San Francisco Commercial Real Estate Tips

Category: San Francisco Commercial Real Estate Tips (103)

Jul

San Francisco Industrial Mid-Year Real Estate Market Overview 2015

San Francisco’s Vacancy Decreases for the 12th Consecutive Quarter to 3.1%
Source: CoStar

The San Francisco Industrial market ended the second quarter 2015 with a vacancy rate of 3.1%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 307,426 square feet in the second quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 306,979 square feet. Rental rates ended the second quarter at $17.26, an increase over the previous quarter. There was 293,100 square feet still under construction at the end of the quarter.

Absorption
Net absorption for the overall San Francisco Industrial market was positive 307,426 square feet in the second quarter
2015. That compares to positive 120,002 square feet in the first quarter 2015, positive 266,214 square feet in the fourth quarter
2014, and negative (22,710) square feet in the third quarter 2014.

The Flex building market recorded net absorption of posi- tive 178,179 square feet in the second quarter 2015, compared to positive 33,684 square feet in the first quarter 2015, positive 125,780 in the fourth quarter 2014, and positive 140,779 in the third quarter 2014.

The Warehouse building market recorded net absorp- tion of positive 129,247 square feet in the second quarter 2015 compared to positive 86,318 square feet in the first quarter 2015, positive 140,434 in the fourth quarter 2014, and negative (163,489) in the third quarter 2014.

Vacancy
The Industrial vacancy rate in the San Francisco market area decreased to 3.1% at the end of the second quarter 2015. The vacancy rate remained at 3.7% at the end of the first quarter 2015 compared to the previous quarter, and 4.0% at the end of the third quarter 2014.

Flex projects reported a vacancy rate of 4.4% at the end of the second quarter 2015, remained at 5.3% at the end of the first quarter 2015 compared to the previous quarter, and 5.8% at the end of the third quarter 2014.

Warehouse projects reported a vacancy rate of 2.7% at the end of the second quarter 2015, 3.2% at the end of first quarter 2015, 3.1% at the end of the fourth quarter 2014, and 3.3% at the end of the third quarter 2014.

Sublease Vacancy
The amount of vacant sublease space in the San Francisco market decreased to 306,979 square feet by the end of the second quarter 2015, from 333,754 square feet at the end of the first quarter 2015. There was 285,144 square feet vacant at the end of the fourth quarter 2014 and 290,380 square feet at the end of the third quarter 2014.

San Francisco’s Flex projects reported vacant sublease space of 164,850 square feet at the end of second quarter 2015, down from the 186,108 square feet reported at the end of the first quarter 2015. There were 208,699 square feet of sublease space vacant at the end of the fourth quarter 2014, and 91,366 square feet at the end of the third quarter 2014.

Warehouse projects reported decreased vacant sublease space from the first quarter 2015 to the second quarter 2015. Sublease vacancy went from 147,646 square feet to 142,129 square feet during that time. There was 76,445 square feet at the end of the fourth quarter 2014, and 199,014 square feet at the end of the third quarter 2014.

Rental Rates
The average quoted asking rental rate for available Industrial space was $17.26 per square foot per year at the end of the second quarter 2015 in the San Francisco market area. This represented a 5.4% increase in quoted rental rates from the end of the first quarter 2015, when rents were reported at $16.38 per square foot.

The average quoted rate within the Flex sector was $27.89 per square foot at the end of the second quarter 2015, while Warehouse rates stood at $13.03. At the end of the first quarter 2015, Flex rates were $26.53 per square foot, and Warehouse rates were $12.20.

Apr

Calco Commercial Real Estate: Top Leasing Firm in San Francisco

Calco Commercial Real Estate has been named a “Top Leasing Firm” by CoStar! Additionally, Scott Mason has also won a “Power Broker” Award as a top Industrial Broker in San Francisco for 2014. Click here for the full story:

Costar Power Broker Winners

Over the past year, Calco Commercial has completed over 55 industrial, flex and office lease and sale transactions totaling 340,000+/- square feet. Based on the number of successfully completed industrial real estate transactions, Calco Commercial is the number one industrial leasing/sales brokerage firm located in San Francisco. Calco Commercial Real Estate has completed more industrial real estate deals than any other firm in San Francisco over the last year, and continually out-performs the competition. Calco is an independently run and locally founded company specializing in Landlord and Tenant representation. If you have any commercial real estate requirements or simply have questions about the San Francisco or Peninsula real estate markets, call 415.970.0000.

Feb

Commercial Real Estate News: $177MM Development Coming to South San Francisco

HCP to Start $177 MM Spec Development in South San Francisco
Reporter: Jon Peterson
Posted on February 10, 2015 by publisher6
Link to Article: SSF Development

Irvine-based HCP has broken ground on a new life science spec development in South San Francisco, The Cove at Oster Point. The first phase of his project involves the construction of 253,000 square feet and the entire development totals 884,000 square feet. The company is planning to spend up to $177 million according to this morning’s conference call.

“We feel that starting the Cove at this time will optimally meet the demand in the market. This is reflected in that the direct vacancy for life science properties in South San Francisco is [below] one percent,” says Jon Bergschneider, executive vice president for HCP Life Science Estates.

The company believes that the type of product that it will be creating will be new for the marketplace. “Our amenity center will be a feature that is not seen in any life science project,” said Bergschneider. The amenity center will be located on the first floor of the project. It will include a fitness center, recreation and meeting space, which is typically not found in life science real estate operations.

The first phase of the development broke ground last week. It will consist of two buildings totaling 253,000 square feet. The plan is to have these buildings completed by the third quarter of next year. The other phases of the project will be started based on the leasing success of the first phase.

The leasing efforts on the development will be led by CBRE through its life sciences group. This will include Chris Jacobs, an executive vice president, and Rick Friday, a senior vice president. They both work for the company out of its office in Foster City.

The life science market in South San Francisco has very strong market characteristics. “Strong life science market demand has resulted in a vacancy rate below 1 percent in South San Francisco. This inventory crisis has fueled raising lease rates. Over the last year, lease rates have increased approximately 30 percent from $2.85 to $3.70 NNN per square feet per month. Given the strong market fundamentals, we anticipate lease rates to push past $4 NNN per square foot per month in the near future,” says Jacobs.

He anticipates a mixture of tenants being interested in The Cove project. “We expect the project to attract local tenants from 30,000 square feet, as well as larger campus users,” said Jacobs.

HCP has owned The Cove site since 2011. This is when the company paid $65 million to acquire the 20 acres for the development. The project is projected to be a pre-certified LEED silver project. Some of its other features are a 5.5-acre outdoor green space and retail and hotel entitlements.

HCP is a real estate investment trust that focuses on the healthcare industry. It’s a major player in the San Francisco Bay Area, where it owns 4.8 million square feet of life science space in the region. This includes 2.8 million square feet within South San Francisco.

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Feb

Commercial Real Estate News: Warehouse Owners Enjoy Accelerating Rents

With Little Available Modern Space, Investors Scrambling for Bulk Warehouses in Second-Tier Markets, Ramping Up New Development

Source: CoStar
Reporter: Randyl Drummer
Date: February 5, 2015
Article Link: Warehouse Owners

Package shipper UPS isn’t the only one who loves logistics.

Property owners and investors are singing the praises of the unattractive but highly functional and in-demand property type after another quarter of strong rent growth and increasing demand for modern, bulk warehouse space in key distribution markets.

So much so in fact, that investor demand for warehouse and logistics properties is limited only by the current shortage of modern new buildings available to buy, according to CoStar analysts presenting their findings at the Fourth Quarter Industrial Real Estate Review and Outlook last week.

With rental rates on the rise, especially for new, high quality logistics space, “You can build and lease a building potentially for the next 10 years with a good credit tenant,” said Rene Circ, director of research, industrial for CoStar Portfolio Strategy. “This is as good a time in industrial real estate as you could possibly imagine, and we are seeing that in terms of questions from our clients and people wanting to get into the market.”

Co-presenter and senior real estate economist Shaw Lupton also noted that, despite the dearth of property available in the market, sales of institutional grade properties have never been stronger in terms of sales volume and square footage traded.

Capitalization rates are at a record low of below 6% for institutional properties, with reports of much lower cap rates for sales of big box warehouse leased to triple-net credit tenants in the best markets, Lupton said.

“It’s a great time to own industrial real estate, and it’s increasingly competitive to get into it,” Lupton said. Investment sales were up a solid 8% in the industrial sector in 2014 to $60 billion.

Despite the robust investor interest, industrial property sales still lagged multifamily, office and retail property sales, largely because there simply wasn’t enough buildings available to buy. Construction on new bulk warehouse space is ramping up, but it has yet to catch up with investor demand for the new modern facilities favored in tenants for their increasingly sophisticated and high-tech logistics supply chains.

CoStar analyzed the inventory of newer logistics buildings five years old or less compared with all existing logistics buildings and found that both the supply of newer buildings and the ratio of sales has dwindled significantly since 2002, when 32% of all trades were of buildings less than five years old. Today, the number is closer to 10%.

“New supply will be needed to raise the overall level of transaction value,” Circ said. “You can make the argument that lack of new construction is holding back sales by as much as 10 percentage points. Building (prices) are being bid up because there are just not enough sellers.”

While industrial real estate rarely outperforms other more glamorous property sectors, rents for industrial space, led by demand for newer, high-functioning properties, grew an average 4.5% for all industrial properties in 2014 over the previous year. That rate of increase outstripped the healthy 3.7% rental rate increase logged by the office market, 3.2% in the apartment sector, and the 3% rent growth in retail real estate.

The amount of available space on the market is tightening. The 8.7% vacancy rate for logistics space in the fourth quarter compares with a reading of 9.9% at the height of the last real estate cycle in 2007. Absorption totaled 167 million square feet in 2014, slightly lighter than the year before only because of the lack of usable vacant space, Lupton said.

“There just isn’t enough space out there to allow for [larger] numbers,” he said. “We’re not lagging much below the absorption peak, but to get beyond that, we absolutely need more new construction.”

While logistics construction was up 14% in 2014 to 136 million square feet, it’s still about 44 million square feet below the early 2000s peak of 180 million square feet.

While the recovery in rents and property values for high quality logistics space is nearly complete, Circ and Lupton noted that the light industrial property segment is still in the early expansion phase, with very little new construction, which is expected to change over the next few quarters.

“There’s still a lot of runway for growth in light industrial,” Circ said, adding that the improvement in this sector of the industrial real estate market is a very promising sign for the recovery of numerous local markets.

“These are not the big multinational companies, the Amazons, these are local businesses. We’re seeing the light industrial segment doing really well, which gives me a lot of comfort in the strength of local economies,” Circ said.

“When you see these local manufacturing and housing-oriented businesses taking space and making lease commitments, it means they have a lot more visibility into their business growing again, and that supports the guts of the local economy.”

Jan

National Industrial Outlook – 2015

Source: Costar
By: Randyl Drummer
Date: 12.30.14

The U.S. industrial real estate market’s amazing run shows no signs of slowing as the new year approaches, posting an incredible 19th consecutive quarter of falling vacancy rates to reach its lowest national level in nearly 14 years, ending 2014 at 7.2%.

Given optimistic forecasts for domestic growth in 2015, analysts expect 2015 to be another strong year for industrial space demand. Consensus growth forecast of around 3.5% in gross domestic product (GDP) as more people find work and wages begin to rise, said Bob Bach, director of research for the Americas with Newmark Grubb Knight Frank.

“This is very good news for the industrial market,” Bach said. “Expect the fall in vacancy rates and rise in rents to continue, although the pace should begin to level out by the end of 2015 as construction catches up with demand.”

GDP is considered a primary driver of demand for industrial space because its components — online and brick-and-mortar consumer spending, business spending, homebuilding, exports and imports — all generate activity in the warehouse and logistics market.

Healthy tenant demand, combined with a limited amount of quality ready supply, is tugging down the nation’s vacancy rate, said Aaron Ahlburn, senior vice president and director of research for the industrial and retail property markets for JLL’s Americas region.

“Although new big box construction is escalating, it does not appear to be overpowering current tenant requirements,” said Ahlburn. “E-commerce continues to be the headline-grabbing market driver, especially as retailers continue to determine their omni-channel distribution and fulfillment space needs.”

Outdated distribution centers that don’t support an integrated, omni-channel retail strategy will require updating or face obsolesence, Ahlburn added.
The only unwelcome guest at the warehouse party over the next 12 months could be overbuilding, which developers tend to do in times of economic growth. Even today’s vast 1 million-square-foot-plus mega warehouses are comparatively fast and easy to build, said Andrew Berk, vice president in Avison Young’s Los Angeles office.

According to NGKF’s Bach, the amount of space under construction has been ramping up slowly for 19 of the past 20 quarters. At year-end 2014, 130.5 million square feet was under way — up from 100 million square feet at the beginning of the year, but still below the prior peak of 190.1 million square feet in third-quarter of 2007, during the development heydays of the prior cycle, Bach notes.

Deliveries surged in the fourth quarter to a total of 45.4 million square feet, a quarter of which was completed in Dallas-Fort Worth. Houston was a distant second with 3.4 million square feet coming out of the pipeline. For the full year, industrial deliveries totaled 133 million square feet.

For now, the consensus among most analysts is that supply remains in line with demand across much of the country, even in the high-growth Dallas market.

“To date, no space has broken ground in Fort Worth during this cycle, so we should see landlords enjoying increased rental rates in 2015,” said Transwestern Principal Jeff Givens, adding that the Fort Worth office alone recently completed eight sales transactions totaling 525,500 square feet. “User sales were robust and the leasing market was very active, which increased occupancy.”

There’s so much absorption and a historically low vacancy rate which has remained consistent for so many years that overbuilding does not seem to be a major concern in Class A or even B markets, Avison Young’s Berk added.

“Investors are favoring ‘Main & Main’ assets of almost any condition and size,” Berk said.

He noted, however, that further from the core geographic areas, investors are keen to make sure that the assets are located in good logistics markets with recent upside improvements.

“Development has been more controlled and disciplined this cycle, especially compared to past ‘boom’ cycles,” JLL’s Ahlburn said. “Although a handful of markets, including the Inland Empire, Dallas and Indianapolis, have flirted at times with overbuilding, the majority of U.S. markets are evenly-paced.”

Net absorption was solid at 42.1 million square feet for the quarter and 172.4 million square feet for the year. Atlanta led all markets for both periods, absorbing 3.8 million square feet in the fourth quarter and 8.8 million square feet in 2014. California’s Inland Empire took second place in both periods.

The average asking rental rate ended 2014 at $5.64 per square foot per year, triple net, up by just a penny from the third quarter. The yearly gain was more impressive -an increase of 3.8%. Of the 45 markets tracked in the survey, eight markets posted double-digit rent gains in 2014, led by Austin at 14%.

Other double-digit gaining markets included the Inland Empire, Indianapolis, San Antonio, Silicon Valley, Denver, Boston and Oakland-East Bay, according to NGKF and CoStar data.

Finally, risk mitigation in supply chains is another important factor in 2015, Ahlburn noted. Congestion at major West Coast seaports and the impending truck driver shortage has supply chain executives seeking alternative strategies.

“To avoid interruptions, they are moving discretionary shipments to East Coast ports,” he said.

Link to article: Industrial Outlook

Jan

Tech Users Race for More Space

Source: San Francisco Business Journal
Reporter: Cory Weinberg
Date: January 20, 2015

Social media companies Twitter and Pinterest and mobile payments startup Stripe are hunting for hundreds of thousands of feet of office space each, multiple real estate sources said.

Their eventual decisions have the potential to drive the leasing market this year and next. As it is, tech companies leased 91 percent of the 3.6 million square feet of office space taken in San Francisco last year, according to CBRE.

The companies could head to Oakland to anchor the refurbished 400,000-square-foot Sears Building when it opens by 2018, giving the East Bay city a techie jolt. More likely, they’ll have their eyes on spaces like Kilroy’s 1800 Owens St. (known as the Exchange on 16th) in Mission Bay, set to deliver 650,000 square feet next year, or 510 Townsend St.

If companies need hundreds of thousands of square feet, they could also look toward Transbay buildings such as the Salesforce Tower (opening in 2017), 181 Fremont (2016), 199 Fremont (2016) or 303 Second St. (2015).

“I don’t think you’ll see a large number of those kinds of users go to Oakland. Having said that, I do think there are some indications that (the Sears Building) could snatch some sort of user from San Francisco who decides that San Francisco doesn’t have enough space,” Mike Sample, a broker who specializes in tech companies for Newmark Cornish & Carey, said at a SPUR event last week.

Stripe, which has received $200 million of capital from the likes of Sequoia Capital, Peter Thiel, and Elon Musk, now leases about 27,000 square feet at 3180 18th St. in the Mission. It also scored a big coup by landing a spot as an Apple Pay partner earlier this year, fueling growth.
One source who spoke on the condition of anonymity said Stripe has looked at the 300,000 square feet available at the 500 block of Townsend Street, just west of the I-280 off-ramp near 6th Street.

Twitter has 760,000 square feet leased in Mid-Market. One broker who works with tech companies – and also declined to speak on the record – said Twitter is in the market for a few hundred thousand square feet and has its eye on Mission Bay now that Uber has decided to park its headquarters there.

“There’s a lot of energy going in that direction. I wouldn’t be surprised if they did something similar,” he said.

Pinterest has about 225,000 square feet across two buildings south of Market. One source said the company’s space need isn’t urgent because they just inked a new lease last fall. Pinterest, Stripe and Twitter did not return requests for comment.

Even if those companies don’t start expanding their offices this year or next, they’re increasingly thinking about future growth because of Prop. M. The city’s office space cap is likely to start squeezing the market later this year and possibly causing the current city average of $65 a square feet to increase at a faster rate.

“It seems like tenants are thinking five years out, especially the bigger ones who want to stay vested in San Francisco and think about how they will keep their headquarters in San Francisco,” Alexa Arena, vice president of Forest City’s San Francisco office, said at a Bisnow forum on Tuesday. “That’s clearly difficult for them because there’s not a lot of swaths of space where you have a single location to get the critical mass they need.”

Office complexes under construction or renovation south of San Francisco in Daly City and San Mateo will also hope to attract tech tenants this year. (It should be said that Reddit’s CEO was ousted over his proposed move to Daly City.) About 70,000 square feet at the Ferry Building in San Francisco will also likely fetch top dollar later this year.

Article Link: Tech Giants Race for More Space

Jan

San Francisco’s Vacancy Decreases to 3.9%

The San Francisco Industrial market ended the fourth quarter 2014 with a vacancy rate of 3.9%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 278,485 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 285,144 square feet. Rental rates ended the fourth quarter at $15.94, an increase over the previous quarter. There was 108,080 square feet still under construction at the end of the quarter.

ABSORPTION
Net absorption for the overall San Francisco Industrial market was positive 278,485 square feet in the fourth quarter2014. That compares to negative (98,393) square feet in the third quarter 2014, positive 979,226 square feet in the second quarter 2014, and positive 106,799 square feet in the first quarter 2014.

Tenants moving out of large blocks of space in 2014 include: FedEx moving out of (60,100) square feet at 200 Littlefield Ave, Vitasoy moving out of (52,500) square feet at 584 Eccles Ave, and KaloBios Pharmaceuticals moving out of(49,351) square feet at 260 E Grand Ave.

The Flex building market recorded net absorption of positive 131,243 square feet in the fourth quarter 2014, compared to positive 38,309 square feet in the third quarter 2014, positive 299,408 in the second quarter 2014, and negative (33,399) in the first quarter 2014.

The Warehouse building market recorded net absorption of positive 147,242 square feet in the fourth quarter 2014 com- pared to negative (136,702) square feet in the third quarter 2014, positive 679,818 in the second quarter 2014, and positive 140,198 in the first quarter 2014.

VACANCY
The Industrial vacancy rate in the San Francisco market area decreased to 3.9% at the end of the fourth quarter 2014. The vacancy rate was 4.2% at the end of the third quarter 2014, 4.1% at the end of the second quarter 2014, and 5.7% at the end of the first quarter 2014.

Flex projects reported a vacancy rate of 5.3% at the end of the fourth quarter 2014, 5.8% at the end of the third quarter 2014, 6.0% at the end of the second quarter 2014, and 9.3% at the end of the first quarter 2014.

Warehouse projects reported a vacancy rate of 3.4% at the end of the fourth quarter 2014, 3.7% at the end of third quarter 2014, 3.5% at the end of the second quarter 2014, and 4.5% at the end of the first quarter 2014.

RENTAL RATES
The average quoted asking rental rate for available Industrial space was $15.94 per square foot per year at the end of the fourth quarter 2014 in the San Francisco market area. This represented a 4.4% increase in quoted rental rates from the end of the third quarter 2014, when rents were reported at $15.27 per square foot.

The average quoted rate within the Flex sector was $25.58 per square foot at the end of the fourth quarter 2014, while Warehouse rates stood at $12.05. At the end of the third quarter 2014, Flex rates were $24.68 per square foot, and Warehouse rates were $11.65.

DELIVERIES AND CONSTRUCTION
During the fourth quarter 2014, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the previous three quarters. There were 108,080 square feet of Industrial space under construction at the end of the fourth quarter 2014. The largest projects underway at the end of fourth quarter 2014 were 901 Rankin St, an 82,480-square-foot building with 100% of its space pre-leased by Goodeggs and Mollie Stone’s Markets, and 1 Kelly Ct, a 25,600-square-foot facility that CS Bio Company, Inc. expanded.

INVENTORY
Total Industrial inventory in the San Francisco market area amounted to 94,659,417 square feet in 4,843 buildings as of the end of the fourth quarter 2014. The Flex sector consisted of 23,849,302 square feet in 789 projects. The Warehouse sector consisted of 70,810,115 square feet in 4,054 buildings. Within the Industrial market there were 511 owner-occupied buildings accounting for 12,380,944 square feet of Industrial space.

SALES ACTIVITY
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures fell during the third quarter 2014 in terms of dollar volume compared to the second quarter of 2014. In the third quarter, nine industrial transactions closed with a total volume of $83,684,000. The nine buildings totaled 377,408 square feet and the average price per square foot equated to $221.73 per square foot. That compares to 20 trans- actions totaling $109,016,000 in the second quarter. The total square footage was 558,793 for an average price per square foot of $195.09.

Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first nine months of 2014, the market saw 36 industrial sales transactions with a total volume of $346,298,100. The price per square foot has averaged $215.98 this year. In the first nine months of 2013, the market posted 19 transactions with a total volume of $107,082,100. The price per square foot averaged $166.89.

Cap rates have been higher in 2014, averaging 6.70%, compared to the first nine months of last year when they averaged 6.10%.

Source: CoStar Year End 2014 Industrial Report

Dec

Lenders Ease Tight Underwriting Standards for Commercial Real Estate Loans

It may be easier for Ben Bernanke to get a loan to buy an apartment building than to refinance his home mortgage.

While addressing a conference of the National Investment Center for Seniors Housing and Care in Chicago this fall, the former chairman of the Federal Reserve mentioned that he and his wife had recently been turned down by their lender after seeking to refinance their mortgage.

“The housing area is one area where regulation has not yet got it right,” Bernanke said. “I think the tightness of mortgage credit, lending is still probably excessive.”

Meanwhile, it certainly appears that commercial lenders have gotten it right, judging by the flood of capital available for commercial real estate borrowers.

However, after commercial real estate underwriting standards eased for the third consecutive year in a row according to the Office of the Comptroller of the Currency’s 20th Annual Survey of Credit Underwriting, some are beginning to sound a note of caution that perhaps lending standards are becoming too accommodating.

Surveyed banks noted that they have continued to ease underwriting standards and take on increased levels of credit risk in response to abundant liquidity for commercial property and competitive pressures in the current low interest-rate environment. Large banks, as a group, reported the highest share of eased underwriting standards among those surveyed.

Ratings agencies are particularly sensitive over underwriting standards after taking heat from Congress and investors for failing to adequately account for risks and when rating securities backed by residential and commercial mortgages before the recession.

Slippage in underwriting standards should remain a key credit concern for investors, particularly in certain segments such as construction where lending conditions have been relatively frothy, Standard and Poor’s said in its 2015 banking outlook issued this week.

“In some loan classes (e.g., construction and development loans), ultra-low net charge-offs are prompting a rebound in construction lending among some banks. We remain cautious that some U.S. banks with below-average exposure to this category may be easing credit standards somewhat and pricing loans more aggressively to generate growth, which could eventually lead to deceleration in asset quality,” S&P analysts noted in their report. “While we do not expect widespread degradation in U.S. banks’ asset quality in 2015, we do expect a gradual build-up of provisions for the banking industry as reserve levels bottom out and loan growth increases more consistently.”

In the recent OCC survey, one-third of bank respondents reported an easing in commercial construction lending. This is the highest level of responses in this category this century. Only 2% reported tightening standards for commercial construction loans, the lowest level this century.

In addition to acknowledging the relaxed credit standards, bank respondents also noted that the level of credit risk in their construction loan portfolios has increased, excluding residential development. Twenty-one percent reported that credit risk has increased somewhat – more than double the number of respondents who indicated this trend last year. In addition, 44% expected this risk to rise next year.

When it came to CRE lending for residential construction including multifamily, 13% of bank respondents noted that credit standards had eased. This is the first time in six years that any bank has noted that trend.

Thirteen percent of bankers also noted that this has raised the credit risk somewhat for their residential construction loan portfolios – none did last year. In addition, 25% expected this risk to rise next year.

Thirty-seven percent of banks said underwriting standards had eased in their other commercial real estate loan portfolios – up from 24% in 2013. Just 4% said underwriting had tightened. That is the lowest level this century and compares to the 76% who said they tightened standards during the Great Recession years.

Twenty-seven percent of bankers this year said the easing has raised the credit risk in their other commercial real estate loan portfolios. And 44% expected that risk to increase next year.

Jennifer Kelly, senior deputy comptroller for bank supervision policy and chief national bank examiner, sounded a reassuring note in the OCC survey: “As banks continue to reach for volume and yield to improve margins and compete for limited loan demand, [OCC] supervisors will focus on banks’ efforts to maintain prudent underwriting standards, monitor portfolio credit risk, and reduce exceptions to policy,” she said.

Source: CoStar
Reporter: Mark Heschmeyer
Date: December 17, 2014

Link to Article: CRE Loans

Jul

2014 Mid-Year Industrial Report: Vacancy Continues to Shrink, CAP Rates Up

Source: CoStar www.costar.com

The San Francisco Industrial market ended the second quarter 2014 with a vacancy rate of 4.3%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 977,686 square feet in the second quarter. Vacant sublease space increased in the quarter, ending the quarter at 332,887 square feet. Rental rates ended the second quarter at $14.97, an increase over the previous quarter. There were no properties under construction at the end of the quarter.

Absorption
Net absorption for the overall San Francisco Industrial market was positive 977,686 square feet in the second quarter 2014. That compares to positive 69,743 square feet in the first quarter 2014, positive 505,972 square feet in the fourth quarter 2013, and positive 185,186 square feet in the third quarter 2013.

Vacancy
The Industrial vacancy rate in the San Francisco market area decreased to 4.3% at the end of the second quarter 2014. The vacancy rate was 5.8% at the end of the first quarter 2014, 6.0% at the end of the fourth quarter 2013, and 6.5% at the end of the third quarter 2013.
Flex projects reported a vacancy rate of 5.8% at the end of the second quarter 2014, 9.1% at the end of the first quarter 2014, 8.9% at the end of the fourth quarter 2013, and 9.2% at the end of the third quarter 2013.

Warehouse projects reported a vacancy rate of 3.7% at the end of the second quarter 2014, 4.7% at the end of first quarter 2014, 4.9% at the end of the fourth quarter 2013, and 5.6% at the end of the third quarter 2013.

Sublease Vacancy
The amount of vacant sublease space in the San Francisco market increased to 332,887 square feet by the end of the second quarter 2014, from 240,425 square feet at the end of the first quarter 2014. There was 147,837 square feet vacant at the end of the fourth quarter 2013 and 222,073 square feet at the end of the third quarter 2013.
San Francisco’s Flex projects reported vacant sublease space of 147,882 square feet at the end of second quarter 2014, up from the 135,533 square feet reported at the end of the first quarter 2014. There were 129,587 square feet of sub- lease space vacant at the end of the fourth quarter 2013, and 136,326 square feet at the end of the third quarter 2013.
Warehouse projects reported increased vacant sublease space from the first quarter 2014 to the second quarter 2014. Sublease vacancy went from 104,892 square feet to 185,005 square feet during that time. There was 18,250 square feet at the end of the fourth quarter 2013, and 85,747 square feet at the end of the third quarter 2013.

Rental Rates
The average quoted asking rental rate for available Industrial space was $14.97 per square foot per year at the end of the second quarter 2014 in the San Francisco market area. This represented a 3.6% increase in quoted rental rates from the end of the first quarter 2014, when rents were reported at $14.45 per square foot.
The average quoted rate within the Flex sector was $23.85 per square foot at the end of the second quarter 2014, while Warehouse rates stood at $11.26. At the end of the first quarter 2014, Flex rates were $23.01 per square foot, and Warehouse rates were $10.85.

Deliveries and Construction
During the second quarter 2014, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the first quarter 2014, one building totaling 36,000 square feet completed in the fourth quarter 2013, and nothing completed in the third quarter 2013. There was no Industrial space under construction at the end of the second quarter 2014.

Inventory
Total Industrial inventory in the San Francisco market area amounted to 95,310,805 square feet in 4,853 buildings as of the end of the second quarter 2014. The Flex sector consisted of 23,910,714 square feet in 789 projects. The Warehouse sector consisted of 71,400,091 square feet in 4,064 buildings. Within the Industrial market there were 505 owner-occupied buildings accounting for 12,486,342 square feet of Industrial space.

Sales Activity
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures rose during the first quarter 2014 in terms of dollar volume compared to the fourth quarter of 2013.

In the first quarter, seven industrial transactions closed with a total volume of $153,598,100. The seven buildings totaled 667,191 square feet and the average price per square foot equated to $230.22 per square foot. That compares to 12 transactions totaling $84,675,000 in the fourth quarter. The total square footage was 480,193 for an average price per square foot of $176.34.
Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first three months of 2014, the market saw seven industrial sales transactions with a total volume of $153,598,100. The price per square foot has averaged $230.22 this year. In the first three months of 2013, the market posted two transactions with a total volume of $5,764,000. The price per square foot averaged $163.24.

Cap rates have been higher in 2014, averaging 6.70%, compared to the first three months of last year when they averaged 6.11%.

May

San Francisco Industrial Vacancy down for 6th consecutive Quarter

From The CoStar Industrial Report – First Quarter 2014 – San Francisco Industrial Market

source: www.costar.com

The San Francisco Industrial market ended the first quarter 2014 with a vacancy rate of 5.8%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 108,263 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 240,425 square feet. Rental rates ended the first quarter at $14.46, an increase over the previous quarter. There were no properties under construction at the end of the quarter.

Absorption
Net absorption for the overall San Francisco Industrial market was positive 108,263 square feet in the first quarter 2014. That compares to positive 542,155 square feet in the fourth quarter 2013, positive 197,735 square feet in the third quarter 2013, and positive 538,685 square feet in the second quarter 2013.

The Flex building market recorded net absorption of positive 952 square feet in the first quarter 2014, compared to positive 119,671 square feet in the fourth quarter 2013, positive 285,841 in the third quarter 2013, and positive 121,298 in the second quarter 2013.
The Warehouse building market recorded net absorption of positive 107,311 square feet in the first quarter 2014 compared to positive 422,484 square feet in the fourth quarter 2013, negative (88,106) in the third quarter 2013, and positive 417,387 in the second quarter 2013.

Vacancy
The Industrial vacancy rate in the San Francisco market area decreased to 5.8% at the end of the first quarter 2014. The vacancy rate was 6.0% at the end of the fourth quarter 2013, 6.6% at the end of the third quarter 2013, and 6.9% at the end of the second quarter 2013.
Flex projects remained at a vacancy rate of 9.2% at the end of the first quarter 2014 compared to the previous quarter, and9.7% at the end of the third quarter 2013, and 11.1% at the end of the second quarter 2013.

Warehouse projects reported a vacancy rate of 4.7% at the end of the first quarter 2014, 5.0% at the end of fourth quarter 2013, 5.6% at the end of the third quarter 2013, and 5.5% at the end of the second quarter 2013.

Sublease Vacancy
The amount of vacant sublease space in the San Francisco market increased to 240,425 square feet by the end of the first quarter 2014, from 147,837 square feet at the end of the fourth quarter 2013. There was 222,073 square feet vacant at the end of the third quarter 2013 and 172,968 square feet at the end of the second quarter 2013

San Francisco’s Flex projects reported vacant sublease space of 135,533 square feet at the end of first quarter 2014, up from the 129,587 square feet reported at the end of the fourth quarter 2013. There were 136,326 square feet of sublease space vacant at the end of the third quarter 2013, and 142,503 square feet at the end of the second quarter 2013.

Warehouse projects reported increased vacant sublease space from the fourth quarter 2013 to the first quarter 2014. Sublease vacancy went from 18,250 square feet to 104,892 square feet during that time. There was 85,747 square feet at the end of the third quarter 2013, and 30,465 square feet at the end of the second quarter 2013.

Rental Rates
The average quoted asking rental rate for available Industrial space was $14.46 per square foot per year at the end of the first quarter 2014 in the San Francisco market area. This represented a 0.3% increase in quoted rental rates from the end of the fourth quarter 2013, when rents were reported at $14.42 per square foot.

The average quoted rate within the Flex sector was $23.01 per square foot at the end of the first quarter 2014, while Warehouse rates stood at $10.86. At the end of the fourth quarter 2013, Flex rates were $22.75 per square foot, and Warehouse rates were $10.87.

Deliveries and Construction
During the first quarter 2014, no new space was completed in the San Francisco market area. This compares to one building totaling 36,000 square feet that was completed in the fourth quarter 2013, nothing completed in the third quarter 2013, and 189,000 square feet in one building completed in the second quarter 2013.

There was no Industrial space under construction at the end of the first quarter 2014.

Inventory
Total Industrial inventory in the San Francisco market area amounted to 94,885,548 square feet in 4,857 buildings as of the end of the first quarter 2014. The Flex sector consisted of 23,355,194 square feet in 783 projects. The Warehouse sector consisted of 71,530,354 square feet in 4,074 buildings. Within the Industrial market there were 491 owner-occupied buildings accounting for 12,246,466 square feet of Industrial space.

Sales Activity
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures rose during the fourth quarter 2013 in terms of dollar volume compared to the third quarter of 2013.

In the fourth quarter, 11 industrial transactions closed with a total volume of $76,215,000. The 11 buildings totaled 460,604 square feet and the average price per square foot equated to$165.47 per square foot. That compares to five transactions totaling $20,112,500 in the third quarter. The total square footage was 125,936 for an average price per square foot of $159.70.

Total year-to-date industrial building sales activity in 2013 is down compared to the previous year. In the twelve months of 2013, the market saw 30 industrial sales transactions with a total volume of $183,297,100. The price per square foot has averaged $166.30 this year. In the twelve months of 2012, the market posted 43 transactions with a total volume of $267,879,854. The price per square foot averaged $146.09.