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Apartment Sales Likely to Have a Big Year

San Diego’s apartment market is expected to be “a top performer” in 2006, helped along by job growth and rising tenant demand.

That’s the forecast from Marcus & Millichap’s recently released 2006 annual report on the nation’s apartment market.

Some tidbits:

– The slowing condo conversion craze is expected to bolster the apartment market. Small properties with fewer than 20 units will remain in high demand, especially in the central sub-markets. This area is close to employment hubs, and investors have driven up prices by more than 20 percent in the past 12 months.

– Buyers seeking more affordable options are likely to look for properties in the southern and eastern parts of the county. Prices in National City/Chula Vista, for instance, are among the lowest in the metro area.

– Owners are expected to raise asking rents 4.6 percent this year to an average of $1,263 per month. By year’s end, concessions are expected to account for less than 2 percent of asking rents. Overall, rents are forecast to register growth of 5.5 percent this year, pushing the average to $1,240 per month.

– Some of the factors that led to robust price gains in recent years, such as condo conversions and low-interest rates, will continue to taper off in 2006. But areas within the metro region will “remain ripe for price gains.”

In Chula Vista , particularly the area east of Interstate 805 , and San Marcos, new commercial development is making the sub-markets more attractive to potential residents, according to the report. The San Marcos sub-market also is being driven by employment growth in Carlsbad’s burgeoning office market.

Meanwhile, Grubb & Ellis has released its fourth-quarter San Diego office and industrial market trends.

– Demand for San Diego’s office space remained strong throughout 2005, as the fourth quarter marked the 13th consecutive quarter of positive absorption of office space. Recovery of the service and tech sectors and tenant expansion countywide have been the primary drivers.

– Annual absorption for 2005 was the largest experienced in five years, at nearly 2 million square feet. At year-end 2005, 80 percent of San Diego’s sub-markets registered vacancy rates in the single digits, with the overall vacancy rate dropping to 8 percent.

– As the market tightened throughout 2005, developers rushed to meet the rising tenant demand with newly constructed office projects. As a result, construction completions of more than 1.25 million square feet were brought on-line.

– More than 2.3 million square feet of space in 42 projects was under construction at the end of 2005. The completion of these projects is expected to boost supply and balance demand. Pressure on asking rents will rise as construction costs are expected to continue rising in the short term.

San Diego’s industrial market ended 2005 with strong gains and momentum that are expected to continue to drive demand for industrial space in 2006, according to the report.

– In 2005, 84 percent of all sub-markets recorded positive absorption with overall industrial absorption of about 3.2 million square feet at year’s end.

– North County recorded half the total net absorption, followed by South County, at 35 percent, and Central San Diego, accounting for 15 percent of the overall total net absorption in 2005.

– The San Diego area remains “a prime choice” for investors, as asking rental rates are expected to remain stable and potentially increase. The short-term forecast for the San Diego industrial market is one of continued strong and steady growth.

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Boom Town:

The Downtown real estate market recorded its sixth consecutive year of increasing values in 2005, with a 20 percent rise over 2004 in new-home sales prices , the biggest one-year change since the beginning of the Downtown condo boom in 1999.

That’s the word from the Downtown Residential Marketing Alliance, a collaboration of the Centre City Development Corp., the Downtown San Diego Partnership and nearly 20 private residential developers dedicated to marketing Downtown as “the ultimate location in which to live, work and play.”

Referencing data from San Diego-based MarketPointe Realty Advisors, DRMA reports that the average price per square foot for condos rose from $516.84 to $620.96, while the median selling price was $636,661 , a 31 percent rise over 2004.

More than 1,800 condo units were sold Downtown in 2005, which brings the total of new condos sold to 7,600 since 1999, according to DRMA, noting that “more people are purchasing condos as their primary homes, rather than as real estate investments.”

“The evidence continues to show that purchasing a condominium in Downtown San Diego remains one of the best long-term investments available,” said Sherm Harmer, the alliance’s chairman.

– – –


Grand Openings:

Grossmont College recently held a ceremony marking the grand opening of its new campus entrance road.

This $3.1 million project, designed to improve traffic flow, tapped into $1.4 million in state bond funds and $1.7 million from Proposition R, a local construction bond measure approved in 2002 for capital improvement at Grossmont and Cuyamaca colleges.

The Viejas Band of Kumeyaay Indians recently announced the opening of its state-of-the-art, 25,000-square-foot fitness facility adjacent to Viejas Tribal Hall in Alpine.

The Viejas Recreation Center at Ipai-Tipai includes a regulation basketball court, conference room, child-watch service, craft room, fitness area, kitchen and snack bar.

“The facility really looks and functions like a high-end health club,” said Alan Barrett, Viejas’ tribal councilman.

– – –


Moving In:

Equastone, a real estate investment firm, is relocating its corporate headquarters after a dozen years in La Jolla, moving to a new 15,000-square-foot facility at 8910 University Center Lane to accommodate its growing corporate staff.

Equastone has big plans in 2006, following what it called a record year in 2005, when it acquired $200 million of underperforming office and flex buildings. This year, the company hopes to up that amount to about $500 million.

Equastone owns and manages properties in California, Arizona, Colorado, Nevada and Texas, and is looking for opportunities in new markets, including Oregon, Washington, Utah, New Mexico, Illinois, North Carolina and Florida.

– – –


Kudos:

Douglas E. Barnhart, Inc., a San Diego-based general contractor and construction manager, was recently commended by the National Safety Council for excellent safety performance in the construction industry.

Barnhart is among 63 companies in the United States that received a 2005 Industry Leader Award.

The National Safety Council is a nonprofit international public service organization dedicated to protecting life and promoting health.

Carlsbad-based Barratt American’s Crescent Court neighborhood, located in the university district of San Marcos, has been named Best Detached Housing Product by the Building Industry Association of San Diego for homes priced at $500,000 or less.


Send residential and commercial real estate news to pbroderick@sdbj.com or via fax at (858) 571-3628.

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