Location, Location, Location: How West Coast Commercial Real Estate is Challenging New York Dominance.
Duke Long’s recent post about the dominance of the New York City market was reasoned, well-constructed and straightforward in its presentation. However, from the perch of the Ten-X headquarters in CA, New York City seems somehow disconnected from the vibrancy and cosmopolitan mix of investor, developer, owner and business sentiment that is the West Coast’s thriving commercial real estate market.
In Southern California alone, CRE is thriving in Los Angeles, Orange County, and San Diego, and that is even before the conversation turns to the dynamism of San Francisco, San Jose, and Palo Alto, which are booming in the wake of Silicon Valley’s entrepreneurial and technology driven economic ecosystem.
In the most recent Allen Matkins/UCLA Anderson Forecast, which gauges broker sentiment relative to future three-year development pipelines across major metro markets in the Golden State, the mood continues to remain highly elevated across all sectors: office, multi-family, industrial and retail. With 50 as the demarcation line between optimism and pessimism, the six markets evaluated indicated strong enthusiasm, predominantly in the 60’s and 70’s metrics, in the brokerage community about projects moving forward into 2019.
Vacancy rates continue to push lower across sectors, while rental rates push higher. Perhaps there is no greater example of this trend than in multi-family where extremely strong job growth in the metro markets is fueling high-powered demand for apartment space. Take Orange County for example, where according to Reis Inc. a real estate analytics firm (and yes Duke Long can chuckle that they are New York based) “asking rents were the 10th-highest among 82 populous metro areas” across their survey. Also in the top 12: Los Angeles, San Francisco, and Oakland. And vacancy rates also in these markets are highly competitive with New York City: Los Angeles, Oakland, and Orange County match or have lower rates than New York. In full disclosure, New York still leads the price point pack from a rent perspective.
In the office space market, San Francisco’s 2015 4th quarter price of rents at $72.26 a square foot exceeded New York City’s average, according to a recent Fortune piece.
But enough on price and vacancy…The West Coast is already the world leader in technology and innovation, because of locales such as Silicon Valley and San Francisco. However, easily forgotten in the New York vs. California debate are incredible growth stories in Seattle, Portland, Salt Lake City, Phoenix, Dallas, and Austin.
Take Seattle for example, which according to recent Census estimates is the nation’s fastest-growing large city. The metro is a burgeoning technology player and is attracting millennials in droves. With names like Amazon and Starbucks as cornerstones of growth, companies are flocking to Seattle as a top state to do business with a talented workforce and pro-growth climate. The Urban Land Institute in their 2016 Emerging Trends Report highlighted Seattle as having the 4th most robust real estate market in the country with particular emphasis on commercial.
More broadly, though, the West Coast is challenging New York’s dominance across the commercial real estate spectrum. San Francisco is the Western hub of banking and finance, Google, Facebook and Apple are the transformational players in technology. And trade is a huge driver of commercial expansion in all of the major port cities of California, Washington, and Oregon, connecting Asia’s strong growth and import/export markets. Simply stated, the West Coast is where new money, business, and individuals come to thrive, and that feeds directly into commercial real estate growth.
One final piece of evidence for consideration? The U.S. Bureau of Economic Analysis in 2015 released their report on the 20 richest cities in America as measured by Gross Metropolitan Product (GMP). Number One-San Jose $105,482; Number Three-San Francisco $80,643; Number Four-Seattle $75,874 and Number Eight-New York City $70,830.
Whether it is Retail, Multi-Family, Office, Industrial, Hotel, Warehouse, or Mixed-Use; more and more it seems that making it anywhere in the CRE space means first making a mark on my kind of town West Coast.
Source: Tim Randall/Ten-X.