Properties Gain Value as Vacancy Rates Fall
Last year was a good one for investment real estate in San Diego County. Despite concerns about the Asian economies, international economic markets, and the year 2000 rollover, the county’s Gross Regional Product grew by 6.7 percent, while unemployment fell below 3 percent.
In 2000 the GRP is expected to continue its growth by 6.2 percent, while almost 30,000 jobs are added to the county’s economy. The continued economic expansion and growth in employment bodes well for investment real estate.
Apartment transactions of more than $500,000 marked a record number in 1999, with more than 340 properties changing hands. Low vacancy rates due to limited multifamily development coupled with rising rents, are fueling investor demand for apartments. Last year, rental rates rose by more than 8 percent throughout the county, with some submarkets rising more than 14 percent. At the same time, vacancy rates have remained below 2 percent.
In 2000, rental rates are expected to increase by 6 percent, with vacancy rates remaining well below 3 percent. The rental housing market is expected to continue to be a “landlord’s market,” and apartment values are expected to increase by an average of 5 percent in this year.
In 1999 the countywide population grew by more than 2 percent, with similar growth forecast for this year. With the increases in population and employment, there is also an increased demand for retail goods. Despite competition from mail order and online retailers, taxable sales in the county grew by 5 percent in last year.
As the economy expanded, retail rental rates rose by 6 percent in 1999, and are expected to increase another 5 percent. Stable construction of new retail centers is not expected to meet demand for space, and the overall vacancy rate is expected to fall from last year’s 7 percent to 6.5 percent this year.
– Office Space Demand Expected To Stay Strong
Rising rents and falling vacancy rates, along with rising taxable retail sales, will also cause retail price per square foot values to increase by 5 percent.
Office building construction is expected to continue, with vigorous development in the Kearny Mesa, University Towne Centre and coastal North County submarkets. Despite new properties coming on line, strong demand for office space in San Diego is expected to keep vacancy rates near 8 percent.
Demand continues to be strongest for Class A space, and developers are focusing on meeting that demand. In addition, pending Downtown development should soon spark that area’s first office high-rise since the early 1990s.
Strong demand is expected to increase rental rates by 5 percent after rising by 7 percent in 1999. Office price per square foot values are also expected to rise by 4 percent, spurred by increased demand and higher rental rates.
San Diego is proving itself to be “Technology’s Perfect Climate” and the increased economic growth, employment, and population all equates to higher rental rates for investment properties. As rental rates increase and vacancy rates remain low, expect values to increase this year, barring any unforeseen downturn in the national and local economies.
Williams is regional manager for Marcus & Millichap, a national commercial investment brokerage.