Investors strike gold in California offices

April 2, 2014 admin

The office market has been heating up in the Golden State for a while now, and 2014 might see it hit its boiling point.

In Marcus & Millichap’s recently released 2014 National Office Report, five of the top eight office investment markets are found in California, with San Francisco holding the top spot for the second year in a row, and even secondary markets such as Orange County surging up seven places to make the top 10, due to continued payroll expansion, rent growth and vacancy declines.

  1. San Francisco
  2. San Jose
  3. New York City
  4. Seattle
  5. Los Angeles
  6. Portland, Ore.
  7. San Diego
  8. Orange County, Calif.
  9. Denver
  10. Boston

The San Francisco office market ended 2013 with a vacancy rate of 8.2 percent, according to Cassidy Turley, and an average asking rent of $45.12 per square foot according to DTZ, second in the nation to New York City. Marcus & Millichap predicts the average rent to grow another 4.9 percent in 2014 after growing 12.1 percent in 2013, despite the fact that 1.2 million square feet of new supply will be completed in the area in 2014, after just 80,000 square feet we’re delivered to the market in 2013.

These trends appear to be mostly driven by the continued expansion of numerous technology tenants in the entire Bay Area (it’s not just Apple and Google any more, and the high-tech firms are flooding the list’s No. 2, San Jose, as well) and an unemployment rate that fell to 5 percent at the end of 2013.

Even Los Angeles climbed three spots in the 2014 report to No. 5, despite unemployment at 9.4 percent. According to DTZ, it’s because a majority of the job creation in the area has been in office-using employment sectors such as technology, media and telecommunications. Asking rents are expected to rise 3.9 percent in L.A. in 2014, due to increased job growth coupled with a meager 550,000 square feet of new supply.

It appears that investors who act fast won’t need a flash in the pan to strike it rich in California.

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ReggieClodfelter91x119Reg Clodfelter is a reporter with Institutional Real Estate, Inc.

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