Sacramento Office MarketView CORE DOWNTOWN OFFICE PROPERTY CHANGES HANDS

Sacramento Office
MarketView
CBRE Global Research and Consulting
Q3 2014
UNEMPLOYMENT RATE
7.0%
VACANCY RATE
19.4%
NET ABSORPTION
123,907 sq. ft.
AVG ASKING LEASE RATE
$1.69 per sq. ft. FSG
COMPLETED CONSTRUCTION
0 sq. ft.
**THE ARROWS ARE TREND INDICATORS FROM A QUARTER-OVER-QUARTER TIME PERIOD AND DO NOT REPRESENT A POSITIVE OR NEGATIVE VALUE
CORE DOWNTOWN OFFICE PROPERTY CHANGES HANDS
After posting negative net absorption for the first time in over
three years last quarter, Q3 2014 saw the Sacramento office
market rebound nicely to close with 123,907 sq. ft. of positive
net absorption. The public sector was once again a key
contributor to the market’s positive figures, transacting two of
the quarter’s largest leases which combined for nearly 90,000
sq. ft. Suburban activity continued to dominate the market,
though Downtown appears to be regaining some traction
after a sluggish first half of the year.
South Natomas had the market’s strongest quarter, posting
84,477 sq. ft. of positive net absorption. This was the largest
amount of positive absorption occurring in the submarket
since Q1 2013, the bulk of which was contributed by a
67,500 sq. ft. lease at 2495 Natomas Park Drive. The
Highway 50 submarket also saw a sizable transaction with the
Blue Cross lease of 11030 White Rock Road. They are slated
to move into the 54,078 sq. ft. building, which they will be
occupying in its entirety, in Q2 2015.
Another noteworthy event occurring in Downtown was the
beginning of the demolition of Downtown Plaza. It is expected
to conclude in the first half of Q4 2014. This critical step in
the completion of the eagerly-anticipated Downtown arena is
welcome news as the arena is expected to be the cornerstone
of the projected-revitalization of Downtown. Activity in the
submarket has already begun to stabilize and interest is
increasing among many well-known retailers. With the arena
scheduled for completion in 2016, and the amenities such as
dining and entertainment that will follow as a direct result,
look for the Downtown market to steadily improve and
ultimately be competitive once again with suburban markets.
Class B properties constituted the bulk of leasing activity in
Q3 2014. This trend can be attributed in part to the lack of
quality, big-block Class A space currently available in the
market. The Class B vacancy rate dropped 0.5% from Q2
2014 to finish at 20.7%. This was the largest vacancy rate
decline among all property classes when compared to the
previous quarter. Class B average asking lease rates also rose
$0.02 from Q2 2014, closing at $1.64 per sq. ft. full service
gross (FSG).
Sacramento’s most prominent Q3 2014 sale was 555 Capitol
Mall in the Downtown submarket. The Class A building was
purchased by Trinity Pacific Partners which is comprised of
Buzz Oates LLC, AM Investors and Rubicon Partners. The
property was approximately 60% leased at the time of sale but
the new owners are planning improvements to the building in
hopes of attracting prospective tenants.
555 Capitol Mall was acquired by Trinity Pacific Partners. Daily
management operations will be handled by Rubicon Partners.
1
© 2014, CBRE, Inc.
Q3 2014
Figure 1: Sacramento Market Statistics
Sacramento Office | MarketView
Submarket
Midtown
Net
Rentable
Area
1,792,517
Direct
Vacancy
Rate %
10.4%
Vacancy
Rate %
10.4%
West Sacramento
1,263,386
10.7%
10.7%
13.2%
43,005
66,789
0
$1.53
South Sacramento
1,320,178
22.0%
22.0%
28.2%
(10,063)
(2,174)
0
$1.17
East Sacramento
440,927
14.3%
14.3%
14.3%
0
0
0
$2.03
Howe/Fulton
1,799,729
26.2%
26.2%
30.9%
(638)
1,272
0
$1.61
Northgate/Natomas
2,135,874
26.0%
26.0%
31.0%
(40,986)
15,928
0
$1.40
Watt Avenue
1,350,800
22.8%
22.8%
23.8%
(30,571)
(11,031)
0
$1.36
Hwy 50 Corridor
11,515,111
19.8%
20.2%
26.0%
13,607
35,657
0
$1.47
343,113
20.1%
20.1%
20.1%
(776)
9,144
0
$1.22
Avg Asking
Net
YTD Net
Under
Availability Absorption Absorption Construction Lease Rate
Rate %
Sq. Ft.
Sq. Ft.
Sq. Ft.
$/SF/Mo
0
18.5%
(2,236)
15,272
$1.91
Carmichael/Fair Oaks
Citrus Heights/
Orangevale
Point West
1,015,363
15.7%
15.7%
19.9%
(16,443)
(4,079)
0
$1.09
2,485,623
23.9%
23.9%
25.2%
5,723
25,426
0
$1.62
Campus Commons
1,469,868
24.5%
24.6%
26.3%
30,921
39,706
0
$1.68
Folsom
2,535,543
13.4%
13.9%
17.2%
24,175
12,063
0
$1.76
Elk Grove
1,074,767
8.1%
9.6%
12.6%
(13,015)
8,753
0
$1.83
Roseville/Rocklin
7,337,516
17.7%
17.7%
19.6%
44,519
186,928
0
$1.77
South Natomas
3,256,979
22.3%
22.6%
27.8%
84,477
3,313
0
$1.91
Suburban Total
41,137,294
19.3%
19.5%
23.5%
131,699
402,967
0
$1.58
Downtown
11,134,264
18.7%
18.9%
21.4%
(7,792)
(133,641)
0
$2.15
Market Total
52,271,558
19.1%
19.4%
23.0%
123,907
269,326
0
$1.69
NOTE: Only existing single and multi-tenant office properties over 10,000 sq. ft., excluding government-owned buildings and medical
buildings, are included in this survey. Average asking rate is based on direct leases only; excludes sublease space. Rates are based on
price per sq. ft., per month, for full service.
SOURCE: CBRE RESEARCH, Q3 2014.
Market Highlights
• Roseville/Rocklin has had the market’s strongest year-to-date, recording 186,928 sq. ft. of positive net
absorption in 2014.
• The sale of 555 Capitol Mall is Sacramento’s largest single-office-building sale in over seven years.
• The vacancy rate closed at 19.4%, a decline of 1.3% when compared to this time last year.
2
• Sacramento’s office market has recorded positive net absorption of over 100,000 sq. ft. for seven of the
last eight quarters.
© 2014, CBRE, Inc.
Average Asking Lease Rate
$2.10
24%
Q3 2014
Figure 2: Vacancy Rate versus Average Asking Lease Rate
$2.00
$1.90
20%
$1.80
18%
$1.70
16%
14%
Q1 2009
Q3 2009
Q1 2010
Q3 2010
Q1 2011
Q3 2011
Q1 2012
Q3 2012
Q1 2013
Q3 2013
$1.60
Q1 2014
Q3 2014
SOURCE: CBRE RESEARCH, Q3 2014.
Sacramento Office | MarketView
22%
Figure 3: Significant Lease Transactions
Size (Sq. Ft.)
Tenant
Address
67,500
State Street
2495 Natomas Park Dr, Sacramento
58,575
Solar City
1000 Enterprise Way, Roseville
54,078
Blue Cross
11030 White Rock Rd, Rancho Cordova
Figure 4: Significant Sale Transactions
Size (Sq. Ft.)
Buyer
Address
376,432
Trinity Pacific Partners
555 Capitol Mall, Sacramento
148,919
BTV Management, Real Capital Solutions
11000-11050 Olson Dr, Sacramento
112,434
Marco's, George's and Placida's 3003
Bunker Hill
2031-2033 Howe Ave, Sacramento
Figure 5: Net Absorption Sq. Ft.
Figure 6: Construction Activity Sq. Ft.
000’s
400
000’s
60
300
50
40
200
30
100
20
0
10
3
(100)
3
0
Q2 2013
(200)
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
SOURCE: CBRE RESEARCH, Q3 2014.
© 2014, CBRE, Inc.
Q3 2013
Q4 2013
Under Construction
Q1 2014
Q2 2014
Q3 2014
Completed Construction
SOURCE: CBRE RESEARCH, Q3 2014.
Q3 2014
No Submarket
71 Downtown
72 Midtown
73 West Sacramento
Sacramento Office | MarketView
74 South Sacramento
75 East Sacramento
77 Howe/Fulton
78 Northgate/Natomas
79 Watt Ave
80 Hwy 50 Corridor
81 Carmichael/Fair Oaks
83 Citrus Heights/Orangevale
84 Point West
85 Campus Commons
86 Folsom
87 Elk Grove
88 Roseville/Rocklin
92 South Natomas
CONTACTS
For more information about this Local MarketView, please contact:
Sacramento Research
Abigail Christian
Research Operations Manager
Nor Cal and Reno Research
CBRE
500 Capitol Mall,
Ste 2400
Sacramento, CA 95814
t: +1 916 446 8286
e: [email protected]
Steve Smith
Researcher
Sacramento Research
CBRE
500 Capitol Mall,
Ste 2400
Sacramento, CA 95814
t: +1 916 492 6967
e: [email protected]
FOLLOW US
Global Research and Consulting
This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting – a
network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric
forecasting and consulting solutions to real estate investors and occupiers around the globe.
4
Disclaimer
Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not
doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility
to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and
professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
© 2014, CBRE, Inc.
BUILDING CLASSIFICATION REPORT
SACRAMENTO OFFICE
Q3 2014
Figure 7: Building Classifications
71
Submarket
Downtown
Class A
72
73
75
74
77
78
81
Vacant
Sq. Ft.
Vacancy
Rate %
Asking Lease
Rate $/SF/Mo
Under
Construction
11,134,264
2,377,248
21.4%
2,101,218
18.9%
$2.15
0
6,570,075
1,207,946
18.4%
1,119,212
17.0%
$2.54
Class B
3,120,885
818,600
26.2%
674,281
21.6%
$1.78
1,443,304
350,702
24.3%
307,725
21.3%
$1.44
Midtown
1,792,517
331,674
18.5%
186,069
10.4%
$1.91
Class A
55,000
4,604
8.4%
4,604
8.4%
$2.75
Class B
356,819
56,186
15.7%
52,852
14.8%
$2.18
Class C
1,380,698
270,884
19.6%
128,613
9.3%
$1.82
West Sacramento
1,263,386
166,219
13.2%
134,555
10.7%
$1.53
Class A
527,947
57,459
10.9%
28,589
5.4%
$1.86
Class B
426,185
56,687
13.3%
53,893
12.6%
$1.32
Class C
309,254
52,073
16.8%
52,073
16.8%
$1.40
East Sacramento
440,927
63,161
14.3%
63,161
14.3%
$2.03
Class A
0
0
0.0%
0
0.0%
$0.00
Class B
404,327
63,161
15.6%
63,161
15.6%
$2.03
Class C
36,600
0
0.0%
0
0.0%
$0.00
1,320,178
372,587
28.2%
289,987
22.0%
$1.17
Class A
South Sacramento
63,868
15,150
23.7%
15,150
23.7%
$1.75
Class B
261,775
128,926
49.3%
128,926
49.3%
$1.25
Class C
994,535
228,511
23.0%
145,911
14.7%
$1.08
1,799,729
555,357
30.9%
471,674
26.2%
$1.61
Class A
175,504
139,218
0.0%
139,218
0.0%
$1.85
Class B
228,884
102,632
44.8%
69,835
30.5%
$1.63
Class C
1,395,341
313,507
22.5%
262,621
18.8%
$1.47
Northgate/Natomas
Howe Ave/Fulton Ave
2,135,874
662,719
31.0%
556,177
26.0%
$1.40
Class A
472,201
52,617
11.1%
52,617
11.1%
$1.90
Class B
1,099,264
288,600
26.3%
212,623
19.3%
$1.59
564,409
321,502
57.0%
290,937
51.5%
$1.18
1,350,800
320,936
23.8%
308,171
22.8%
$1.36
Class A
0
0
0.0%
0
0.0%
$0.00
Class B
503,656
161,733
32.1%
148,968
29.6%
$1.45
$1.26
Watt Ave/Auburn Blvd
Class C
80
Availability
Rate %
Class C
Class C
79
Available
Sq. Ft.
847,144
159,203
18.8%
159,203
18.8%
11,515,111
2,988,624
26.0%
2,329,766
20.2%
$1.47
Class A
2,933,886
579,685
19.8%
487,115
16.6%
$1.78
Class B
5,842,856
1,451,808
24.8%
1,058,168
18.1%
$1.55
Class C
2,738,369
957,131
35.0%
784,483
28.6%
$1.12
343,113
68,979
20.1%
68,979
20.1%
$1.22
$1.25
Highway 50
Carmichael/Fair Oaks
Class A
70,000
3,784
5.4%
3,784
5.4%
Class B
78,394
26,022
33.2%
26,022
33.2%
$1.39
Class C
194,719
39,173
20.1%
39,173
20.1%
$1.05
0
Sacramento Office | MarketView
Area
Net
Rentable
Area
0
0
0
0
0
0
0
0
© Copyright 2014 CBRE, Inc. Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not
doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its
accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and
cannot be reproduced without prior written permission of CBRE.
1
Figure 7: Building Classifications (continued)
83
Submarket
Available
Sq. Ft.
Availability
Rate %
Vacant
Sq. Ft.
Vacancy
Rate %
Asking Lease
Rate $/SF/Mo
Under
Construction
Citrus Heights/Orangevale
0
202,188
19.9%
159,698
15.7%
$1.09
0
0
0
0
0.0%
$0.00
Class B
112,460
5,261
4.7%
5,261
4.7%
$1.28
Class C
84
85
86
902,903
196,927
21.8%
154,437
17.1%
$1.08
Point West/Tribute
2,485,623
626,997
25.2%
593,602
23.9%
$1.62
Class A
1,132,970
286,099
25.3%
265,819
23.5%
$1.79
Class B
534,344
135,559
25.4%
135,559
25.4%
$1.52
Class C
818,309
205,339
25.1%
192,224
23.5%
$1.45
1,469,868
385,889
26.3%
362,027
24.6%
$1.68
Campus Commons
Class A
46,000
0
0.0%
0
0.0%
$0.00
Class B
1,077,459
328,066
30.4%
308,232
28.6%
$1.69
Class C
346,409
57,823
16.7%
53,795
15.5%
$1.61
Folsom
2,535,543
435,181
17.2%
353,170
13.9%
$1.76
Class A
1,834,503
331,700
18.1%
276,277
15.1%
$1.81
Class B
449,533
74,440
16.6%
70,954
15.8%
$1.57
Class C
87
88
92
251,507
29,041
11.5%
5,939
2.4%
$1.53
1,074,767
135,539
12.6%
102,821
9.6%
$1.83
Class A
605,731
51,933
8.6%
46,933
7.7%
$2.07
Class B
457,444
83,606
18.3%
55,888
12.2%
$1.71
Class C
11,592
0
0.0%
0
0.0%
$0.00
Roseville/Rocklin
7,337,516
1,440,367
19.6%
1,299,043
17.7%
$1.77
Class A
3,917,444
703,976
18.0%
617,906
15.8%
$1.88
Class B
2,591,142
595,784
23.0%
543,308
21.0%
$1.73
Class C
828,930
140,607
17.0%
137,829
16.6%
$1.39
South Natomas
3,256,979
906,567
27.8%
737,588
22.6%
$1.91
Elk Grove
0
0
Sacramento Office | MarketView
1,015,363
Class A
Q3 2014
Area
Net
Rentable
Area
0
0
0
0
Class A
2,872,914
781,285
27.2%
637,108
22.2%
$1.94
Class B
286,912
113,982
39.7%
89,180
31.1%
$1.82
Class C
97,153
11,300
11.6%
11,300
11.6%
$1.75
Sacramento Office Market
52,271,558
12,040,232
23.0%
10,117,706
19.4%
$1.69
0
Class A
21,278,043
4,215,456
19.8%
3,694,332
17.4%
$2.07
0
Class B
17,832,339
4,491,053
25.2%
3,697,111
20.7%
$1.64
0
Class C
13,161,176
3,333,723
25.3%
2,726,263
20.7%
$1.29
0
CBRE categorizes office properties using the following criteria:
CLASS A
Description: Most prestigious buildings competing for
premier office users with rents above average for the
area. Buildings have high quality standard finishes,
state of the art systems, exceptional accessibility and a
definite market presence.
CLASS B
Description: Buildings competing for a wide range
of users with rents in the average range for the area.
Building finishes are fair to good for the area and
systems are adequate, but the building does not
compete with Class A at the same price.
CLASS C
Description: Buildings competing for tenants requiring
functional space at rents below the average for
the area.
Operating Expenses
Expenses range from $9-$12/yr Downtown and
$6-$10/yr Suburban.
2
© Copyright 2014 CBRE, Inc.