IRR-San Jose Mid-Year Viewpoint 2015 Local Market Report - Retail
With its household income levels being among the highest in the nation, Silicon Valley continues to be a preferred market for investors who wish to expand their presence or gain a foothold in San Jose. However, inventory for sale is limited, which continues to place upward pressures on prices and downward pressure on capitalization rates. Given that San Mateo, San Francisco, and Marin Counties are built out, the majority of the new construction in the Bay Area is concentrated in the South Bay/San Jose and Oakland/East Bay submarkets.
Similar to trends on a regional level, credit retailers are competing aggressively for high-quality, Class A/B+ retail space, and are not incentivized by discounted rents to lease space in Class B/C centers. This trend has resulted in a bifurcation of the market. Occupancy growth has been suppressed due to a lack of Class A space overall, and the majority of the currently vacant space is concentrated in Class B/C centers. As a result of the pent-up demand from good credit tenants, construction has increased, with 322,000 square feet in the pipeline. Most new centers are enjoying strong preleasing activity, and are mostly occupied upon delivery, with abbreviated absorption periods for any remaining vacant space.
South Bay retail continues to be in high demand; however, investors are seeing a limited number of deals for sale, which is driving up pricing for the few projects that do hit the market. Considering projections of continued employment growth, as well as strong demographics in this area, the near-term outlook for the South Bay retail market continues to remain positive.
Download the full version PDF of this Local Market Report below. It includes graphs and tables.
IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.