2013 Commercial Real Estate Market in Review

With the New Year upon us, here’s a look back at how the Western Nevada County commercial real estate market fared in 2013. The following results are derived from our database which tracks almost 7 million square feet of commercial property in the Grass Valley/Nevada City region. The following figures are rounded and approximate.

Vacancy rates offer a bird’s eye view of the general health of the market.  High vacancy rates (say, above 10%) can reflect a soft market with numerous empty buildings, flexible or falling prices, and little demand for new construction.  Lower vacancy rates can signify a market where jobs and property values are increasing, thereby stimulating new building activity.

As you can see from the preceding table, our “office” market remains soft with increasing vacancy resulting primarily from large space divestitures by a few video tech companies.  Our “industrial” market, on the other hand, has seen falling vacancy resulting from business growth and expansion.  Industrial growth can foreshadow future growth in (supportive) office and administrative employment which may soon help reverse the trend in the office market.  Our local “retail” market has consistently been the tightest over the years, primarily due to a dearth of good expansion retail sites.  However, with 26 acres available at the southeast quadrant of the new Highway 49 Dorsey interchange, and the large Berriman Ranch annexation just south of McKnight Way, we will likely see some significant changes in the retail market very soon.

Leasing rates typically move inversely to vacancy rates, and for the most part this has held true in our local market.  The following figures represent median gross “asking” rents for the various product types.

Over the course of 2013, we see that the median office rent fell by about 6.7%, the median industrial rent dropped by approximately 6.4%, and the median retail rent increased by roughly 22%.  However, based on falling industrial vacancy, we would expect to see industrial rents start to increase this year, at least until such time as planned industrial expansion on properties such as the Bear River Mill site begins in earnest.

With respect to commercial property sales in 2013, the number of closed transactions increased slightly by approximately 17% (from 24 to 28 sales).  The following chart represents median prices per square foot for “closed” property sale transactions.

Consistent with increasing office vacancy, the median office sale price per square foot fell during 2013 by about 18%.  Conversely, both industrial and retail median property values increased by 16% and 27% respectively, as available supply diminished.

Moving forward, 2014 should provide attractive buying opportunities for investors or businesses interested in commercial property.  In most cases, prices have bottomed out and are starting to rebound, but remain well below pre-recession levels.   Commercial banks appear flush with money to lend at attractive rates and for reasonably long terms.  Prior to investing, however, buyers should be sure to gain a clear understanding of how the property they are considering will compete and perform as the market grows and new upcoming development projects come to fruition.

For a more in-depth look at Nevada County’s commercial real estate market, please request Highland Commercial’s just-released 4^th Quarter “Commercial Property Review” newsletter, available by calling Lock Richards at 530-470-1740, or by signing up online at highlandcre.com.  Lock Richards specializes in the leasing and sale of commercial/investment properties and has over 25 years of experience in the field, including over 15 years in the Grass Valley/Nevada City area.