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North Bay Business Journal

Monday, March 24, 2014, 5:45 am

Solid growth for North Bay commercial property

Retail to lead vacancy declines in 2014

By Al Coppin, Keegan & Coppin Co. Inc./ONCOR International

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    Al Coppin

    It looks like 2014 will be a sold growth year for the national economy as well as the North Bay counties.

    Fourth-quarter national gross national product, GNP, has been revised up to 3.25 percent, and the Fed is reducing its bond-buying program, signaling a stronger economy.

    The Bay Area phenomenon of hyper growth of the companies dealing in “bits” vs. “atoms” is leading the rush of the top 25 tech companies in the nation, 18 of which are from the Bay Area.

    While the East Bay and North Bay are not experiencing that growth directly, there is a “spillover” effect going on, with high flows of Wall Street money looking for investment development opportunities and the consumer effect from the high-paying jobs and wealth creation from IPOs from South Bay companies.

    We are on the positive side of the cycle from the vast restructuring of the economy from the recession of 2008. Institutions that abruptly unloaded portfolios are mostly through the pipeline and putting individual properties back in rational private investor hands.

    The bifurcated markets is moving back to a retail market, with pricing on individual buildings on the rise. Rents also will begin to firm in 2014, particularly for quality space and larger floorplates.

    The B- and C-class space will continue to be very competitively priced. Moderate job growth in the North Bay, particularly in health care, energy, medical devices, wine and technology will drive leasing demand and eventually result in higher rent by 2015–2016.

    Investment activity and acquisition by developers, particularly for residential projects, have increased remarkably. Fortunately, commercial lenders have kept rates very competitive, so we continue to see user and investor acquisition, and we forecast this investment activity will increase in 2014.

    Leasing rates will firm for retail and high-end office space. Pricing of office and industrial buildings will continue to moderately increase, whereas retail and multifamily will see significant increases due to high demand and concordant rising rents.

    Vacancy rates in all sectors came down 1 percent to 2 percent in 2013. Vacancy will continue to decline in all sectors, with retail dropping the most, followed by industrial and office. Class A office buildings will see bigger drops in vacancy, and B- and C-class space in business parks with office improvements will continue to be a challenge. We will see office space gutting in many B and C buildings to make way for flex and industrial uses and open-floorplan office spaces.

    All in all, 2014 will be the first significant turnaround year, which should put growth in the economy and improved commercial real estate markets on a positive track.

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