2019 Market UpdatesFebruary 15, 2019
This is a late first post for 2019 but things have been busy. I changed companies at the first of the year and I’ve had my hands full with all that goes into a change. I’m excited to now be working at Lee & Associates. Lee & Associates has nearly 70 offices across the US. We are a smaller company than the top three but we have over 1,000 professionals and the firm is growing. Since we are not publicly traded, we don’t have to divide our loyalty between our clients and the shareholders. We are solely focused on our clients. I personally believe that with all the commercial real estate firms going public, there will be more brokers who are inclined to move to firms like Lee & Associates. If you need to get in touch with me, my new email is firstname.lastname@example.org.
The year is off to a good start. I have seen a lot of optimism in the economy and business owners and investors are all moving forward with their regular plans. To keep this post simple and to the point, I thought I’d give you three trends for each of the four main commercial real estate categories.
- The US vacancy rate has remained relatively flat for the past three years at just above 13%. The office market is healthy but it is not on fire. Office users have options when it comes to office space.
- Job growth fuels demand in the office sector and ultimately reduces vacancy. At the center of the job growth has been the tech sector and Northern California is at the top of the list when it comes to the tech sector.
- National projections for office asking rents are that we will see a slight increase in 2019 and vacancy is predicted to be flat or see a slight increase.
- The industrial markets are really strong. Vacancy is at an all time low (below 5%). There are not a lot of options for tenants looking for space. Make sure you give yourself extra time because the options are very limited.
- We are seeing a several new construction projects in the industrial segment. As a result, the vacancy rates in industrial are expected to be flat in 2019.
- Asking rates for industrial space should increase in 2019.
- The retail segment has seen a lot of headwind over the past few years with bankruptcies. This has taken a very strong market segment and created some caution among investors. Those that will survive will avoid focusing on cyclical trends but rather build a steady, Amazon (or internet) proof, business model.
- Instead of new construction in the retail segment, we anticipate developers will focus more on redevelopment instead of new construction.
- Location is still very important in the retail segment so expect to see the properties with the best locations will get strong leasing activity and interest from investors.
- In 2018, we saw an increase in transaction volume for the capital market side of the business. The volume increased by more than 15% over the prior year. All product types (retail, industrial, and office) saw more transactions in 2018.
- Cap rates have remained stable despite the increase in borrowing rates.
- 2019 appears to be on the way to another strong year like 2018.
I hope you find these observations helpful. Don’t hesitate to reach out if you have questions. Also, if you are a company with an upcoming lease expiration or an investor looking to find your next real estate investment, send me an email or give me a call at 925-239-1422. I look forward to serving you in 2019.