2018 Commercial Real Estate Recap and 2019 Forecast Bob Shanahan, Senior Research Analyst Randy Dixon, Managing Director January 25, 2019
Agenda ▪ Employment Growth ▪ Population Growth ▪ Office Market ▪ Industrial Market ▪ Multifamily Market ▪ Retail Trends Presentation Title
Employment & Population Growth
Employment Snapshot Sacramento MSA - Total Nonfarm Jobs & Unemployment Rate • Government and Education/Healthcare Total Jobs Unemployment Rate California Unemployment Rate make up 41% of the 1,050,000 14.0% Sacramento region’s 1,000,000 12.0% 1,002,000 jobs 950,000 10.0% • 69% of the new jobs 900,000 8.0% added in the last 12 850,000 6.0% months were in 4.1% Government, 800,000 4.0% 3.5% Healthcare, or 750,000 2.0% Education 700,000 0.0% • Slower annual job growth in 2019 closer to 1% Source: California Employment Development Department Presentation Title
And … Bay Area Business Migration Penumbra CPUC Alameda-based San Francisco-based Leased 160,000 SF in Roseville Future hiring to occur in (expansion) in October 2017 Sacramento Medical technology manufacturer 800 San Francisco employees 250-300 jobs ($50K avg. salary) 100 Sacramento employees Anton DevCo Corefact Foster City-based Hayward-based Leased 5,000 SF at the Ice Blocks Leased 4,546 SF in Roseville where it will move its HQ from Foster City Real estate marketing company named one of fastest-growing Multifamily developer will employ privately-held companies in the Bay about 20 at Sacramento HQ Area for three years in a row Presentation Title
+25,000 residents Population Growth from July 2017 to July 2018 (+1.1%) U-Haul U.S. Growth Cities for 2018 “This market is an attractive option for those who have 1. Sacramento/Roseville, CA been priced out of the Bay 2. Spring, TX Area,” stated Aaron Anderson, U-Haul Growth Cities are 3. Manhattan, NY U-Haul Company of East calculated by the net gain of Sacramento president. “There 4. Harrisburg, PA one-way U-Haul trucks has been out-migration from 5. Grand Rapids/Wyoming, MI entering a city versus leaving parts of the Bay Area in recent that city during a calendar 6. San Francisco, CA years, but many movers are year. Migration trends data is remaining in-state because 7. Greenville, SC compiled from more than 2 they can find affordability in 8. Fort Lauderdale, FL million one-way U-Haul truck Sacramento and Roseville. sharing transactions that 9. Madison, WI Commuters can be 90 minutes occur annually. from their jobs and enjoy 10. Kissimmee, FL close-knit communities .” 11. McKinney, TX 12. Pittsburgh, PA 13. Springfield, VA 20,000 people each year relocate from 14. Palm Springs/Cathedral City, CA the Bay Area to the greater Sacramento 15. St. George, UT region (US Census Bureau) Presentation Title
Millennial Sacramento ranks third in the nation in net Millennial migration Migration Presentation Title
Bay Area Spillover Sacramento #1 for San Francisco households looking to relocate Table: Top 10 Metros by Net Inflow of Users and Their Top Origins Net Inflow Top Out-of- Rank Metro * Net Inflow 2017 Top Origin State Origin 1 7,029 5,081 San Las Vegas, Sacramento, Francisco, NV CA CA 2 Atlanta, GA 5,466 2,993 New York, New York, NY NY 3 Phoenix, AZ 5,258 3,200 Los Los Angeles, Angeles, CA CA 4 Portland, OR 3,904 983 San San Francisco, Francisco, CA CA 5 San Diego, CA 3,206 5,979 Los New York, Angeles, NY CA Presentation Title
Office Market Off The Charts
Office Office Market Fundamentals Q4 2018 Market 3,000,000 Statistics 28.0% Annual Rent Growth 2,500,000 24.0% +5% 19.2% 20.2% 20.6% 20.0% 19.2% 2,000,000 17.7% 17.2% 16.4% 16.0% 15.3% 14.7% 13.9% 13.4% 12.4% 13.0% 13.7% 1,500,000 12.0% Annual Net Absorption 8.0% 1,000,000 807k SF 4.0% 500,000 0.0% -4.0% 0 Vacancy Rate -8.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12.4% -500,000 -12.0% Total Net Absorption New Supply Total EOY Vacancy % Source: Colliers International Research Presentation Title
Office Class A / B Office Rents & Sale Prices $300 $2.60 $2.48 $2.42 $2.40 $2.34 $2.30 $2.30 $250 $2.27 $2.27 $2.23 $2.20 $2.19 $2.17 $2.11 $2.10 $2.09 $2.08 $2.05 $2.00 $200 $1.95 $1.94 $1.87 $1.87 $1.84 $1.84 $1.81 $1.80 $1.79 $1.76 $1.73 $1.71 $1.70 $1.69 $150 $1.60 $1.40 $100 $1.20 $176.67 $183.33 $241.07 $207.94 $178.05 $116.21 $116.39 $83.66 $114.24 $143.06 $139.50 $163.52 $151.19 $174.27 $50 $1.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Avg. $ Paid/Bldg. SF Class B Class A Source: Colliers International Research Presentation Title
Office Downtown Class A Rates vs. Suburban Class A Rates $3.30 $3.07 $3.10 $2.90 $2.70 $2.66 $2.70 $2.50 $2.30 $2.16 $2.08 $2.10 $1.82 $1.90 $1.70 $1.50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Suburban Class A Downtown Class A Presentation Title
Office 2018 Office Headlines Ice Blocks 1610 R Street / Midtown • 100,000 SF office completed May 2018 • 100% leased to EA, Spaces, Accenture, Dudensing Law Firm, Anton DevCo, ConSol/CHEERS • Heller Pacific developed three-block mixed-use project including 142 apartment units, 60,000 SF retail Centene West Coast Headquarters 4201 E Commerce Way / North Natomas • 1.25M SF two-phase office campus (540K SF first phase) • Hines closed on 68-acre site in September • St. Louis-based Centene will bring as many as 5,000 jobs to the new campus • 1,500 new apartment units proposed within a three-mile radius of Centene campus Presentation Title
Office Demand driven by government and healthcare 5 of the 10 largest leases signed in 2018 were government or healthcare tenants Office Tenant Demand by Industry 629,970 67 active 5,000-plus square foot tenants in the market as of January 2019 totaling 1.85M SF of demand 157,119 115,000 45,000 30,000 Presentation Title 14 Government Insurance Healthcare Coworking Education
Office Top Sales of the Year 621 Capitol Mall The Senator 336K SF Class A / Downtown 163K SF Class A / Downtown Sale Price $161M Sale Price $46.9M Price / SF $439.49 Price / SF $260.38 Buyer Shorenstein Properties Buyer Seagate Properties Seller David S Taylor Seller Swift Real Estate January 9 th December 28 th Sale Date Sale Date HP Innovation Center 770 L Street Three building portfolio / Roseville 170K SF Class A / Downtown Sale Price $93.5M Sale Price $44.5M Price / SF $209.00 Price / SF $261.35 Buyer Buyer Stonemont Financial New York Life Seller Strada Investment Seller AMP Capital / PB&J June 7 th February 20 th Sale Date Sale Date Presentation Title
Office New Development Dominated by Build-to-Suits State of California Healthcare BTS • • P Street Building = 700K SF Adventist Health = 242K SF • • 1215 O Street = 255K SF Kaiser Roseville = 194K SF • • Dignity Health = 68K SF (October) State Occupies 9.6M SF, or 41%, of Downtown’s existing Lorem Ipsum inventory (23.4M SF) Tincidunt arcu non sodales neque sodales ut etiam sit. In ante metus at tempor commodo ullamcorper. Adventist Health Tincidunt arcu non sodales neque sodales ut etiam sit. In ante metus at tempor commodo ullamcorper. Presentation Title Presentation Title 16 New Natural Resources Building
Office Future Development Pipeline Tower 301 301 Capitol Mall / Downtown Owner / Developer CalPERS / CIM Group RBA 730,000 SF Pre-Lease Requirement 40% (292,000 SF) Timing 2022 Completion The Foundry at The Railyards 5 th /6 th @ Railyards Blvd / Downtown Owner / Developer LDK Ventures RBA 300,000 SF (two buildings) Pre-Lease Requirement 30-40% per building Timing 2023 Completion Presentation Title 17
Office What will 2019 bring? • New spec development, under 100K SF • More Bay Area migration of companies and residents • Increased attention from investors seeking higher yields • New coworking space • Decreasing vacancy rate • Downtown vacancy will drop below 10% for the first time since 2003 • Rising rents (4-6% annual growth) • Fewer landlord concessions Urban Hive’s new coworking space in Presentation Title The Cannery on Alhambra Blvd
Office Office Market Fundamentals Q4 2018 Market 3,000,000 Statistics 28.0% Annual Rent Growth 2,500,000 24.0% +5% 19.2% 20.2% 20.6% 20.0% 19.2% 2,000,000 17.7% 17.2% 16.4% 16.0% 15.3% 14.7% 13.9% 13.4% 12.4% 13.0% 13.7% 1,500,000 12.0% Annual Net Absorption 8.0% 1,000,000 807k SF 4.0% 500,000 0.0% -4.0% 0 Vacancy Rate -8.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 12.4% -500,000 -12.0% Total Net Absorption New Supply Total EOY Vacancy % Source: Colliers International Research Presentation Title
Office What will 2019 bring? • New spec development, under 100K SF • More Bay Area migration of companies and residents • Increased attention from investors seeking higher yields • New coworking space • Decreasing vacancy rate • Downtown vacancy will drop below 10% for the first time since 2003 • Rising rents (4-6% annual growth) • Fewer landlord concessions Urban Hive’s new coworking space in Presentation Title The Cannery on Alhambra Blvd
Increasing Industrial Development
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