q2 2019 bay area market report - valbridge.com · san francisco: q2-2019 . office . the tech...

QUARTERLY NEWSLETTERSan Francisco Bay Area – Q2 2019

This newsletter is designed as basic snapshot of the San Francisco Bay Area commercial real estate market for theSecond Quarter 2019.

VALBRIDGE PROPERTY ADVISORS | Northern California55 South Market Street, Suite 1210San Jose, CA 95113Phone: 408.279.1520

www.valbridge.com

3160 Crow Canyon Place, Suite 245San Ramon, CA 94583Phone: 925.327.1660

http://www.valbridge.com/

© Copyright 2019 Valbridge Property Advisors | Northern California

An Overview of Property Tax Appeals Yvonne J. Broszus, MAI Managing Director, Valbridge Property Advisors

The filing period for 2019-2020 Proposition 8 tax appeals is now open. The window of opportunity to file an appeal closes either September 15, or November 30, depending on the county in which the property is located. If your property is assessed for tax purposes at a value that exceeds the current market value of the property, you may have a potential tax appeal case. Appeals are filed with the county in which the property is assessed. Most counties have forms available on-line to file a tax appeal. A “Proposition 8” tax appeal is an appeal to temporarily reduce the assessed value of a property. The reduction, if granted, is effective for one year. The following year, if another reduction is warranted, another appeal needs to be filed. The reduction is not permanent; the base assessed value of the property does not change. The property interest, or bundle of rights, appraised for property tax purposes is the “fee simple” estate. This is the 100 percent ownership. If a property is encumbered by below-market or above-market leases as of the lien date, the impact on value of the lease will not be factored into the value. The Assessor maintains separate assessed values for the land and the improvements on every property. Many times, the land may be under-assessed, and the improvements over-assessed.

The first step in the tax appeal process is to file an application of appeal with the Assessment Appeals Board. Once an application is filed, the county will send a request for information. If you do not respond to this request, the Assessor can request that the Assessment Appeals Board not hear your case, but rather close the case. If a case proceeds, the Assessor’s Office may attempt to resolve it informally rather than going before the Board. In the vast majority of cases, Valbridge Property Advisors has been able to settle cases far short of going before the Appeals Board. One important factor to consider in a tax appeal is that the burden of proof in a Proposition 8 tax appeal case resides with the applicant, or property owner. The applicant must provide compelling evidence that the property is over-assessed, or a reduction will not be granted. The application to file an appeal is available on-line through most county Assessor’s Offices. Each county has a slightly different form. You can file this appeal yourself, or Valbridge can assist you. If you think your property might be over-assessed, you may want to file an appeal, simply to protect your rights, until a valuation can be completed on the property. If you miss the appeal deadline under Proposition 8, you cannot later contest your valuation. If Valbridge Property Advisors can be of assistance with your property tax needs, please contact us. You can reach me directly at [email protected] or (408) 722-1935.

mailto:[email protected]


Silicon Valley: Q2-2019 Office Demand from high-tech companies continues to thrust the Silicon Valley office market forward. San Jose ranks as the second leading office market in the nation, following San Francisco. Development activity is strong, as is tenant leasing activity. There are 211 M square feet of space in inventory, and the 12-month net absorption is 4 M square feet of office/R&D space.

SILICON VALLEY OFFICE MARKET

Average Vacancy Rate: 8% • Down 1.3% from Q2-2018 • Expected to finish 2019 at 7.8%

Average Market Rent: $61.44 • Up 6.4% from Q2-2018 • Expected to increase to $63.02 by year-end

Market Sale Price (per SF): $686

Market Cap Rate: 4.7%


Silicon Valley: Q2-2019 Industrial The Silicon Valley industrial market has strengthened mostly because of the tech sector. Most of the supply is comprised of flex, lab, or R&D space. Warehouse and distribution space are not as common, as most Bay Area distributors prefer to relocate in the East Bay, where rents are cheaper. Inventory consists of 249 M square feet of space; 12-month net absorption is 1.4 M square feet of industrial/R&D space.

SILICON VALLEY INDUSTRIAL MARKET

Average Vacancy Rate: 5.5% • Down 0.5% from Q2-2018 • Expected to finish 2019 at 4.9%





Silicon Valley: Q2-2019 Retail Retailers have benefited from Silicon Valley’s strong economic expansion. Strong local income growth has led to increased consumer demand. Inventory consists of 108 M square feet of retail space; 12-month net absorption is 36.6 K square feet of space.

SILICON VALLEY RETAIL MARKET

Average Vacancy Rate: 3.0% • Down 0.87% from Q2-2018 • Expected to finish 2019 at 3.44%





Silicon Valley: Q2-2019 Multi-Family The Silicon Valley multi-family market remains strong. New inventory has been absorbed quickly, and vacancy rates have remained unchanged within the past year. In response, the area’s landlords are increasing rental rates. Inventory consists of 270,528 units; 12-month absorption is 4,354 units.

SILICON VALLEY MULTI-FAMILY MARKET

Average Vacancy Rate: 4.24% • Relatively unchanged from Q2-2018 • Expected to finish 2019 at 4.72%

Average Market Rent: $2,654 (per unit) • Up 5.1% from Q2-2018 • Expected to increase to $2,793 by year-end

Market Sale Price (per unit): $521,000



East Bay: Q2-2019 Office The East Bay has a more diverse economic foundation than the other Bay Area markets, with the port of Oakland being the central economic core of the East Bay. Oakland and other Easy Bay submarkets with established transportation infrastructure have benefited from tenants migrating to a more affordable area. There are 113 M square feet of space in inventory, and the 12-month net absorption is 1.2 M square feet.

EAST BAY OFFICE MARKET

Average Vacancy Rate: 8.6% • Remained stable since the beginning of 2016, ranging 8% to 9% • Forecasted to finish 2019 at 8.3%

Average Market Rent: $38.35 SF • Has risen every year since 2011 • Expected to finish 2019 at $39.82




East Bay: Q2-2019 Industrial National industrial growth is at a record high, with nearly 10,000 new jobs created in the East Bay this year it has reinforced the industrial sector. Demand for industrial space is thriving in the East Bay, which is significantly influenced by the expansive growth of e-commerce. Net absorption turned negative in 2018 due to several large blocks of new speculative product delivered, further flattening vacancy rates. Overall, demand remains strong and vacancy rates are still below the 10-year historical average. Inventory consists of 265 M square feet of space; 12-month net absorption is -1.2 M square feet.

EAST BAY INDUSTRIAL MARKET

Average Vacancy Rate: 4.7% • Up 100 basis points from Q2-2018 • Expected to finish 2019 at 5.8%

Average Market Rent: $14.58 PSF • Up 8.08% from Q2-2018 • Expected to increase to $15.05 by year-end




East Bay: Q2-2019 Retail The East Bay possesses one of the healthiest retail markets in the country. Despite store closures from big box retailers, vacancy rates are far below the 10-year historical average. Higher-end retailers dominate the market and cater to the affluent suburban areas. The current inventory consists of 124 M square feet of retail space; 12-month net absorption is -308K square feet of space.

EAST BAY RETAIL MARKET

Average Vacancy Rate: 3.59% • Expected to finish 2019 at 3.62%





East Bay: Q2-2019 Multi-Family The East Bay is ranked the 4th most expensive apartment markets in the nation. Demand for apartments in the East Bay is exceptionally robust with most of the new supply concentrated in Downtown Oakland. Vacancy rates will continue to rise, although only temporarily while supply exceeds demand. Vacancy rates, long-term, are expected to remain healthy. Inventory consists of 170,767 units; 12-month absorption is 1,936 units.

EAST BAY MULTI-FAMILY MARKET

Average Vacancy Rate: 4.87% • Slight upticks in vacancy expected due to supply growth from new multifamily

development • Up 4.78% from Q2-2018

Average Market Rent: $2,225 (per unit) • Up 2.06% from Q2-2018 • On an upward trend since 2016, averaging 2.5% in annual growth • Expected to finish 2019 at $2,188

Market Sale Price (per unit): $358,203



San Francisco: Q2-2019 Office The tech industry continues to push the San Francisco office market to new heights. San Francisco ranks the as the country’s strongest office market in annual rent growth. There is 122 M square feet of space in inventory, and the 12-month net absorption is 889 K square feet.

SAN FRANCISCO OFFICE MARKET

Average Vacancy Rate: 5.5% • Down 5.17% from Q2 2018 • Expected to finish 2019 at 5.4%

Average Market Rent: $69.76 • Increase of 6.33% from Q2 2018

Market Sale Price (per SF): $894.40



San Francisco: Q2-2019 Industrial The industrial market in San Francisco has been holding consistently. Industrial tenants tend to look towards the East Bay and Central Valley as the price (on a per square foot basis) is cheaper and a better distribution infrastructure is in place. There is 27.6 M square feet of industrial space, and the 12-month net absorption is -194 K square feet.

SAN FRANCISCO INDUSTRIAL MARKET


Average Vacancy Rate 2.5% • Increase of 25% from Q2 2018 • Expected to finish 2019 at 2.60%

Market Sale Price (Per SF): $322.17



San Francisco: Q2-2019 Retail The retail market in San Francisco has been holding up respectably, considering the overall retail trends playing out across the county. There is 50.4 M square feet of retail inventory, and the 12-month net absorption is 150 K square feet.

SAN FRANCISCO RETAIL MARKET


Average Vacancy Rate 3.13% • Decrease of 2.8% from Q2 2018 • Expected to finish 2019 at 2.69%

Market Sale Price (Per SF): $693.24



San Francisco: Q2-2019 Multi-Family The tech industry continues to add jobs in San Francisco causing housing to become very scarce and expensive. San Francisco ranks as the most expensive rental market in the country. There is a total of 144,295 units in SF; the 12-month net absorption is 1,475 and there are currently 6,193 units under construction.

SAN FRANCISCO MULTI-FAMILY MARKET

Market Asking Rent Per Unit: $3,050 • Up 3.3% from Q2 2018

Average Vacancy Rate 3.71% • Down 11.03% from Q2 2018 • Expected to finish 2019 at 3.89%

Market Sale Price (Per Unit): $652,806


© Copyright 2019 Valbridge Property Advisors | Northern California. ALL information herein was obtained from third parties. The accuracy of the data is not verified, warranted, or guaranteed. For the exclusive use of Valbridge Property Advisors | Northern California. Reproduction or distribution without consent is prohibited.

National Capitalization Rates According to the PriceWaterhouseCooper (PwC) “Real Estate Investor Survey,” capitalization rates have remained stable in three categories. Overall, capitalization rates have favored a stable trend, in comparison to Q1 2019.

Property Type

Low High Average Value Trend From

Prior Quarter Regional Mall 4.00% 9.00% 6.08% Decrease Retail Strip Center 4.25% 10.00% 6.75% Increase CBD Office 3.00% 7.25% 5.39% Stable Suburban Office 5.00% 10.00% 6.64% Stable Warehouse 3.00% 6.25% 4.65% Stable Apartment 3.50% 7.00% 5.14% Increase Average for All Properties 3.79% 8.25% 5.78% Stable

Data Sources: CoStar, Inc.; PriceWaterhouseCooper (PwC); REIS

Prepared By: Sahar Miller, Neil Shah, Joseph Warren

VALBRIDGE PROPERTY ADVISORS | Northern California OfficesSilicon Valley – East Bay – Central Valley - Sacramento

www.valbridge.com

MANAGEMENT FOR VALBRIDGE | NORTHERN CALIFORNIA

Norman C. Hulberg, MAI [email protected] (408) 722-9102

Walter D. Carney, MAI [email protected] (408) 722-9125

Stephen D. Kuhnhoff, MAI, ASA [email protected] (925) 659-1023

Yvonne J. Broszus, MAI [email protected] (408) 722-9135

John A. Hillas, MAI, SRA [email protected] (209) 623-1451

Guido Villanueva [email protected] (925) 659-1021

Josh Fronen, MAI [email protected] (408) 722-9133

q2 2019 bay area market report - valbridge.com · san francisco: q2-2019 . office . the tech...

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