SKIP AHEAD TO

• Sale of Major Multi-Tenant Bay Area Office Building is Biggest since 2022 on West Coast
• Rising Retail Rents in Phoenix are Driving out Small Businesses and Retail Shows Rising Returns in NCREIF index
• Western Post Surpasses Whirlpool, Trails Amazon in LA-OC-Inland Empire Industrial Market with Major Third Quarter Leases
• Amazon’s Growing Footprint Streamlines Logistics, Boosts Phoenix Employment

Economic Snapshot

• U.S. Real GDP increased at an annual rate of 2.8% in the third quarter, bolstered by consumer spending, exports, and federal government spending, marking the 9th straight quarter of expansion;
• Core CPI, which measures inflation minus food and energy, held steady at 3.3% year over year in September
• The Personal Consumption Expenditures Index (PCE) rose 2.1% in September, down from 2.3% the previous month, in a sign inflation continues to recede;
• Consumer Sentiment extended its climb in September to a reading of 70.1, a monthly increase of 3.2% over August;
• Total TEU volume at the Port of New York and New Jersey was 18 percent higher in September compared to the same time last year, marking the second-busiest September in the port’s history;
• Warehouse utilization, according to the Logistics’ Managers Index, was down 3.6 points in September from August and down 1.4 points from one year ago but still above 50, indicating a growing logistics industry;
• According to Insights from WFH Research and the Survey of Working Arrangements and Attitudes, September 2024’s average of 27.7% paid full work-from-home days marks a 1.7 percentage point decrease year over year in the lowest September level recorded post-COVID.

Check out more economic updates here.

Sale of Major Multi-Tenant Bay Area Office Building is Biggest since 2022 on West Coast

Clarion Partners sold The Plaza at Walnut Creek, a 362,399-square-foot office complex in San Francisco’s East Bay, for $162 million or $447 per square foot, making it the West Coast’s largest multi-tenant office sale since 2022. Despite this high-profile sale, the average price per square foot for Bay Area office properties has hovered below $300 from 2022-2024—46% lower than the 2017-2019 average, according to CompStak. In 2021, the average well exceeded that due to several major tech-anchored building sales, including a three-building campus at 100 Independence Drive, along with 125 and 135 Constitution, all fully leased to Facebook; 1800 Owens Street, fully leased to Dropbox at the time of sale; and 153 Townsend Street, with Ancestry.com as a major tenant all selling for more than $1,200 per square foot. Meanwhile, the Federal Reserve’s October 2024 Beige Book notes general stability in San Francisco’s CRE market, with strengths in retail and industrial but ongoing high office vacancies. However, JLL Capital Markets suggests the office market may be stabilizing, citing a 33% year-over-year increase in Q3 2024 sales volume and new price baselines, with half of 2024 trades in the 20th percentile of historic pricing.

Rising Retail Rents in Phoenix are Driving out Small Businesses and Retail Shows Rising Returns in NCREIF index

A recent Wall Street Journal article highlights how surging retail rents in Phoenix and Mesa, AZ, are putting a squeeze on small businesses. With limited space due to a sustained period of low construction, landlords are increasingly favoring national chains that can pay higher rates, often leaving local shops with little choice but to relocate or close. Data from CompStak mirrors this trend, showing that the average retail starting rent in 2024 is up 10.3% compared to last year. The average rent has also surpassed $29 per square foot since 2022, marking a notable 12% increase from the 2019 average. The retail sector has performed strongly in recent quarters. According to NCREIF’s Expanded NPI, retail returns have been positive and growing for three consecutive quarters. Retail also ranked as the second-highest performing sector in Q3 2024, trailing only the hotel sector and outperforming industrial by 0.75 percentage points.

Western Post Surpasses Whirlpool, Trails Amazon in LA-OC-Inland Empire Industrial Market with Major Third Quarter Leases

Western Post’s expansion of 2 million square feet in Southern California’s Inland Empire in the third quarter has propelled it ahead of Whirlpool and behind Amazon in terms of total square footage leased in the LA-OC-Inland Empire industrial market in 2024, according to CompStak data. The largest of the three leases, at Prologis’ Rialto II Distribution Center 8 for 927,696 square feet, is over 11 times the average market transaction size, included 4 times the average free rent, and nearly 2.5 times the average work value in that market, per CompStak data. The lease at the 2002-built Prologis Kaiser Distribution Center yielded the highest net effective rent of the three at $1.22 per square foot (monthly), and as previously reported, the Alliance California – Northgate Bldg 11 facility was last sold in 2022, but according to CompStak data, also sold three years prior in a multi-property sale for a combined $94.5 million.

Amazon’s Growing Footprint Streamlines Logistics, Boosts Phoenix Employment

Amazon is continuing to grow its presence in the Phoenix industrial market, having opened three new facilities this year in Glendale, Goodyear, and Buckeye, according to the Phoenix Business Journal. The expansion is part of an effort to streamline shipping and logistics for sellers and comes as Amazon ramps up hiring throughout Arizona, which employs 36,000 workers in the state. Phoenix, the West Valley in particular, has attracted industrial development partly because of its proximity to California. Per CompStak data, the average industrial starting rent in the Phoenix market was on par with the LA-OC-Inland market in Q3 2024 in a marked change from past quarters when the LA-OC-Inland Empire well outpaced Phoenix. Meanwhile, transportation and warehousing employment in Phoenix peaked in December 2023 with much of the gains holding thus far in 2024, according to the Bureau of Labor Statistics.