1. real estate

SANTA CLARA COUNTY
Retail Market Summary
First Quarter • 2015
Lack of Class A Space = Growth Slowdown
SANTA CLARA COUNTY RETAIL
At the close of Q1 2015, shopping center vacancy in Santa Clara
County stood at 5.0%, down from the 5.6% rate of a year ago but a
Economic Indicators
Q1 14
Q1 15
Santa Clara Co. Employment
880K
974K
Santa Clara Co. Unemployment
6.1%
4.3%
U.S. Unemployment
6.6%
5.5%
12-Month
Forecast
slight increase from the 4.7% rate posted three months ago. This
increase comes almost solely from the San Jose (Downtown/South/
Campbell/Los Gatos) submarket, where vacancy ticked up from 3.9%
to 4.9% in Q1 as -139,000 square feet (SF) of space was returned
to market. Of all the region’s trade areas, only the San Jose market
posted significant declines in Q1. Occupancy growth was modestly
Market Indicators
12-Month
Forecast
positive in Sunnyvale/Cupertino, Santa Clara and Morgan Hill/Gilroy.
It was essentially flat (+/1 10,000 SF) in Palo Alto/Mountain View/
Q1 14
Q1 15
Overall Vacancy
5.6%
5.0%
Los Altos, Milpitas/North San Jose. But all told, the region’s
shopping center market saw occupancy decline by -68,000 SF in
Net Absorption SF
257K
-68K
Q1.
Under Construction SF
520K
322K
$26.94
$27.85
Average Asking Rent (NNN)
This quarter’s occupancy decline, however, is less the beginning of a
new trend than an aberration. We tracked 59,000 SF of new space
that was delivered in Q1, nearly all of which was occupied upon
completion. We are also currently tracking 322,000 SF of product in
the development pipeline. This space is slated for delivery through
Net Absorption/Asking Rent (NNN)
NET ABSORPTION 1Q TRAILING AVERAGE
5.0
$29.00
4Q Trailing Net Abs.(100K SF)
4.0
Avg Asking (NNN)
$28.00
3.0
2.0
$27.00
1.0
$26.00
later this year and roughly half of it already has tenants in place. We
anticipate that 80% or more of this space will be accounted for by
the time it is completed and that lease up times will be short for the
remainder of this product. Tenant demand remains robust,
particularly for new Class A/B+ space.
0.0
$25.00
-1.0
-2.0
$24.00
2011
2012
2013
2014
2015
commerce. Frugality has meant that retail expansion has been driven
by the extremes of the economic spectrum; the luxury chains and
9.0%
the discount chains. In terms of sheer numbers most of the action
has been driven by the discounters and dollar stores who continue to
8.0%
expand aggressively though some off-price concepts and categories
are now starting to reach saturation levels. The rise of e-commerce
7.0%
6.0%
has meant that many of the same mid-priced hard goods chains that
have been squeezed by frugality are also in the process of shifting
Historical Average = 6.4%
their models towards omni-channel growth (I.E. closing weaker
locations while aggressive expanding their e-commerce capabilities).
4.0%
3.0%
2011
available in Santa Clara County but about 90% of this is
concentrated in local Class B-/C centers. Tenant demand continues
to be impacted by two primary forces; consumer frugality and e-
Overall Vacancy
5.0%
There is just roughly 2.0 million square feet (MSF) of retail space
2012
2013
2014
2015
Bricks and mortar growth is increasingly being driven by retail
concepts that don’t compete with e-commerce; food concepts
(grocery and restaurants) and service concepts. But one thing has, so
SANTA CLARA COUNTY
Retail Market Summary
First Quarter • 2015
far, remained a constant with the lion’s share of retail concepts
Average Asking Rate by Market (NNN)
expanding their store counts and that is demand for Class A/B+
product. The challenge is that there is little Class A/B+ vacancy,
SANTA CLARA COUNTY RETAIL RENTS INFLUENCED BY TECH BOOM
$40
which is why growth totals fell in Q1. Limited availability is
hampering growth and deal activity; we tracked just 202,000 SF of
$35.66
$35
$32.16
gross absorption in Q1. Last year, the market averaged 423,000
SF of quarterly deal activity. So far, space users have continued to
options available to them are in Class B-/C centers (even if those
projects are offering comparative bargains).
$30.00
$30
$27.62
NNN
demonstrate that they are willing to pay top dollar for Class A/B+
product but that they are also willing to forego deals if the only
$31.56
$25
$20
$18.66
$15
Space users have continued to demonstrate that
they are willing to pay top dollar for Class A/B+
product and that they aren’t interested in bargains
at the lesser space...
SV/CP
PA/MV/LA
SJDT/CB/LG
MP/NSJ
MH/GIL
Availabilities by Center Type
SPACE PREDOMINANTY IN NEIGHBORHOOD & COMMUNITY CENTERS
The current average asking rent in the region is $27.85 per square
foot (PSF) on an annual triple net basis. This metric has increased
by just 3.3% over the past year but is somewhat misleading.
Premium shop space in new centers is now regularly leasing for
SC
14%
17%
$72.00 PSF or more, and trophy center rents have climbed by
more than 10.0% in the past year. The overall metrics have been
0%
Neighborhood &
Community
Strip
1.9M
Square Feet
weighed down by low asking rates in Class C projects, where the
leasing environment remains extremely competitive. This isn’t
Power & Regional
Mall
69%
Specialty
likely to change any time soon; occupancy gains from new
construction will result in positive growth tallies for Q2 though
overall vacancy levels won’t change much. Rental rate growth will
continue to be aggressive for quality space while the leasing
environment for older Class B-/C centers will remain competitive.
Average Asking Rate by Type (NNN)
STRIP CENTERS SEE RISE IN RENTS FOR Q1
$35
Outlook
$33
$31
•
Despite this quarter’s slick uptick in vacancy, demand is up
everywhere. Residential growth, low employment and top
national income stats are helping to drive significant retailer
interest in Santa Clara County.
$29
$27
$25
$23
$21
•
•
The Palo Alto/Mountain View/Los Altos submarket is the
regions tightest with just 3.3% vacancy.
The San Jose market posted occupancy declines in Q1 they
were limited to Class B-/C space. Demand remains hot in
both Downtown and the Stevens Creek Boulevard Corridor.
$19
$17
$15
2011
2012
2013
Neighborhood & Community
2014
2015
Strip
Power & Regional Mall
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SANTA CLARA COUNTY
Retail Market Summary
First Quarter • 2015
INVENTORY
SUBLEASE
AVAILABLE
SPACE
DIRECT
AVAILABLE
SPACE
TOTAL
AVAILABLE
SPACE
VACANCY
RATE
Q1-15 NET
ABSORPTION
YTD NET
ABSORPTION
AVERAGE
ASKING
RENT NNN
Submarket
San Jose (DT/South)/Campbell/Los Gatos
18,527,673
846,119
62,286
908,405
4.9%
(138,526)
(138,526)
$30.00
Sunnyvale/Cupertino
4,612,272
158,072
6,246
164,318
3.6%
19,949
19,949
$35.66
Santa Clara
2,530,509
77,550
33,350
110,900
4.4%
14,900
14,900
$32.16
Palo Alto/Mountain View/Los Altos
2,713,079
89,255
0
89,255
3.3%
(407)
(407)
$31.56
Milpitas/North San Jose
4,876,107
260,651
2,940
263,591
5.4%
6,176
6,176
$27.62
Morgan Hill/Gilroy
4,718,147
375,370
0
375,370
8.0%
29,847
29,847
$18.66
Neighborhood & Community
26,192,769
1,271,218
82,357
1,353,575
5.2%
(22,396)
(22,396)
$27.57
Strip
5,824,612
318,428
6,246
324,674
5.6%
(8,748)
(8,748)
$28.77
Power & Regional
5,166,201
247,312
20,645
267,957
5.2%
(33,272)
(33,272)
$28.75
Shopping Centers by Type
Specialty
1,690,438
11,305
0
11,305
0.7%
(3,900)
(3,900)
N/A
TOTAL
38,874,020
1,848,263
109,248
1,957,511
5.0%
(68,316)
(68,316)
$27.85
Key Lease Transactions Q1 15
PROPERTY
SF
TENANT
TRANSACTION TYPE
CITY
1600 Monterey Rd
100,088
Walmart
New Lease
Santa Clara
20580 Homestead
38,413
Ross Dress for Less
New Lease
Cupertino
1322 Mary S.
23,200
Zanotto’s
New Lease
San Jose
8595 Monterey
16,637
Sunbelt Rentals
New Lease
Gilroy
Key Investment Sale Transactions Q1 15
PROPERTY
SF
BUYER
SALE PRICE
MARKET
Village Oaks
175,000
DS Village Oaks, LP
$111,000,000
San Jose
San Antonio Center
368,912
Federal Realty Investment Trust
$49,760,000
Mountain View
Cambrian Park Plaza
170,427
Weingarten Realty Investors
$49,000,000
San Jose
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SANTA CLARA COUNTY
Retail Market Summary
First Quarter • 2015
Retail Submarkets
Santa Clara County
About DTZ
DTZ is a global leader in commercial real estate services providing occupiers, tenants and
investors around the world with a full spectrum of property solutions. The company’s core
capabilities include agency leasing, tenant representation, corporate and global occupier
services, property management, facilities management, facilities services, capital markets,
investment and asset management, valuation, research, consulting, and project and
development management. DTZ provides property management for 1.9 billion square feet, or
171 million square meters, and facilities management for 1.3 billion square feet, or 124
million square meters. The company completed $63 billion in transaction volume globally in
2014 on behalf of institutional, corporate, government and private clients. Headquartered in
Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in
50 countries and represent the company’s culture of excellence, client advocacy, integrity and
collaboration. For further information, visit: www.dtz.com or follow us on Twitter @DTZ.
Garrick Brown
VP of Research, West Region
[email protected]
201 California Street
Suite 800
San Francisco, CA 94111
Tel: 916.329.1558
Fax: 415.956.3381
The information contained within this report is gathered from
multiple sources considered to be reliable. The information may
contain errors or omissions and is presented without any warranty or
representations as to its accuracy.
Copyright © 2015 DTZ Retail Terranomics.
All rights reserved.
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