Retail Report: California Capitol Holds Its Own

SACRAMENTO, CA-A growing population in and around the state capitol has Marcus & Millichap predicting an optimistic near-term outlook for the region’s retail properties. The national brokerage company ranks the region 18th out of 42 markets in a new report that looks out three years instead of the typical one-year view taken in its annual National Retail Index report released earlier this year, which ranked Sacramento 22nd out of 42 markets.M&M senior vice president and regional manager Robert Hicks tells GlobeSt.com that people and businesses continue to relocate from the Bay Area and other US markets where it is more costly to live and operate a business. “The retail market continues to be hot, and investment sale prices continue to stay at high level or go up,” he says. “Properties don’t last long on the market; anything retail is going to move.”The report indicates rising job growth, decreasing retail development and, therefore, vacancy, all of which will lead to increased trading of properties. More than $265 million of multi-tenant deals were completed over the past 12 months, and the median price has climbed 46% to $162.79 per sf, according to the report. In addition, the report states that single-tenant property prices in Sacramento were up 11% last year and that assets offering stable cash flows remain a big target for small investors with less than $5 million to spend.Boosting retail demand is a less active supply pipeline. Completions are forecast to drop 47% in 2005 to 900,000 sf. The impediments are higher land costs and a lack of developable land, according to the report. As a result, retail vacancy is expected to post a slight decline, and asking rents are forecast to rise 3.6% to $21.11 per sf, while effective rents are on pace to rise 3.1% to $19.01 per sf. “Local consumer spending and space absorption could surge if local job growth exceeds the 1.5 percent rate presently forecast,” says Hicks. “Nonetheless, retailer demand will be sufficient to permit owners to raise rents and to attract investors to the market.”