Western US shows signs of CRE recovery

San Francisco is one of the main cities in the West that showed a strengthened commercial market.

The Western section of the country has dealt with the slowest pace of commercial real estate recovery, but this has improved in recent months, according to Costar, and this could make property management companies optimistic about the area.

In the firm's Commercial Repeat Sales Indices report for the second quarter, the West had a composite index growth rate of more than 11 percent, which was only behind the Northeast, as that region's gains surpassed 16 percent. The jump in the West was the latest improvement in the region's gradual strengthening market. Many areas have improved property absorption through the year's halfway point.

"Clearly the strongest markets are being driven by technology related job growth, which is impacting the San Francisco, San Jose and Austin markets, with a smaller impact upon Orange County and Seattle," said Walter Page, director of office research for CoStar subsidiary Property and Portfolio Research. "While this has been a strong demand driver, because of slowing venture capital funding, slumping stock prices for some tech firms, and the national elections, we are preparing for a slower second half of 2012 for nearly all office markets."

Citing Jones Lang LaSalle, the report noted tech markets in the West experienced an absorption rate of more than half of the total. Additionally, leasing volumes should drop to approximately 10 percent lower than last year as part of a nationwide issue.

San Francisco experienced rent growth of nearly 17 percent during the second quarter, while Los Angeles and San Jose also had improved levels during the quarter, the report explained. Looking toward the future, both San Diego and Seattle shouldn't have highly changed rent levels, but some areas should improve. Phoenix, Salt Lake City and Las Vegas should experience some rent growth, as well.

Improvements in the multifamily markets occurred in recent months, and this should only continue, the report explained. This is due to the region's hard hit during the recession, and it now has a large amount of ground to make up in the market.

Citing the Associated Builders and Contractors, the report added that many companies already have invested in new construction, and overall construction backlogs grew for commercial properties more than any other region during the second quarter.

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