CORFAC News

Los Angeles, CA (September 30, 2014) – Principals from The Klabin Co./CORFAC International and TRI Commercial/CORFAC International (www.corfac.com) were presenters at last week’s California Real Estate Trends Conference in Los Angeles, an event produced by France Media Inc. and attended by more than 400 commercial real estate professionals from every industry sector. 
David Prior, SIOR, President of Los Angeles-based Klabin, was one of the speakers on the industrial panel, and Barry Bram, CCIM, LEED AP, Principal from TRI’s San Francisco office, shared his views on California’s office market. 

Dr. Christopher Thornberg, Founding Principal of Beacon Economics, was one of the keynote speakers and kicked off the conference with a data-driven assessment of California’s economy. Thornberg is bullish on the California economy because the fundamentals are so good, including income, employment, consumer credit, low inflation and continued low interest rates. 

In addition to office and industrial-focused panels, the conference featured panel discussions on ‘The State of California Real Estate Market,” “Emerging Capital Market Trends,” “Retail Trends” and “Multifamily Trends.”Industrial Panel HighlightsThe South Bay market in Los Angeles has one of the lowest industrial market vacancy rates in the U.S. at approximately 3 percent. The 200-million-square-foot submarket is achieving land sales in the range of $35 a foot for new development of large industrial buildings. Sale prices range between $100 and $150 a square foot, depending on size, age, building features and location. Not surprisingly, the 3PL activity has been a market driver and has improved from a year ago. Despite the heat in the marketplace, Prior said that rents for 20,000-40,000 square foot occupiers are still 20 percent below the peak of the market “but coming up very fast.”“Net absorption in the South Bay has not appeared to be very good the last few years but that’s because there is so little vacant and available inventory,” commented Prior. Landlords have reduced lease concessions over the past year. L.A.’s South Bay industrial market has been on the radar of institutional investors for some time now and, with the scarcity of product and high demand, investors are no longer just looking for large portfolios to buy, but are also looking at acquiring good quality, free-standing buildings, he said. Prior expressed concern about the Golden State’s competitiveness and losing major corporate tenants like Toyota, which will move thousands of jobs from L.A. to Texas in the next few years. Citing a ripple effect, Prior said that trends like these affect the economy in ways that do not always capture news headlines.“One of our clients lost a 150,000-square-foot tenant that is leaving for Texas to support Toyota and another client is losing a large tenant in the city of Cypress to Texas,” Prior said. Office Market HighlightsThe office panel touched on a number of issues that impact the office market, including the shrinking of square feet occupied per employee, Title 24 and even California’s water supply as it affects the office market.  “We’re not even paying close to the real market value of water,” said Tony Solomon, a Regional Manager with Marcus & Millichap in L.A. Bram zeroed in on the number 1 issue facing the San Francisco office market, which is Prop M, the 1986 law passed by voters to limit the construction of office space to 875,000 square feet per year on projects that are 50,000 square feet or greater.“More than the economy and any other factor in the marketplace, Prop M is the primary threat to derailing the heated cycle we’re witnessing in San Francisco today,” Bram said. Prop M allows the 875,000 square feet to accumulate in soft market cycles and San Francisco is pushing against the current limit to create new office supply. According to the City and County of San Francisco Planning Department, there are 2.16 million square feet of pending office projects in which a development application has been filed plus another 9.08 million square feet of potential new office projects that are in various stages of the pre-application process.As it relates to San Francisco’s tech community and its love affair with ‘creative space’ in the city, Bram quipped that “brick and timber buildings are like gold in San Francisco when it comes to their attraction by tech tenants, and the demand and rental rates are higher  than they would be in conventional buildings.” He was referring to the older, brick and timber buildings mostly located in the South of Market Area that tech companies have sought for more than a decade now. Thornberg, who started calling the housing market bubble as early as 2004, reported that California added more non-farm jobs last year than all states that are not called Texas, posting 356,400 net-new jobs in 2013, and job growth is continuing this year. The markets with the greatest job growth since 2007 through August 2014, according to Thornberg, are San Francisco (10.5 percent increase, or 1.11 million jobs), San Jose (8.5 percent increase, or 999,800 new jobs) and surprisingly – until one considers the energy boom, Bakersfield (6.4 percent increase, or 257,400 new jobs since 2007).San Luis Obispo (3.4 percent) and San Diego (2.1 percent) are the only other major metro areas in the state that have added net-new jobs since the peak of the economy in 2007. All the others are in negative territory.One of the most revealing slides on office market trends presented by Dr. Thornberg, however, displayed Absorption vs. Employment Change in Los Angeles County Offices. These are trends affecting office markets all over the United States and not just L.A., in which office occupiers are taking less space and creating greater density per employee. In L.A., since 2009 when the economy began recovering, employers have added more than 10,000 new office-employment jobs, yet office absorption since 2009 and through the middle of this year has been negative approximately 4 million square feet. About CORFAC InternationalCORFAC International (Corporate Facility Advisors) is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail real estate leasing and investment sales, multifamily property acquisitions and dispositions, property management and corporate services. Founded in 1989, CORFAC International is celebrating its 25th anniversary in 2014. In association with FIABCI (the International Real Estate Federation) and global affiliates, CORFAC International offers commercial real estate services with market reach in 60 countries worldwide. In recent years, CORFAC firms have averaged over 10,000 completed transactions annually totaling more than 397 million square feet worth of space and in excess of $7.1 billion. For more information on the CORFAC network, contact 703.532.6160 or visit www.corfac.com.