LEE & ASSOCIATES ISSUES YEAR END REPORT
LEE & ASSOCIATES ISSUES YEAR END REPORT
2014 - There is some light at the end of the tunnel! After many years in the Real Estate and Development business. I have learned that the High Desert Region of Southern California is usually the first area to feel the effects of a recession and the last to benefit from an economic recovery. This recession, now in its eighth year, is following that same recovery pattern. Over all our available inventory of commercial space is declining. However, we're still seeing some resistance in our lease rates and sale prices. This is interesting, usually in an expanding economic cycle, when supply goes down, prices begin to increase exponentially, while we have definitely seen improvement we are not seeing it at the pace that other more urbanized areas have been experiencing . Lease rates and sale prices of properties are continuing to advance cautiously and until we see those numbers move higher, new projects will be challenged in securing the financing that they need to substantiate new development. I anticipate 2015 to pick up momentum as the availability of properties begins to get tighter along the Inland Empire corridors.
The Industrial Market - ended the year with a vacancy factor of 5.0 % and had a total net absorption of 35,895 sq. ft. as of the fourth quarter 2014. Lease rates increased slightly and we anticipate lease rates to begin moving up more aggressively in 2015 as available space is absorbed. New development of Industrial Buildings was limited in 2014, and with the exception of owner user transactions there has been no significant new development of speculative "For Lease" product in the marketplace. Based on the low vacancy factor and increasing lease rates, we see an opportunity for new projects to be developed to satisfy pent up demand in the marketplace in 2015.
Our Retail Market - is recovering, with a vacancy factor decreasing to 6.4 % and a positive absorption of 571,542 sq. ft. as of year end. Lease rates have increased slightly, and it appears we have some positive signs of recovery in the market as of the end of 2014. As the supply of available space to continue to decrease, lease rates should begin increasing in 2015. There has been an active development market for discount stores in the entire region, and we expect to see that trend continue into next year.
The Office Market - ended 2014 with a vacancy rate of 4.5%. The vacancy was down over all for the year, but net absorption declined a total of 2,391 sq. ft. Lease rates increased slightly and as with the retail sector, we anticipate lease rates to begin advancing by the second quarter of 2015. New office development for 2014 will be limited primarily to government services and banks will be cautious in lending on any new multi - tenant office properties until the developer has a substantial percentage of the project pre-leased.
The Land Business - began improving in 2014, with investors anticipating that the bottom of the market was near and began acquiring well located and bargain priced properties to hold in their portfolio in anticipation of appreciation in the future. Active tentative tract maps have been in big demand by investors who are anticipating that when the market begins to recover the lots that can be developed in a short period of time and will bring a premium with merchant builders anxious to enter the housing market and start construction. Square footage prices on appraisals now support new construction of single family homes.
Regionally - we see the continually changing federal clean air standards and the South Coast Air Quality Management District (SCAQMD) seriously restricting economic growth in all eight Southern California counties. The additional regulation and costs that business's must incur to comply with an ever changing set of rules adds tremendous uncertainty and confusion, which is restricting business development and motivating business's to move out of the state. We are fortunate in the High Desert to not be a part of the SCAQMD and are in the Mojave Air Quality Management District (MAQMD).They are a reasonable group of people and still actually believe in trying to assist an applicant in making their project a reality. If you want a breath of fresh air come on up to the High Country and you will find the regulatory agencies a refreshing change from what most developers in California have become accustomed to.
The Economy of the State - continues to be threatened by the possibility of changes to Proposition 13 property tax structure adopted by California voters in 1978.The split property tax roll as proposed would represent a massive increase in the cost of doing business in California, creating a significant negative impact on any effort to revitalize the state's economy. The split property tax roll proposal will remove the Proposition 13 limits that restrict the amount that taxes can be raised on a commercial property. While this will generate additional income for our States Treasury, the damage that it will do to the Commercial Real Estate Industry will be devastating. Please let your elected officials know that you're opposed to the split property tax roll amendment when it is again proposed to the State Assembly in 2015.
We publish our newsletter twice a year, at mid-year and year end. Our intent is to provide you with a good overview of the Commercial Real Estate Market in the High Desert Region of Southern California. We keep the content brief, to the point and focused on fact and not speculation. Monthly we will be sending out “Lee in the Know”, which is a monthly update of what has occurred in the past month in the Commercial Real Estate Industry with convenient links that you can click on and read complete articles relating to our region. We will be brief and to the point and will attempt to not waste our clients time with editorials or non essential information that you can secure from other sources. In closing I would like to remind everyone that "Business is a sensitive thing. It goes where it is invited. Stays where it is cared for. And grows where it is cultivated". Pass this on to your elected officials and your favorite bureaucrat next time you're at a breakfast or lunch meeting. Thank you for your time and we hope you enjoy the information contained in our "2014 Year in Review Market Report”. Look for our Mid-Year Market Report, which will be sent out July 1, 2015.Have a great year! Don Brown - President- Lee & Associates Inland Empire North/High Desert Region.