2019 economic forecast...impact of cannabis on the power inn submarket industrial $0.32 $0.36 10.3%...

2018 Commercial Real Estate Recap and 2019 ForecastBob Shanahan, Senior Research Analyst

Randy Dixon, Managing Director

January 25, 2019

Presentation Title

Agenda

▪Employment Growth

▪Population Growth

▪Office Market

▪ Industrial Market

▪Multifamily Market

▪Retail Trends

Employment & Population Growth

Presentation Title

Employment Snapshot

• Government and

Education/Healthcare

make up 41% of the

Sacramento region’s

1,002,000 jobs

• 69% of the new jobs

added in the last 12

months were in

Government,

Healthcare, or

Education

• Slower annual job

growth in 2019 closer to

1%Source: California Employment Development Department

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

700,000

750,000

800,000

850,000

900,000

950,000

1,000,000

1,050,000

Sacramento MSA - Total Nonfarm Jobs & Unemployment Rate

Total Jobs Unemployment Rate California Unemployment Rate

3.5%

4.1%

Presentation Title

Bay Area Business Migration

PenumbraAlameda-based

Leased 160,000 SF in Roseville

(expansion) in October 2017

Medical technology manufacturer

250-300 jobs ($50K avg. salary)

Anton DevCoFoster City-based

Leased 5,000 SF at the Ice Blocks

where it will move its HQ from

Foster City

Multifamily developer will employ

about 20 at Sacramento HQ

CorefactHayward-based

Leased 4,546 SF in Roseville

Real estate marketing company

named one of fastest-growing

privately-held companies in the Bay

Area for three years in a row

CPUC San Francisco-based

Future hiring to occur in

Sacramento

800 San Francisco employees

100 Sacramento employees

And …

Presentation Title

U-Haul Growth Cities are calculated by the net gain of

one-way U-Haul trucks entering a city versus leaving

that city during a calendar year. Migration trends data is compiled from more than 2

million one-way U-Haul truck sharing transactions that

occur annually.

Population Growth

1. Sacramento/Roseville, CA2. Spring, TX

3. Manhattan, NY

4. Harrisburg, PA

5. Grand Rapids/Wyoming, MI

6. San Francisco, CA

7. Greenville, SC

8. Fort Lauderdale, FL

9. Madison, WI

10. Kissimmee, FL

11. McKinney, TX

12. Pittsburgh, PA

13. Springfield, VA

14. Palm Springs/Cathedral City, CA

15. St. George, UT

U-Haul U.S. Growth Cities for 2018“This market is an attractive

option for those who have

been priced out of the Bay

Area,” stated Aaron Anderson,

U-Haul Company of East

Sacramento president. “There

has been out-migration from

parts of the Bay Area in recent

years, but many movers are

remaining in-state because

they can find affordability in

Sacramento and Roseville.

Commuters can be 90 minutes

from their jobs and enjoy

close-knit communities.”

20,000 people each year relocate from

the Bay Area to the greater Sacramento

region (US Census Bureau)

+25,000 residents

from July 2017 to

July 2018 (+1.1%)

Presentation Title

Millennial Migration

Sacramento ranks third in the nation in net

Millennial migration

Presentation Title

Bay Area Spillover

Sacramento #1 for San Francisco

households looking to relocate

Table: Top 10 Metros by Net Inflow of Users and Their Top Origins

Rank Metro* Net Inflow

Net Inflow

2017 Top Origin

Top Out-of-

State Origin

1 Sacramento,

CA

7,029 5,081 San

Francisco,

CA

Las Vegas,

NV

2 Atlanta, GA 5,466 2,993 New York,

NY

New York,

NY

3 Phoenix, AZ 5,258 3,200 Los

Angeles,

CA

Los Angeles,

CA

4 Portland, OR 3,904 983 San

Francisco,

CA

San

Francisco,

CA

5 San Diego, CA 3,206 5,979 Los

Angeles,

CA

New York,

NY

Office Market Off The Charts

Presentation Title

Annual Rent Growth

+5%Annual Net Absorption

807k SF

Vacancy Rate

12.4%

Office Market Fundamentals Q4 2018 Market

Statistics

Office

13.0% 13.7%15.3%

17.2%

19.2%20.2% 20.6%

19.2%17.7%

16.4%14.7% 13.9% 13.4%

12.4%

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

24.0%

28.0%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Colliers International Research

Total Net Absorption New Supply Total EOY Vacancy %

Presentation Title

Class A / B Office Rents & Sale Prices

Office

$176.67 $183.33 $241.07 $207.94 $178.05 $116.21 $116.39 $83.66 $114.24 $143.06 $139.50 $163.52 $151.19 $174.27

$1.87$1.95

$2.05

$1.87$1.81

$1.73 $1.70 $1.69 $1.71$1.76

$1.79$1.84 $1.84

$1.94

$2.27$2.34

$2.48

$2.27

$2.17$2.10 $2.11 $2.09 $2.08

$2.19$2.23

$2.30 $2.30

$2.42

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

$50

$100

$150

$200

$250

$300

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Colliers International Research Avg. $ Paid/Bldg. SF Class B Class A

Presentation Title

Downtown Class A Rates vs. Suburban Class A Rates

Office

$2.16

$1.82

$2.08

$3.07

$2.70$2.66

$1.50

$1.70

$1.90

$2.10

$2.30

$2.50

$2.70

$2.90

$3.10

$3.30

20182017201620152014201320122011201020092008200720062005

Suburban Class A Downtown Class A

Presentation Title

2018 Office Headlines

Ice Blocks

1610 R Street / Midtown

• 100,000 SF office completed May 2018

• 100% leased to EA, Spaces, Accenture, Dudensing Law

Firm, Anton DevCo, ConSol/CHEERS

• Heller Pacific developed three-block mixed-use project

including 142 apartment units, 60,000 SF retail

Office

Centene West Coast Headquarters

4201 E Commerce Way / North Natomas

• 1.25M SF two-phase office campus (540K SF first phase)

• Hines closed on 68-acre site in September

• St. Louis-based Centene will bring as many as 5,000 jobs to

the new campus

• 1,500 new apartment units proposed within a three-mile

radius of Centene campus

Presentation Title 14

Demand driven by government and healthcare

Office

629,970

157,119 115,000

45,000 30,000

Government Insurance Healthcare Coworking Education

Office Tenant Demand by Industry

67 active 5,000-plus square foot

tenants in the market as of January

2019 totaling 1.85M SF of demand

5 of the 10 largest leases signed in 2018 were government or

healthcare tenants

Presentation Title

Top Sales of the Year

621 Capitol Mall 336K SF Class A / Downtown

Sale Price $161M

Price / SF $439.49

Buyer Shorenstein Properties

Seller David S Taylor

Sale Date January 9th

The Senator 163K SF Class A / Downtown

Sale Price $46.9M

Price / SF $260.38

Buyer Seagate Properties

Seller Swift Real Estate

Sale Date December 28th

770 L Street 170K SF Class A / Downtown

Sale Price $44.5M

Price / SF $261.35

Buyer New York Life

Seller AMP Capital / PB&J

Sale Date February 20th

HP Innovation Center Three building portfolio / Roseville

Sale Price $93.5M

Price / SF $209.00

Buyer Stonemont Financial

Seller Strada Investment

Sale Date June 7th

Office

Presentation Title 16Presentation Title

Lorem Ipsum

State of California

• P Street Building = 700K SF

• 1215 O Street = 255K SF

• State Occupies 9.6M SF, or 41%, of Downtown’s existing inventory (23.4M SF)

New Development Dominated by Build-to-Suits

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Office

Healthcare BTS

• Adventist Health = 242K SF

• Kaiser Roseville = 194K SF

• Dignity Health = 68K SF (October)

New Natural Resources Building

Adventist Health


Future Development Pipeline

Tower 301

301 Capitol Mall / Downtown

Owner / Developer CalPERS / CIM Group

RBA 730,000 SF

Pre-Lease Requirement 40% (292,000 SF)

Timing 2022 Completion

Office

The Foundry at The Railyards

5th/6th @ Railyards Blvd / Downtown

Owner / Developer LDK Ventures

RBA 300,000 SF (two buildings)

Pre-Lease Requirement 30-40% per building

Timing 2023 Completion

Presentation Title

What will 2019 bring?

Office

• New spec development, under 100K SF

• More Bay Area migration of companies and

residents

• Increased attention from investors seeking

higher yields

• New coworking space

• Decreasing vacancy rate

• Downtown vacancy will drop below 10% for

the first time since 2003

• Rising rents (4-6% annual growth)

• Fewer landlord concessions

Urban Hive’s new coworking space in

The Cannery on Alhambra Blvd

Presentation Title

Annual Rent Growth

+5%Annual Net Absorption

807k SF

Vacancy Rate

12.4%

Office Market Fundamentals Q4 2018 Market

Statistics

Office

13.0% 13.7%15.3%

17.2%

19.2%20.2% 20.6%

19.2%17.7%

16.4%14.7% 13.9% 13.4%

12.4%

-12.0%

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

24.0%

28.0%

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Colliers International Research

Total Net Absorption New Supply Total EOY Vacancy %

Presentation Title

What will 2019 bring?

Office

• New spec development, under 100K SF

• More Bay Area migration of companies and

residents

• Increased attention from investors seeking

higher yields

• New coworking space

• Decreasing vacancy rate

• Downtown vacancy will drop below 10% for

the first time since 2003

• Rising rents (4-6% annual growth)

• Fewer landlord concessions

Urban Hive’s new coworking space in

The Cannery on Alhambra Blvd

Increasing Industrial Development

Presentation Title

Annual Rent Growth

+37.2%

Annual Net Absorption

3.5M SF

Vacancy Rate

4.2%

Industrial Market Fundamentals Q4 2018

Warehouse Market

Statistics

Industrial

Presentation Title

Industrial Rents & Sale Prices

Industrial

Nov. 2016: California voters

approve to legalize cannabis for

recreational use starting in 2018

Presentation Title

Impact of Cannabis on the Power Inn Submarket

Industrial

$0.32$0.36

$0.8610.3%

5.1%

3.7%

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

0

2

4

6

8

10

12

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

Average Warehouse Asking Rates Total Vacancy Rate

+65% rent growth year-over-year

+ 139% rent growth since Q4 2016,

when California voted to legalize

cannabis

Presentation TitleColliers International

Industrial Trends

Transportation50.30%

Inventory Carrying21.80%

Labor9.50%

Customer Service7.80%

Rent4.30%

Supplies2.70%

Other1.20%

Administration2.20%

Supply Chain Cost Breakdown

Top U.S. Industrial Growth Markets

(percentage of net absorption vs. overall warehouse inventory, as of Q2 2018)

Market Total Whse Inventory 2018 YTD Absorption Growth %

1 Inland Empire 513,735,100 14,358,400 2.8%

2 Stockton 109,146,490 2,731,582 2.5%

3 Central New Jersey 325,568,003 6,043,351 1.9%

4 Sacramento 157,400,804 2,834,810 1.8%

5 Charlotte 213,897,209 3,733,787 1.7%

Industrial

Presentation Title

2018 Completions

3510 Carlin Drive 387K SF Warehouse / West Sac

Developed by Ridge Capital

Completed June 2018

100% occupied by Veritiv

Bixby Land Co. acquired for $33.4M

7701 Foothills Blvd 316K SF Warehouse / Roseville

Developed by Panattoni

Completed June 2018

100% occupied by McKesson

10-year lease expires in 2028

920 Stillwater Rd 105K SF Warehouse / West Sac

Developed by Harsch

Completed May 2018

Factory Motorparts (41,441 SF),

ArjoHuntleigh (10,058 SF), and 27,560

SF still available for lease

Industrial

New 2018 supply = 861,788 SF (97% leased)

Under construction (Q4 2018) = 1,043,894 SF

Presentation Title

2019 Development

2400 McClellan Park Drive417K SF spec development / McClellan

Developer McClellan Park / LDK

Tenant Spec (100% available)

Completion May 2019

Sacramento Logistics Center500K SF development / Metro Air Park

Developer Buzz Oates


Completion Q4 2019

3085-3095 Mary Place348K SF spec development / West Sac

Developer Ridge Capital


Completion Q4 2019

3575-3640 Ramos Drive407K SF spec development / West Sac

Developer NorthPoint


Completion February 2019

Industrial


An emerging industrial submarket

Metro Air Park

• 1,320 developable acres

• 7.34M SF proposed

• 855K SF Amazon distribution center

• 500,770 SF ready to start construction

Presentation Title

Industrial

Presentation Title

What’s going to happen in 2019?

Industrial

• More spec development will break ground

(500K+ SF to start construction by Q2 2018)

• Approx. 1.5M SF of new supply – 75% of

which (1.12M SF out of 1.5M SF) will be

leased by year-end

• Slight increase in vacancy in the first six

months as new spec product delivers

• Moderating rent growth with cannabis’

impact lessening, but still double digit growth

• Increased attention from investors

• Strong tenant demand and new occupiers

coming to the market

Making Sense of Multifamily

Presentation Title

Multifamily Market Fundamentals

5-year quarterly average

occupancy rate = 96.2%

Multifamily

#1 annual rent growth market in the

nation from Q4 2015 – Q4 2017

Q4 2018 Monthly Rent = $1,405 (+4.6% YOY)

Presentation Title

Multifamily Development

Multifamily

2,503 units under construction as of December 2018

Presentation Title

2018 Completions

The Crossings225 units, 750 beds / Southeast Sac

Developer AMCAL

Type Student Housing

Lease-Up 95.6%

Completion August 2018

Ice House142 units / Midtown

Developer Heller Pacific

Type Market-Rate

Lease-Up 95%

Completion July 2018

The Hardin137 units / Downtown

Developer CFY Development

Type 61% Affordable

Lease-Up 91%

Completion June 2018

BDX at Capital Village 199 units / Rancho Cordova

Developer AG Spanos

Type Market-Rate

Lease-Up 50%

Completion July 2018

Multifamily

Presentation Title

Urban Apartment Development

34Presentation Title

Multifamily

Apartment projects under

construction in Downtown,

Midtown, East Sac, and West Sac

1,097 units under construction

as of December 2018

Presentation Title

Suburban Apartment Development

Units Under Construction 1. Folsom = 650 units

2. Roseville = 486 units

3. Natomas = 232 units

Multifamily

Pique at Iron Point

HUB Apartments

Talavera Ridge

Mesa at Laguna Ridge

Sutter Green

Presentation Title

Top 2018 Sales Transactions

Slate Creek at Johnson RanchRoseville

Sale Date May 29

Price $148.7M

Price / Unit $242,973

Units 608

Buyer Blackstone

Seller Kennedy Wilson

The UDavis

Sale Date December 3

Price $76M


Units 132

Buyer Tilden Properties

Seller Carmel Partners

3-Property PortfolioCitrus Heights & Elk Grove

Sale Date December 1

Price $170M


Units 716

Buyer MG Properties Group

Seller Fairfield Residential

Villagio Apartment HomesNorth Natomas

Sale Date September 5

Price $70M


Units 272

Buyer Oakmont Properties

Seller JCM Partners

Multifamily

Presentation Title

Sacramento multifamily sales volume hit $1.72 billion

in 2018, finishing the year with a strong $591.9

million in fourth quarter sales volume Multifamily Sales Volume

Multifamily

$591.9M

Presentation Title

In November, California voters rejected Prop 10, the

repeal of Costa Hawkins, which would have allowed

local jurisdictions to implement rent control in

apartment properties built prior to 1995. As

Sacramento renters continue to spend more than the

recommended amount of their incomes on rent, local

activists have put a rent control initiative on the ballot

for 2020 that would tie rent increases to regional CPI

and cap annual increases at 5 percent.

STUDIO RENT GROWTH YEAR-

OVER-YEAR

ONE-BEDROOM RENT GROWTH

YEAR-OVER-YEAR

TWO-BEDROOM RENT GROWTH

YEAR-OVER-YEAR

THREE-BEDROOM RENT GROWTH

YEAR-OVER-YEAR

4.1% 4.8% 4.9%

Rent Growth or Rent Control?

4.8%

Multifamily

According to the City of Sacramento’s Comprehensive Housing Affordability Strategy, of the 94,055 renters in the city of

Sacramento, 51% (47,505) spend more than 30% of their income on rent and 27% (25,770) spend more than 50%

Presentation Title

In 2019, we will see…

Multifamily

• Rent control continue to be an ongoing

topic of conversation

• Moderating rent growth in the 5 to 6

percent annual range

• 2,000+ new units complete and 1,000

more units break ground

• Condos coming to Capitol Mall,

apartments in the Railyards, and a new

apartment project at 8th & K

• Occupancy levels will drop closer to 95%

with new units coming online

• Less annual sales volume than 2018, but

still more than $1B for the year

New apartments under

construction at 3675 T Street

Retail’s Renaissance

Presentation Title

Annual Rent Growth

+3.0%

Annual Net Absorption

778K SF

Vacancy Rate

7.8%

Retail Market Fundamentals Q4 2018 Retail

Market Statistics

Retail

Presentation Title

Bars and Restaurants

42Presentation Title

Retail

There are 37 new places to eat

and drink at DOCO, The Bank,

and the 700 K Block

Presentation Title

Other thriving retailers? • Bargain grocery stores

• Grocery Outlet

• Dollar Tree

• Discount apparel stores

• TJ Maxx

• Fitness centers / health clubs

• LA Fitness

• 24 Hour Fitness

• Orangetheory Fitness

• Planet Fitness

• Entertainment / experiential concenpts

• Movie theaters

• Trampoline parks

• Bars with mini-golf

• Bars with axe-throwing?

Retail

Questions?

2019 economic forecast...impact of cannabis on the power inn submarket industrial $0.32 $0.36 10.3%...

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