Who doesn't love Top 10 lists? Here's a fresh one: Sperry Van Ness Commercial Real Estate Advisors' hot-off-the-presses retail edition of its Top 10 Markets to Watch report. Each of these markets, almost exclusively in the South and Far West, is poised to heat up with population and economic growth, new development, investment activity, or some combination. Here's a by-the-numbers synopsis.
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Los Angeles: As population increases another 100,000 people and 80,000 new jobs are added this year, retail vacancy will drop to 3.6 percent and rents will average $27.95 per square foot. Downtown L.A. and the San Gabriel Valley offer opportunities for the most growth.
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Orlando: Population and job growth is forecast to increase 2.8 percent and 4.4 percent, respectively, thanks to in-migrants' attraction to the climate and the state income tax (there is none). With 1.4 million square feet in new completions representing a 20 percent decrease over last year, and projected retail sales growth at 5 percent, vacancy will fall to 5.3 percent; $18.10 average rent. Good news for investors: Although prices have increased 40 percent since 2001, cap rates haven't compressed as quickly and are still above the national average.
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Puget Sound Region: The tech bust is over. Some 48,000 new jobs will be created this year. With vacancy dropping to 4.5 percent, rents will increase to $22.40. Institutional-level acquisitions will continue at a quick pace, meaning sellers of larger assets could have a banner year.
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West Palm Beach/Ft. Lauderdale: Population will increase by 30,000 residents; business owners will add 54,000 employees to their ranks; retail sales will grow by 4.8 percent. But retail developers are increasing new inventory by a mere 1.2 percent, thanks to a lack of developable land and growing community resistance. Vacancy will decrease as a result, but expect some in-fill and reurbanization projects to launch, too.
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San Diego: Just as sun-loving migrants are gravitating toward the San Diego lifestyle, so are retailers: Vacancy rates will fall to about 3 percent, and builders are set to complete 1.5 million square feet in new construction. This spells increasing price hikes and cap-rate compressions; buyers searching for income growth will turn their attention to the Far South County submarket, where average rents lag the region by 20 percent.
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Phoenix: Among the 71,000 new jobs to be created this year, 12,800 of them will be high-paid professional and business service positions that have a direct, positive impact on retail sales — to the tune of a 6.7-percent gain. Despite aggressive development, demand is high and retailers will absorb 3 million square feet.
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San Francisco/Oakland: The area is bouncing back from the dot-com bomb, and once again job growth is focusing on technology and biotech. Vacancy rates will fall below 5 percent in San Francisco, where developable land is scarce, and 6.5 percent in Oakland.
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Austin: With local median income at $52,170 and 31,500 new jobs to be created this year, it's no wonder that developers are delivering 2.8 million square feet. Much of this space, though, is pre-leased and filled by net-lease tenants, meaning that vacancy will only drop slightly, to 7.2 percent. Tenant income will equalize climbing prices and compressing cap rates, though there is significant opportunity in properties where rents are below market level.
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Denver: With a median income of $60,000, steady job and population growth, and median age of 32.3, Denver is poised for a 7.2-percent increase in retail sales. And yet the city's retail vacancy rate is a high 7.7 percent. Good demographic stats should improve fundamentals at retail properties, which will boost investment demand.
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San Jose: With job growth rebounding and retail sales projected to rise 4.6 percent, vacancy will fall to 3.8 percent and rents will reach $29.90. It could be the rebirth of the San Jose market, which lost 200,000 jobs after the Internet bubble burst in 2001. New construction was limited to 500,000 square feet this year.