A Market of Many Shapes

As a broker who practices across all categories of real estate, I am struck by how different the various segments of the market are performing right now. 

On the commercial front, the office market remains in flux with national vacancy rates at 20.8%, and in the greater San Francisco Bay Area older Class B buildings are running at over 28% vacancy, but there is a growing trend towards repurposing office uses to residential, which is attracting developer capital as pricing becomes more attractive. 

Both office buildings and hotels have a large percentage of their loans coming due this year, which indicates the probability of more distressed sales on the way for both these property types nationwide, although in our county hotels are performing strongly with occupancy rates remaining in the mid-to-high 70’s.

Industrial buildings have been one of the stronger sectors at the national level with vacancy rates at around 8.5%, but rent rates up 2.5% nationwide, while locally supply remains tight and rents remain at healthy levels. 

Retail at the national level has been surprisingly strong with vacancy rates across the country in the 5.2%-5.8% range, but when you drive down Pacific Avenue and count the number of vacant storefronts it paints a different picture. With a lot of those buildings up for redevelopment, many landlords don’t want to offer long-term leases and many business owners remain hesitant to move into the area while there is continuing construction underway and anticipated as the push continues to add affordable housing.

Our local residential rental market recently made national headlines citing a statistic that the average price of a 2BR rental in Santa Cruz is over $4,000 and requires an hourly wage of over $80 per hour to afford. This seems overblown when reviewing the available inventory where we see many 2BR units renting for well under that amount, but the cost of housing indeed remains a major issue for a large segment of our population.

As well, high interest rates on loans have pushed many would-be buyers into the rental market driving demand up at the same time of year when we see the annual student housing rush, but this is bound to subside once school goes back into session. Moreover, if interest rates come back down as anticipated, we should see increasing numbers of buyers and renters able to find decent housing for a decent price as we move into next year.

Last but not least, for buyers and sellers of residential real estate the statistics are all over the map right now, with some homes getting snapped up quickly after drawing multiple offers, while others are getting passed over and forced to reduce their prices. 

In this multi-faceted market, only one thing is for certain: With so many moving parts and cycles converging, now more than ever it pays to do some more careful analysis and on occasion consider increasingly creative strategies before planning your next move.