California’s commercial real estate market, which has been feeling the pinch from high vacancy rates and low rents, now appears to have turned the corner and is moving towards recovery. Large institutional investors coming into the market have played a significant role in the recovery.
Investors have been attracted by low purchase prices but other side of the coin has been interest from new entrepreneurs encouraged to set up shop by the relatively reasonable rents being charged by landlords at present.
Westcore Properties of San Diego and DRA Advisors recently invested $600 million in what has been described as “a vast collection of warehouses and office buildings assembled by the late Sacramento developer Joe Benvenuti.” Their assumption is that rents and property values will increase over the next several years, and that now is a good time to get into the market.
The sale is the second-largest commercial transaction in the city’s history. Westcore’s president and CEO Don Ankeny has stated that his company has faith in the local commercial real estate market and that,”(A) little new blood coming to the table can put energy into it.”
Some businesses have taken advantage of the current low rents and high vacancy rates to either set up shop or expand their current space. Former industrial spaces have proven very popular for business owners, since rents are currently at rock-bottom rates.
Vacancy rates have started to drop in the retail and industrial sectors. The office sector is still struggling, however. According to Scott Kingston, vice president of Ethan Conrad Properties, the commercial real estate market typically lags 12-18 months behind the residential one.
Conditions are not expected to significantly improve until later in 2013. It will take several months before the market returns to normal, according to CBRE executive Randy Gertz. It will still take a year or two for the local economy to start to feel as though it is developing some traction.
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