Written by The Business Journal Staff
“We just finished three solid years, with 2015 the best of the three years so far,” said Brian Decker, president at Colliers International, one of Central California’s leading commercial real estate brokers.
“Tenants are back and looking to relocate and we still haven’t seen huge increases in rents,” Decker said last week. “All in all, it’s a very healthy and positive market.”
Decker’s comments were echoed by a new report issued this month from Colliers International. The headline of the report, which spotlights the area’s office sales and leasing market: “Fresno/Clovis market continues to build upon a wave of bullish momentum.”
“We had great expectations for an active office market at the beginning of last year,” Decker said. “That optimism proved true as sales and leasing activity far exceeded our forecast.”
The Central Valley commercial real estate market has not seen such strong activity since “the glory years,” which Decker said came to an end in 2006.
The flipside to the bullish commercial real estate market activity is that “there are not as many buildings as we’d like to see for sale,” he added, explaining that the dearth of commercial property listings is good news for potential sellers. “Now’s a really good time to put your building on the market.”
Colliers International’s latest Market Report shows an overall vacancy rate of 12.49 percent, down from 13.08 percent reported at the end of 2015. Decker said that if the momentum continues, “it wouldn’t be a stretch” to see vacancy rates drop into the 7- to 8-percent range.
According to the report, approximately 2.6 million square feet of office space is available for lease or sublease in a market totaling more than 21 million square feet. If government-owned and occupied buildings were included, the total square footage figure would exceed 25 million square feet.
“Several factors fueled this hearty market, including still favorable rental rates for tenants, plentiful financing sources with low interest rates — both for SBA and conventional loans — and an ever-increasing optimism among tenants and buyers,” the report stated.
All of these factors combined to make 2015 the best year in a decade in terms of sales and leasing volume in the commercial real estate market. And so far in the first three months of 2016, the report confirms, the Fresno/Clovis area market is “riding the momentum wave.”
The Colliers report, which breaks the metro area up into eight submarkets, sheds further detail on what parts of the Fresno/Clovis area are currently faring best.
The West Herndon/Palm Bluffs submarket “appears healthiest, with an approximately 10 percent vacancy factor,” according to the report. “When you consider that approximately 87,000 square feet of the overall vacant space in the submarket is contained in two buildings at 525 and 625 W. Alluvial, the vacancy factor would be under 7.5 percent for this submarket, indicating minimal vacancies.”
The two vacant buildings on West Alluvial are in a development known as Palm Bluff Circle. Built in 2008, the buildings have never been occupied and remain in shell condition as the development’s owners, Los Gatos-based Granum Partners, seeks tenants who will occupy at least an entire floor of the upscale, two-story structures. Granum also owns an adjacent, 19-acre parcel — the old Vendo property — that it has cleared and plans to redevelop.
Decker said that he expects the buildings will be occupied soon as Palm Bluffs continues to be the area’s strongest submarket.
On the other end of the spectrum is the East Shaw submarket, which is currently posting vacancy rates over 19 percent. The reported stated that this area has “actually shown improvement” since hitting vacancy rate highs of more than 20 percent in 2014.
East Herndon, West Shaw and Central Fresno submarkets showed improvement, according to the report, while Clovis and the areas around the Fresno Yosemite International Airport and Downtown Fresno experienced increased vacancy rates.
“East Shaw continues to be slow but vacancy rates are coming down,” Decker said. “At one point, East and West Shaw were the largest submarkets in the area but we’re still seeing some pretty healthy vacancy numbers along that corridor.
Noting office buildings sales “played an important role in the strong 2015 market,” Decker added that he expects “that trend to continue as owner/users continue to take advantage of low interest rates. … A lack of supply and strong investment characteristics will result in higher prices to those who do decide to sell.”
As for the remainder of 2016, the Colliers’ report is “very bullish,” predicting the “strong and active” local office market still has plenty of legs.
“Barring any meltdown to the economy or any local effect felt as a result of the drought, should it continue, we expect 2016 to result in the fourth year in a row of positive growth,” Decker said.