By Robert Sammons, Regional Director – Northwest U.S. Research
Economy & Unemployment Update
According to the State of California Employment Development Department, the unemployment rate in the San Jose metro area was recorded at 3.9% in February 2016, down 70 basis point (bps) year-over-year (YoY) from 4.6%. Total employment rose by 39,200 jobs or 3.8% YoY to reach 1,064,300 jobs, with private sector positions closing February at 966,400, up by 40,400 or 4.4% YoY.
Professional and business services advanced by 13,300 jobs from last year’s figure (+6.4% YoY), mostly in professional, scientific, and technical services.
Shopping Mall Market Overview
As of the first quarter of 2016, shopping center vacancy throughout the San Jose Metro Area was 5.1%, up 30 basis point (bps) from the 4.8% rate of three months ago but slightly down from the 5.2% rate that was in place in the same period last year.
Santa Clara had the lowest occupancy rate in the region at 2.3%, while Morgan Hill/Gilroy recorded the highest vacancy in the area of 8.1%. The vacancy rate in Morgan Hill/Gilroy, however, has continued to trend lower since its most recent historical high of 12.9% in Q3 2010.
Shopping Center Categories
By center type, the vacancy rate at the end March 2016 for neighborhood & community centers was 5.7%. Strip centers reported 4.0% vacancy, followed by power & regional malls with 3.8% vacant space and finally lifestyle centers reporting 2.4% vacancy.
Net absorption for Q1 was actually negative at 1,800 sf. The negative absorption primarily came from neighborhood/ community centers, while other shopping center types recorded positive absorptions, such as strip centers (37,000 sf) and power & regional malls (25,000 sf).
Of the roughly 37.4 million square feet (msf) of shopping center inventory that Cushman & Wakefield tracks in the region, less than 2.0 msf of space was available as of Q1 2016 and most of that space was comprised of Class B or C projects.
New Shopping Center Space
During the first three month of 2016, 106,000 sf of new retail product was added to San Jose metro area with an additional 467,000 sf under construction. By comparison, 320,000 sf of new shopping center space was added in 2015. The major new completions in Q1 was Main Street Cupertino, a neighborhood center and part of a mixed-use complex of apartment, retail center, office space and a Marriott Residence Inn.
Average Asking Rents
The average asking rent in the region as of Q1 2016 was $29.04 per square foot per year (psf/yr) on triple net basis, up 3.0% from last year’s figure of $28.20 psf/yr. The rental rates range from $18.60 psf/yr in Morgan Hill/Gilroy to $36.84 psf/yr in Palo Alto/Mountain View/Los Altos.
These rates reflect what is currently available in the marketplace, but most of that currently is Class B or C space. Asking rates for small shop space in Class A or newly completed projects are typically topping the $60.00 psf/yr mark with some projects exceeding the $70.00 psf/yr threshold.
Biggest Sale: Eastridge Mall, San Jose – $225 Million
The largest shopping center investment sale to occur in Q1 was the 785,800 sf Eastridge Mall, one of the largest shopping centers in the South Bay, anchored by AMC Theaters, JCPenney, Macy’s and Sears.
Located at 2190 Eastridge Loop, San Jose, the mall was sold for $225.0 million or $286 psf to the group backed by Goldman Sacs Pacific Retail Partners and Silverpeak Real Estate Partners.
Robert Sammons is a Research Director for Cushman & Wakefield. Based in San Francisco, Robert’s principal roles include working closely with the C&W research teams across the Northwest –including Northern California, Portland and Denver. Robert is author of numerous documents that delve into a wide variety of real estate and economic trends. He has been a quoted source for all manner of real estate and related economic information in many widely known media outlets across the country. Robert has 29 years of real estate experience as both an appraiser and researcher. He earned a BBA in Real Estate from The University of Georgia and an MS in Real Estate from Georgia State University. Robert is a current member of the Urban Land Institute.