Yet most credible experts who track the complex world of office square footage contend that the region’s future looks promising.

How to explain that contradiction?

“I get that question from friends and business folks every day. I can’t get through a day without hearing it,” said John Frisch, regional managing director of commercial real estate brokerage firm Cornish Carey Commercial Newmark Knight Frank.

Last month, Cornish Carey reported that the Sacramento region’s office vacancy rate in this year’s first quarter hit an all-time high of 23.74 percent, equating to nearly 16 million square feet of vacant space. In 2002, the rate for the whole year was 12 percent.

The first-quarter numbers are the echo of the recessionary hammer that smashed the area’s commercial real estate market in 2008.

However, Frisch cheerfully expects “the office market to get better as the year unfolds.”

And Encino-based Marcus Millichap Real Estate Investment Services’ 2012 annual report also projects an office market turnaround in Sacramento this year.

The optimism lies in the ocean of numbers that’s an industry staple and the sometimes agonizingly slow pace of completing office building/leasing deals.

“We have not seen a tangible improvement in the region in years,” Frisch said. “However, the precursor to any changing in the vacancy rate is leasing activity in the market.

“And right now, we’re seeing better activity in the market than we were seeing six or 12 months ago.”

Frisch explained that it’s not unusual for deals to take six to nine months ? a timetable starting with prospective tenants looking around and ending when they finally move in. As a result, the recent bump up in office leasing might not show up on the region’s statistical radar for another year.

While the process is slow, Frisch said: “I don’t know if there is a better indicator for our local economy than office space vacancy. ? It’s pretty basic. When vacancy is high, things are bad. When it’s low, you have almost full employment.”

Local brokers also stress that it’s a mistake to view the Sacramento region as a monolith. Submarkets in the region are seeing widely varying degrees of progress, or disappointment.

Voit Real Estate Services’ first-quarter regional report for 2012 showed an office vacancy rate of 50.2 percent in the Rio Linda/North Highlands submarket. In downtown Sacramento, it was 10.1 percent.

There are also variations within the submarkets.

Robb Osborne, a senior vice president leading a team of brokers in Voit’s Roseville office, noted that the first-quarter vacancy rate in the Roseville/Rocklin market was 27.4 percent, but that number was affected by a 40-percent-plus vacancy rate along the Highway 65 corridor.

Prior to the recession, numerous high-end office buildings were built along Highway 65, reflecting the area’s economic boom. In the recession, much of that office space went empty.

The high percentage of office vacancies is an advantage for businesses looking to lease or buy.

“We have lost (clients) if they are price-sensitive,” Osborne said. “And right now, everybody is price-sensitive. They’re looking for the best deal.”

Cole Sweatt, an assistant vice president and broker in Voit’s Roseville office, said cost now outweighs all other factors: “In downtown Sacramento, parking has long been an issue, but now, everybody is looking for cheaper rent.”

Osborne and Sweatt characterized Roseville as a microcosm of the local office industry’s ups and downs.

The Voit team marketed the recent sale of the Eureka Corporate Center at 1544 Eureka Road in Roseville ? a modern-looking complex of gleaming offices with panoramic views. The complex wanted for tenants and was taken over by its lender.

Expansive second-floor offices that once housed Orange County-based John Laing Homes ? which filed for bankruptcy protection in 2009 ? lie empty. Sweatt expects the new buyer to fill the empty space with attractive lease offerings.

By contrast, a short drive away are twin office buildings at 3721/3741 Douglas Blvd. Of the 90,000 square feet of deals made by real estate firm Hines last year, about 50,000 were in the 3721/3741 buildings. Hines, which has offices at 400 Capitol Mall in Sacramento, owns about 850,000 square feet of space it’s looking to lease on the busy Douglas Boulevard corridor.

In 2011, Osborne’s Voit team completed 20 office sales totaling 186,000 square feet and 31 office lease transactions comprising 110,103 square feet.

Still, Osborne and Sweatt characterized the current environment as tough ? Osborne believes brokers will be swimming uphill for another year or so ? yet both see indicators of improvement.

Sweatt pointed to a rejuvenated San Francisco/Bay Area business/tech market: “We’re hoping that some of those (companies) will expand or relocate here.”

Osborne said a bump up in residential real estate in and around Roseville was a good sign “that if people are buying a home, they’re probably looking to stay in business.”

Osborne said dovetailing trends in the residential real estate and office markets are producing similar results: Buyers are picking up troubled assets for a comparative song, helped by low interest rates. Those picking up office buildings for a low price can better afford to “undercut” the market to lure tenants, charging square-footage rates well under competitors’ rates.

This creates another trend: Tenants being poached from other buildings with attractive offers.

Frisch said it’s all part of the game: “When Class A space drops to Class B levels, it’s a great opportunity to move up. When prices get really, really good, people who want to get into whatever trophy building there is can afford to move up.”

Frisch said attractive pricing is likewise contributing to leasing activity.

“Now for the first time in years, we are seeing people considering expanding instead of just hunkering down for a year or two to see which way the wind blows,” he said.

Frisch said that includes his own Cornish Carey firm.

“For the last four years, we have extended our lease two years at a time,” he said. “Now, we’re seriously considering expanding and relocating next year.”

Cornish Carey has two local offices ? about 7,500 square feet in Sacramento and 4,500 square feet in Roseville.

© Copyright The Sacramento Bee. All rights reserved.

Call The Bee’s Mark Glover, (916) 321-1184.

? Read more articles by Mark Glover

Article source: http://www.sacbee.com/2012/05/27/4517394/sacramento-area-office-brokers.html

The Federal Reserve Board’s Beige Book released Dec. 1 certainly offers proof with nearly all of the 12 districts reporting less than significant increases in market activity. 

Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Mo.,  Minneapolis, New York, Philadelphia, Richmond, Va., San Francisco and St. Louis make up the Fed’s districts. 

In Boston, office leasing activity was roughly steady at a moderate pace, although tenants reportedly lack a sense of urgency to sign deals. Areas such as Hartford noted vacancy rates hovered around 20% and leasing demand remained muted due to a flat labor market.  

Rent rates continued to climb in New York as office vacancy rates also ticked up in October in both midtown and downtown Manhattan, the Fed reported. While commercial construction activity has picked up slightly it continues to remain sluggish with credit availability a restraining factor for the market.

New construction in Philadelphia is mostly limited to institutional, life sciences, multifamily and warehousing sectors in select markets, according to the Fed. Contributing to the weak demand for retail space is regulatory red tape for permits and financing barriers. 

Cleveland reported steady or slow improvement in nonresidential construction activity. While the number of inquiries has picked up recently, the biggest challenge facing builders at this time is adding backlog. Incubation period for public infrastructure projects can be as long as five years, the Fed noted. With construction contracts coming mainly in education, manufacturing, energy, and research and development, Cleveland said it is expecting modest CRE growth over the next six months.  

The Richmond district reported a mix of highs and lows in CRE and construction. Smaller projects were being built faster due to abundant labor availability. Contractors reported that refurbishing of commercial properties was up in both Maryland and the Carolinas, but no one was adding new capacity. Commercial and federal work has dried up in most areas of Virginia with Washington capturing much of what little work there is. North Carolina is prepping for several new manufacturing projects.

The majority of the Atlanta district’s CRE contacts noted modest improvement in nonresidential construction and leasing activity. Brokers reported that vacancy rates declined and that rents have begun to stabilize across much of the district. Contractors cited a small improvement in construction activity from earlier in the year. Still, most anticipate commercial real estate conditions to remain largely unchanged over the next several quarters.

Article source: http://www.cutimes.com/2011/12/11/commercial-real-estate-market-has-few-bright-spots?ref=hp

Optimistic: “There’s a sense that things are getting better,” says John Carpenter.

An uptick in deals and tenant activity has yet to push the Tri-Valley office market out of the stagnant state it’s been in the last several quarters.

Still, with office leasing increasing at a rapid pace in San Francisco and the Peninsula, secondary markets like the East Bay could start picking up speed.

“There’s a sense that things are getting better,” said John Carpenter, principal of tenant representation brokerage Carpenter/Robbins Commercial Real Estate Inc. in San Ramon. “That sense is really derived from the markets in San Francisco and on the Peninsula that are getting better very rapidly, but we …

See all your followed company news on your personalized dashboard.

To access the full benefits of bizWatch and receive a weekly email with aggregated news on all the companies you are following, please provide your email address below.

You must have a bizjournals account to follow a company.
Please Log In or Register.

Article source: http://www.bizjournals.com/sanfrancisco/print-edition/2011/05/20/bay-area-office-deals-may-lift-up.html

SAN FRANCISCO–(BUSINESS WIRE)–Highridge Partners and Montgomery Capital Partners have completed the
acquisition of 550 Kearny Street in San Francisco. The 10-story office
building is located in the heart of the city’s financial district and
just three blocks from 255 California, which Highridge and Montgomery
acquired last July.

“This is a little jewel located in one of the strongest office
submarkets in downtown San Francisco”

“This is a little jewel located in one of the strongest office
submarkets in downtown San Francisco,” said Jack Mahoney, executive vice
president of Highridge Partners. “It is another great fit with our
investment program that we launched last year that focuses on Class A
office properties in California’s top-tier markets.”

The marble and granite clad building comprises approximately 196,000
rentable square feet including 9,700 square feet of ground floor retail
and on-site valet parking for 150 cars. The building has a 9 ½ foot
window line with views of the city and bay, ample natural light, and is
walking distance from all the financial district’s amenities.

The acquisition cost was $37.7 million, which at $190 per square foot is
well below replacement cost, Mahoney points out. The building, which is
50 percent leased, is well suited for larger users with its
approximately 18,500-square-foot flexible floor plates, which also break
down very well for smaller users.

“With San Francisco’s tight restrictions on new office construction and
the beginning of improvement in the office leasing market, we think this
is a great time to expand our investments in this dynamic market,” said
Jim Clifford of San Francisco-based Montgomery Capital Partners, which
is responsible for Bay Area properties acquired by the partnership. “550
Kearny is a great building in an extraordinary location. We have a few
critical improvements to the lobby and retail areas so that it will
better engage with the street and pedestrians and allow us to attract
San Francisco’s world-class tenants that have started to grow again.”

This was the third acquisition for Highridge Partners’ current $500
million office investment program, which is led by founder John Long,
Mahoney and their long-time office strategic partner, Jim Clifford.
Highridge provides capital and strategic guidance to the venture.
Clifford, through his company Montgomery Capital Partners, assembled a
team of seasoned consultants and professionals in order to fully
underwrite and submit the winning offer for 550 Kearny, which was
marketed through a bidding competition managed by The CB Richard Ellis
National Loan Sale Advisory Group.

Highridge Partners is a privately held, international real estate
investment company founded in 1978 by Long, who applies economics
principles to spot uniquely undervalued opportunities and turn them into
high-value properties. Often called a “contrarian” investor, Highridge
Partners has acquired, developed or financed over $7.7 billion of
assets. The company’s investments have spanned the entire range of real
estate including single family housing, apartments, retail, office,
industrial, hotels, and entertainment venues.

Montgomery Capital Partners is a full-service real estate investment
firm based in San Francisco and led by Jim Clifford. Over the past three
decades Clifford has been the key operational player on projects valued
at over $7 billion. Montgomery provides the critical strategic
operational knowledge to enable real estate investments to succeed.
Montgomery’s core strength is the ability to understand, implement, and
execute on the appropriate strategy for each asset.

Article source: http://www.businesswire.com/news/home/20110325005129/en/Highridge-Partners-Montgomery-Capital-Partners-Acquire-550