Increased MXD Demand “Depends on Jurisdiction”
SAN DIEGO—The last several years have seen
General Plan and Zoning Code Updates
underway in many cities in the San Diego
region. The new plans emphasize “smart
growth” and sustainable development and
often designate existing commercial and
industrial areas for higher-density mixed
use. But the question remains whether those
plans are in sync with the marketplace and
what challenges are ahead.
Lindsay Puckett, an associate at Best Best
& Krieger in San Diego, says there’s an
increased demand for live/work proximity
and convenience, particularly given
increased gas prices, in San Diego. And
Tony Pauker, chair of Urban Land Institute
San Diego/Tijuana District Council and VP
of development for City Ventures, tells Real
Estate Forum that the demand really
depends on the jurisdiction.
“In higher-income areas, there is demand
from the marketplace for higher density
development that may be more compact
than current types of development,” he says.
“In less affluent areas, higher density may
not be economically viable because the cost
of construction cannot be supported by the
types of contemplated uses.”
Paul Keller, founding principal, Urban
Partners LLC, tells Forum that locating
thoughtful developments in designated
areas is successful, especially as a means of
mitigating suburban sprawl. “By taking
advantage of transportation infrastructure
and highly ‘walkable’ neighborhoods,
higher-density mixed-use developments
are creating more sustainable communi-
ties,” he says.
The West Is Best
In recent years, many commercial real estate markets in the western
United States experienced steep valuation declines and have yet to
recover. However, the US Census Bureau predicts robust population growth for much of the region in coming years, and as the job
market strengthens and occupancy rates
increase, many of these markets will likely experience significant upward property valuation.
Investor interest in secondary markets is positioned to increase as primary market prices remain inflated, providing
a possible investment opportunity.
The overall investment market is improving
nationwide, according to the Urban Land
Institute’s Emerging Trends in Real Estate 2013, which found that only
six of the markets studied experienced declines in the investment
prospectus ranking. For secondary markets like Orange County and
Seattle, their consistent job growth in sustainable industries like
healthcare, education and energy positions them well as an investment opportunity. Other secondary markets, including San Jose,
Denver and San Diego, offer strong walkability and transit systems,
as well as having high populations of echo boomers.
On the other hand, recovery has not yet started in places like
Tucson, Phoenix, the Inland Empire, Sacramento and Las Vegas.
These markets, however, are showing glimpses of respected turn-arounds by posting higher in-migration percentages compared to
other primary areas—particularly in Las Vegas.
Emerging Trends announced that nationally, the wave of maturing
loans is expected to gain force over the next three years. Also,
according to RREEF Real Estate’s US Real Estate Strategic Outlook,
By Mike Shustek
the gap between mortgage maturities and new originations during
the next few years will provide opportunity for investors. Investments
in existing loans are expected to benefit from rising occupancy levels and rental rates, as well as dry construction pipelines in certain
areas. Since debt is generally unavailable for distressed assets, and
traditional sources are highly selective, investors interested in taking
advantage of real estate-backed loans are presented with great
In the western US office market, the greatest recovery has
occurred mostly in the primary areas of each market. Research by
Marcus & Millichap shows that, as of the second quarter of 2012,
Orange County, San Francisco and San Diego each experienced a
100-point drop in vacancy rates year over year. Denver posted a 120-
point decrease in vacancy, while Tucson recorded a 180-point reduction in vacancy during the same time frame. Los Angeles, Las Vegas
and Sacramento remained in the bottom markets in terms of
changes in vacancy and present investors with the opportunity to
obtain properties primed for recovery.
In the retail markets, Marcus & Millichap reported Orange
County and Portland among the bottom markets in terms of change
in vacancy rates, while Las Vegas, San Diego, San Francisco, San Jose
and Phoenix all ranked in the top markets.
Although the economic turnaround has been slow, and US fiscal
policy remains uncertain, 2013 and beyond are full of possibilities
on the commercial real estate front and likely offers investors an
inviting opportunity—especially the West.
Mike Shustek is chairman and chief executive officer of MVP REIT Inc. in San
Diego. He may be contacted at email@example.com. The views expressed
here are the author’s own.
Vital Signs...Inland SoCal is pulling ahead of the pack in terms of growth in home prices and new construction.—Beacon Economics