and yards, they want to be in the Dallas area, not Lubbock.

There are more and more restaurant options which I love. My favorite Thai restaurant delivers to me, and they even cook to order with less salt, oil, however I want.

[The-Shoveler]

Hard to find a small town in SoCal LOL.

They grow into what most states call large Cities very fast.

[FlyerInHi]

[quote=The-Shoveler]Hard to find a small town in SoCal LOL.

They grow into what most states call large Cities very fast.[/quote]

Except in central and northern Carlifonia.
Barstow would be a small town. More and more Hispanic.

But I get what you mean…. whole counties become metro areas.

[FlyerInHi]

I see a lot of commercial space being repurposed as restaurant/lifestyle centers some urban multi family units. The big anchors like Macy’s are in trouble. They are laying off 10000

[gzz]

One of the empty buildings I saw was for sale, but for an absurd price.

I agree restaurants and especially bars are doing better than office and retail. Eating is one thing people are doing less of at home.

Another major retailer is closing completely, all 250 stores shutting:

http://www.reuters.com/article/us-suncapital-limitedstores-idUSKBN14R015?il=0

[Hobie]

Remember the ‘Bay to Bay’ link?

Traffic is a nightmare in that area. Gut tells me it would have potential for a live/work spaces. But the local vibe is just dirty. When the nude dancing place finally sells, that will be the turning point as it sets the tone for the entrance to the area.

[FlyerInHi]

[quote=gzz]

Another major retailer is closing completely, all 250 stores shutting:

http://www.reuters.com/article/us-suncapital-limitedstores-idUSKBN14R015?il=0%5B/quote%5D

I know a lot about Limited brands. They sold the stores years ago. The Wexner family built Easton town in Columbus near where my cousin lives. It’s one of the most successful mall in the country. Yes, in Columbus, the only metro that’s doing well in Ohio. The mall is innovative following the innovation of Horton Plaza that created the outdoor lifestyle center.

[flyer]

We’ve been in and out of cre over the years, and currently are out of all commercial other than our multifamily/suburban/mixed use holdings, so (not giving advice) but you might want to consider those options, Esco.

[gzz]

An issue with CRE is liquidity. There are a fair number of CRE listings out there below $3 million, but they are mostly very overpriced. As in, more than 50% overpriced compared to breakeven on an 80% mortgage despite being developed.

Typically broker fees are also higher than residential. And many pay broker fees again to get them rented.

One sign of there being too much CRE inventory is that at least on the greater peninsula area, PPSF rents are a lot higher for residential than commercial. You will regularly see commercial for $1 to $1.5sf, good luck finding a house or apartment that rents that low. Likewise, CRE vacancy is much higher. Getting the old Cabrillo hospital rented, vacant for a decade, involved in being converted to student HOUSING.

How many empty offices and stores can you find on Midway, Sports Arena Blvd, Rosecrans, Morena? Likely more than 10%, going up to 25% in some buildings. By contrast market-priced apartments go off the market in less than a week and overall vacancy is very low. I cannot think of a single house in all of OB that has been visibly empty outside of active renovations, but lots of CREs have been empty forever.

[livinincali]

It looked like commercial real estate was rolling over in 2015 but 2016 was a pretty good year for asking rent and vacancy rates. Sales prices have been relatively flat for the past 2 years or so though. Number of sales are down for San Diego. There was really strong growth in all categories from 2012 to 2015. In general cap rates are really low right now so there’s plenty of room for rent growth without much capital appreciation. The low cap rates are obviously interwoven with the low interest rates. Probably not a bad time to be an owner. Could be a bad time to become a new investor.

[spdrun]

There’s also room for capital depreciation without rent decreases (is what no one is saying).

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