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Central Coast Office Snapshot Q1 2015
1. CENTRAL COAST
Office Market Snapshot
First Quarter 2015
Flat Start to Year
The Central Coast office market closed Q1 2015 with vacancy of
11.8%. This is down from the 11.9% rate that was in place three
months ago and reflects a substantial decrease from the 13.7%
reading of one year ago. The market recorded a modest 16,000 square
feet (SF) of occupancy growth during the first three months of 2015.
This is down considerably from the 106,000 SF of quarterly occupancy
growth the market averaged in 2014. Deal activity slowed significantly
in Q1; we tracked just 131,000 SF of gross absorption. The market
averaged nearly twice that level (233,000 SF per quarter) in 2014. Q1
2015 was essentially flat; this also holds true when speaking of rents.
The current average asking rate of $1.77 per square foot (PSF), on a
monthly full service basis, hasn’t moved for six months. However, this
metric is up slightly (less than 1.0%) from its reading of $1.75 PSF a
year ago.
The Santa Cruz County market posted 11,000 SF of occupancy growth
in Q1 as office vacancy edged downward a notch from 12.5% to
12.4%. One year ago Santa Cruz vacancy stood at 13.2%. The current
average asking rate for office space of $1.81 PSF is up slightly (1.0%)
from where it stood 12 months ago. Last year nearly 126,000 SF of
previously vacant space was backfilled in Santa Cruz County; the
Watsonville submarket led the region in terms of growth (+45,000 SF).
Santa Cruz proper was not far behind with 42,000 SF of positive net
absorption, while Scotts Valley (+35,000 SF) and the Mid-County
submarkets (+4,000 SF) lagged behind. So far in 2015, the Scotts
Valley trade area has accounted for all of the region’s growth. It posted
42,000 SF of positive net absorption as vacancy fell from 25.5% to
23.5%. The Mid-County market was modestly in the black (+4,000 SF)
as vacancy dropped from 6.9% to 6.7%. Santa Cruz lost -20,000 SF of
occupancy as its vacancy rate increased from 10.1% to 10.7%, while
Watsonville reported declines of -12,000 SF, as its vacancy rate
climbed from 5.2% to 5.8%. The Mid-County market currently has the
highest average asking rent at $1.94 PSF. Santa Cruz is averaging a
rate of $1.89 PSF while Scotts Valley follows with a $1.87 PSF rent.
The Watsonville market has the most competitive rate at just $1.21
PSF, but it is critical to note that most of the inventory here is aging
Class B-/C space.
Vacancy in the Monterey County submarket has remained flat at
11.2% for the past six months. This market posted just 5,000 SF of
occupancy growth in Q1; the average asking rent here of $1.72 PSF
CENTRAL COAST OFFICE
Economic Indicators
Q1 14 Q1 15
12-Month
Forecast
Central Coast Employment 320K 314K
Central Coast Unemployment 11.9% 10.8%
U.S. Unemployment 6.6% 5.5%
Market Indicators
Q1 14 Q1 15
12-Month
Forecast
Overall Vacancy 13.7% 11.8%
Net Absorption SF 126K 16K
Under Construction SF 0 0
Net Absorption/Asking Rent (Full Service)
NET ABSORPTION 4Q TRAILING AVERAGE
Overall Vacancy
Average Asking Rent (FS) $1.75 $1.77
$1.66
$1.68
$1.70
$1.72
$1.74
$1.76
$1.78
-200
-150
-100
-50
0
50
100
150
2011 2012 2013 2014 2015
4Q Trailing Net Abs.(KSF)
Avg Asking (FS)
8%
9%
10%
11%
12%
13%
14%
15%
16%
2011 2012 2013 2014 2015
Historical Average = 13.2%
2. www.dtz.com | 2
CENTRAL COAST
Office Market Snapshot
First Quarter 2015
has actually fallen slightly in recent months (from $1.73 PSF a year
ago). Monterey County led the region’s growth last year, and though
it is off to a flat start in 2015, we expect it to lead expansion this year
as well. Our tracking of tenant requirements is up and our brokers
report increased touring activity that we anticipate will translate into
increased growth totals by the close of Q2, however, the fact remains
that Q1 was marked by flat leasing activity. Monterey led all other
submarkets in terms of growth (+16,000 SF) as its vacancy rate fell
from 12.6% to 12.2%. But these gains were largely mitigated by
losses in the Salinas/Castroville marketplace (-12,000 SF) where the
vacancy rate climbed from 9.6% to 10.0%. Activity was flat in both
the Carmel/Pacific Grove submarket (11.2% vacancy) and Sand City/
Del Rey Oaks/Seaside/Marina market (11.4%), with neither trade
area recording more than 1,000 SF of growth. Monterey has the
county’s highest average asking rate at $1.86 PSF, followed by
Carmel/Pacific Grove at $1.84 PSF. The region’s most competitive
rates are in Sand City/Del Rey Oaks/Seaside/Marina ($1.36 PSF) and
Salinas/Castroville ($1.56 PSF) where Class C product accounts for
the lion’s share of the local inventory.
Average Asking Rate by Submarket (Full Service)
SMALLER BOUTIQUE SUBMARKETS REMAIN MOST EXPENSIVE
Availabilities by Size Segment
SMALLER LISTINGS UNDER 5K DOMINATE MARKET AVAILABILITY
Average Asking Rate Trend (Full Service)
AVERAGE RENTS VIRTUALLY UNCHANGED FROM LAST QUARTER
Outlook
The Central Coast office market closed Q1 2015 with a
vacancy rate of 11.8% down from 13.7% tracked one year
go.
Santa Cruz should continue to attract tech companies as
Silicon Valley tenants search for alternatives to rising rents
along the Peninsula.
Scotts Valley recorded nearly 42,000 SF of positive net
absorption in Q1, the most for any city along the Central
Coast.
Santa Cruz is continuing to draw more
attention from tech start-ups, especially in
downtown areas...
FullService
$1.94
$1.89 $1.87 $1.86 $1.84
$1.56
$1.36
$1.21
$0.50
$1.00
$1.50
$2.00
$2.50
Mid County Santa Cruz Scotts Valley Monterey Carmel
Pacific Grove
Salinas /
Castroville
Sand City / Seaside
Marina
Watsonvil
343
96
41
58
0 - 2.49K SF
2.5K - 4.9K SF
5.0K- 7.49K SF
7.5K & Up
538
Listings
$1.66
$1.68
$1.70
$1.72
$1.74
$1.76
$1.78
$1.80
2010 2011 2012 2013 2014 2015
3. www.dtz.com | 3
CENTRAL COAST
Office Market Snapshot
First Quarter 2015
TOTAL
BLDGS
INVENTORY
SUBLET
VACANT
DIRECT
VACANT
VACANCY
RATE
CURRENT NET
ABSORPTION
YTD NET
ABSORPTION
UNDER
CONSTRUCTION
AVERAGE ASKING
RENT FS
(ALL Classes)
SUBMARKET
Scotts Valley 66 2,070,573 30,900 455,792 23.51% 41,560 76,121 0 $1.87
Santa Cruz 178 3,326,856 37,871 317,701 10.69% -20,266 21,467 0 $1.89
Watsonville 95 1,942,346 2,000 110,906 5.81% -11,941 33,397 0 $1.21
Mid-County 70 836,920 7,813 48,534 6.73% 1,528 5,875 0 $1.94
Santa Cruz County 409 8,176,695 78,584 932,933 12.37% 10,881 136,860 0 $1.81
Carmel/Pacific Grove 32 459,006 0 51,264 11.17% 360 -3,078 0 $1.84
Monterey 182 3,583,796 8,089 428,841 12.19% 16,403 7,611 0 $1.86
Sand City/Seaside/Marina 39 366,819 0 41,955 11.44% 735 -1,616 0 $1.36
Salinas/Castroville 184 3,247,332 4,930 320,513 10.02% -12,290 300,166 0 $1.56
Monterey County 437 7,656,953 13,019 842,573 11.17% 5,208 303,083 0 $1.72
TOTAL 846 15,833,648 91,603 1,775,506 11.79% 16,089 439,943 0 $1.77
Key Lease Transactions Q1 15
PROPERTY SF TENANT LANDLORD TRANSACTION TYPE SUBMARKET
1260 S Main St 5,390 Salinas Valley Plastic Surgery Associates Kirkorian Properties New Lease Salinas/Castroville
8030 Soquel Ave 3,700 Sobriety Works Gateway Business Center New Lease Watsonville
833 Cass 2,975 Wellspring Natural Health Boomer LLC New Lease Monterey
100 Enterprise 2,352 Paystand, Inc. American Yiluen Development. New Lease Scotts Valley
Key Investment Sale Transactions Q1 15
PROPERTY SF BUYER SELLER SALE PRICE SUBMARKET
4585 Scotts Valley 42,000 4585 Ensemble Apprenrodt Living Trust $5,695,000 Scotts Valley
798 Cass St 10,476 Eureka Group GP Ronald Friedman $2,300,000 Monterey
20 Quail Run Cir 13,955 Weakley Family Trust Central coast Builders Assn $1,700,000 Salinas/Castroville
