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.

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

The last time the spread between Bay Area median prices and Sacramento median prices grew so big was a decade ago, just before tens of thousands of Bay Area transplants arrived in Sacramento, turning a healthy housing market into a bona fide boom.

Since then, that wave of transplants has slowed to a drip, with barely more residents relocating from the Bay Area to Sacramento than heading in the other direction.

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That’s what homebuyers now pay for a typical house in the Sacramento region compared to buyers in San Francisco. And if history is any guide, that mounting price gap could have a big impact on Sacramento’s housing market and economy in the not-too-distant future.

The last time the spread between Bay Area median prices and Sacramento median prices grew so big was a decade ago, just before tens of thousands of Bay Area transplants arrived in Sacramento, turning a healthy housing market into a bona fide boom.

Since then, that wave of transplants has slowed to a drip, with barely more residents relocating from the Bay Area to Sacramento than heading in the other direction.

Several local real estate experts and economists said they don’t expect to see another approaching fleet of U-Haul trucks quite yet, with the possible exception of a few being driven by carefree retirees.

“It’s a different market now,” said Suzanne O’Keefe, a Sacramento State economics professor. “Everyone is more cautious. The housing market isn’t going to rebound quickly because people move from the Bay Area.”

O’Keefe and others note that the local job market is stalled; cheap housing is available elsewhere; and many Bay Area residents already cashed out home equity during the boom. Just as key: Bay Area home prices are less expensive than they have been in years. A San Francisco condo worth $1 million in 2005 would sell today for about $840,000.

But even if Bay Area transplants aren’t about to swoop into Sacramento tomorrow on white horses, many expect their numbers to increase, helping to put a floor on falling home prices. To bolster their case, these optimists point to past trends.

The San Francisco and Sacramento housing markets are closely entwined. Growing price differences between the two areas preceded and fed the last two housing booms.

The calculus is simple: Bay Area residents see their modest homes sell for immodest prices, and decide to cash out and buy quasi-mansions in Sacramento.

Right now, the median home price in the Sacramento region is about $185,000, according to data from Wells Fargo and the National Association of Home Builders. In San Francisco-Marin-San Mateo, it’s $630,000. In the San Jose area, it’s $454,000.

David Bicknell, the local franchisee for Intero Real Estate Services, is putting money behind his premonitions of a coming influx. His company recently opened offices in Folsom and El Dorado County and plans more expansion.

“More and more people are able to move to the Sacramento area,” Bicknell said.

Influx of equity-rich retirees seen

Bicknell is encouraged by the local tech sector, which he believes is rebounding.

Intel Corp., one of the local region’s largest private employers, recently hired 368 new workers at its Folsom campus, reversing more than a decade of downsizing.

The new hires increased Intel’s local workforce by about 6 percent to 6,515 workers. Many are recent college graduates who have relocated to the region, the company said.

Tech company Bloo Solar of El Dorado Hills plans to hire another 40 or so workers over the next several years as it expands its solar manufacturing plant.

“We see this as a continuing trend,” Bicknell said. “The homes are nice, the schools are good, and the cost of living is so much lower.”

Retiring Bay Area baby boomers are just as important to Bicknell’s strategy.

The last generation of retirees largely drove the big influx from the Bay Area to Sacramento 10 years ago. The town of Lincoln quadrupled in size during that boom, partly because of senior citizens arriving from places like Santa Clara County.

Assuming they have a pocket full of cashed-out equity, retirees might not worry as much as others about Sacramento’s difficult economy.

“There’s a lot of potential out there for the active adult market,” said Dean Wehrli, a senior manager at John Burns Real Estate Consulting. “That part of the market is increasing, and it’s going to be like that for 20 years.”

Granite Bay Realtor Eve Fenstermaker said she has noticed more interest from prospective Bay Area buyers since last spring. She gave the example of a client who lives in the exclusive Blackhawk area of Contra Costa County. Two years ago, the woman balked at moving because of declining prices in her neighborhood ? and corresponding lost equity. With prices recovering, she is considering Sacramento.

“If you can sell your house in the Bay Area for $900,000 and can buy a comparable house here for $725,000, why wouldn’t you do it?” Fenstermaker said.

Douglas Booher, a 34-year-old Southwest Airlines pilot based in Oakland, recently looked at several homes in Folsom and El Dorado Hills. He likes the schools and the proximity to Lake Tahoe.

“If we can live in Sacramento in a nice home ? maybe not our dream home, but a nice home ? then we will have more money left to play with,” said Booher, who rents in Clayton and spends much of his time on the road. “It’s worth the two-hour drive once a week.”

Falling prices frighten many buyers

Several economists, though, cautioned that new residents like Booher will likely remain anomalies in the near term.

Many Bay Area homebuyers are scared by Sacramento’s falling home prices, seeing the market as risky. Before the last two booms, the real estate markets in both the Bay Area and Sacramento region were relatively stable. Today, the Bay Area is recovering faster than Sacramento.

Despite that recovery, home prices in San Francisco are still at 2004 levels. (They are at 2000 levels in Sacramento.) So a lot of Bay Area residents aren’t feeling priced out of the market, unlike during much of the housing boom.

Other Bay Area residents bit the poison apple and refinanced during the boom, leaving them underwater on their mortgages and unable to pull out equity for homes here.

“Even if you have plenty of equity left, you might want to wait a bit” until the market stabilizes, said Jeff Michael, an economist at the University of the Pacific.

For those without much cash, a move to Sacramento can be tough, largely because of the tight job market.

Unemployment in the Sacramento region has hovered at 12 percent for more than a year, roughly three percentage points higher than the rate in the San Francisco-Marin-San Mateo area.

Affordable housing doesn’t mean much to working families if it doesn’t come with employment.

Some, like Booher, might choose to live here on the cheap and commute to San Francisco. But home prices are also low in places closer to the bay, like Vacaville and Fairfield. Why commute from Sacramento when a shorter drive is available?

“Some of that underbrush has to clear first” before extreme commuters start coming here, said Wehrli.

Those obstacles are immediate, but likely transitory, said economist Stephen Levy. The Bay Area and Sacramento have danced to this tune before, and they’ll probably one day dance to it again.

During the last boom, Levy noted, people felt priced out of the Bay Area and moved here. Likewise, many Sacramento residents felt priced out here and moved to even-cheaper places like Texas.

The last several years, then, have marked a massive, dramatic, painful correction, said Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.

When the dust settles, if people from the Bay Area ? or anywhere ? think housing costs have gotten too high in their community, there’s a good chance they will look to places like Sacramento.

And that’s a selling point for the region, he said.

“This makes the Sacramento region more competitive,” Levy said. “If I was a leader in Sacramento, I’d be talking to businesses about how their workers can afford to live here.”

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Article source: http://www.sacbee.com/2011/10/16/3983170/hope-in-housing-gap.html