Moderate growth likely for commercial real estate in 2017

Another year of generally positive news for the commercial real estate market in 2016 points to more of the same in 2017, with growth likely at the same moderate pace.

Among the key sectors, multifamily continued to lead. The region gained national notice with rental growth topping 10 percent and sales records from midtown Sacramento to El Dorado Hills. The missing component was new apartment construction. Newly built units amounted to less than 1 percent of total stock. One data tracking firm, Yardi Matrix, said just 512 new units would open in 2016 across the entire region.

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A preliminary rendering submitted to Sacramento County shows what the Amazon facility at Metro Air Park could look like.

Other commercial real estate sectors also saw growth. The industrial sector had several speculative projects in West Sacramento and Sacramento coming onto the market, although most didn’t have immediate tenants. And a long-awaited industrial project, Metro Air Park, saw its first vertical construction when online retailer Amazon announced plans for an 855,000-square-foot fulfillment center east of Sacramento International Airport.

The more glamorous office market also saw progress in 2016, particularly in downtown Sacramento. Available square footage shrank to the lowest level since before the recession, with almost no available blocks of space of 10,000 square feet or more. And outside investors showed confidence, with separate buyers picking up Renaissance Tower, Wells Fargo Center and 520 Capitol Mall as they came on the market.

Several suburban office buildings also sold, and plans for build-to-suit projects in Roseville and South Natomas arose. Still, most observers said rents need to rise further, and aging buildings in some submarkets aren’t helping.

Retail, traditionally reliant on new housing for new construction, was more of a mixed bag. Redevelopment gave new life to retail areas including downtown Sacramento and the University Village and Howe Bout Arden shopping centers.

New owners for Sunrise Mall planned new investment. However, a similar reinvestment in Country Club Plaza saw new stores but also more closures. The biggest retail development in several years, Delta Shores, also got underway in 2016, with the first stores set to open in the third quarter of 2017.

Article and image provided by: Sacramento Business Journal
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