Market Report_Q1 2022 Retail

JKG

1Q RETAIL

MARKET REPORT MARKET OVERVIEW

Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700 www.GallelliRE.com

Overall, the retail market remains robust in the Sacramento region with strong fundamentals carrying through Q1 2022. The vacancy rate remained low at 7.4% and has continued to steadily decline down from 7.9% last quarter and 8.2% one year ago. At the same time, leasing activity experienced healthy demand with several deals above 10,000 SF while investment activity also increased to reflect several large properties sold pushing to record levels. However, as the state of the local area continues improving consumers see economic forces at work with significant spikes in oil prices, record inflation figures, and increased interest rates all while many navigate through the global impact of the Ukraine crisis. As a result, the greater Sacramento region moves forward with numerous local, national, and global factors involved and yet foresees positive trends to continue and remain well positioned for growth in the coming periods.

*Quarter Over Quarter Change

7.4%

±

340,023 SF

Vacancy Rate

Net Absorption

$19.01 Avg. Asking Rate (NNN)

Vacancy Rate (%)

Net Absorption & Net Deliveries (SF)

RETAIL NET ABSORPTION VS. NET DELIVERIES VS. VACANCY RATE

Source: CoStar

MARKET TRENDS The state of the Sacramento retail market continues to improve.

The Q1 vacancy rate was 7.4% and has ticked down over the past year, as tenant activity increases. Quick service restaurants and drive-thru concepts continue to remain in high demand leading to next to no second generation quick service restaurant space available. In addition, sit down full service restaurant activity has also begun to improve. However, leasing activity and availability within the junior anchor segment remains minimal and appears to be fairly static from a demand and rent growth perspective.

The local region recorded strong activity in early 2022, and net absorption over the past 12 months has reached 760,000 SF. While a high positive figure alone is reason for optimism, the market has also returned to above historical norms averaging net levels of 690,000 SF over the last decade. As of March, leasing continued to trend in a positive direction, with three leases of 10,000 SF or more in early 2022. Of the three, the largest took place within South Sacramento, a submarket that also experienced the largest amount of net absorption in Q1.

This sizable lease of 34,070 SF included the future move in of Chuze Fitness at 6061 Florin Road within Florin Towne Centre.

Following suit is the Roseville/Rocklin submarket, an area that continued to shine as well. Tenant, Airport Home Appliance took 26,000 SF at 1251 Lead Hill Blvd which is part of the larger Center Pointe Shopping Center and plans to fully occupy the building in May. As new construction activity continues to face headwinds in the form of supply chain challenges, high permit fees and ever increasing construction costs, however, Q1 included a total of 186,377 SF, an uptick over the past several quarters. This momentum is one that points to a positive start of 2022 as the Sacramento retail market begins to see new projects eyeing plans for the pipeline. Grocery anchored continues to be the ideal building block for new development. As such, most recently announced is a Safeway development in Roseville at Pleasant Grove Blvd and Fiddyment Road. In addition, Raley’s O-N-E at Blue Oaks Blvd and Fiddyment Rd, also in Roseville is close to completion and slated for a Q3 2022 opening along with the balance of the shopping center.

±

186,377 SF Under Construction

3.7%

3.6%

Sacramento Unemployment

United States Unemployment

RETAIL MARKET SALES The first quarter of 2022 proved there continues to be a strong desire for retail investments throughout the Sacramento Region.

The volume of Sacramento properties that were brought online signaled strength within the region and allowed investors the opportunity to place capital in a clearly active and competitive market.

In addition, the Donahue Schriber Realty Group portfolio also closed at the end of the first quarter to First Washington Realty.

Of the total portfolio, eleven assets traded within the Sacramento market including ten to First Washington Realty, and one to EDENS. This remains as another example highlighting the trend of new, East Coast ownership groups entering the West Coast territory and is a reflection of the Sacramento retail market’s overall strength as well as its resilience during the pandemic.

Sales volume activity quickly jump started the 2022 year with nearly 60 transactions and a total of $308 million dollars.

Included in this impressive number of transactions were several notable deals above a sales price of $10 million and predominately part of a portfolio. A noteworthy Q1 transaction involved Highland Reserve Marketplace in the Roseville/Rocklin submarket. Schnitzer Properties out of Portland, Oregon, purchased the seven properties that compose the shopping center for $52 million, or $272 per square foot. The shopping center was 97% occupied at the time of sale, with anchor tenants including Kohl’s, PetSmart, and BevMo! in place.

$50,000,000

$50

$0

Sales Volume

2022 Q1

$100

2021 Q4

$100,000,000

2021 Q3

$150

2021 Q2

$150,000,000

2021 Q1

$200

2020 Q4

$200,000,000

2020 Q3

$250

2020 Q2

$250,000,000

2020 Q1

$300

2019 Q4

$300,000,000

2019 Q3

$350

2019 Q2

$350,000,000

Price/SF ($)

Sales Volume ($)

RETAIL INVESTMENT SALES VOLUME VS. PRICE/SF

$0

Price/SF Source: CoStar

RETAIL Q12022 JKG

Retail Market Statistics

(Submarket criteria based on: Retail in a Shopping Center. Includes existing, proposed, under construction, final planning)

Available Space

Net Absorption Q1-21

SF Under Construction

Avg. Asking Rate (NNN)*

Direct

Sublease

Total

Vacancy Q1-22

7,046,731

886,625

6,792

893,417

12.7%

47,063

(29,491)

0

$15.84

3,100,902

108,442

8,278

116,720

3.8%

7,562

1,936

9,908

$17.64

7,791,374

762,502

4,705

767,207

9.8%

74,952

(30,364)

0

$14.76

3,280,551

257,061

21,609

278,670

8.5%

5,360

(20,770)

50,000

$15.24

1,582,449

95,388

0

95,388

6.0%

4,051

(4,506)

0

$33.72

El Dorado

2,483,139

176,098

0

176,098

7.1%

(952)

(28,453)

0

$24.00

Elk Grove

4,664,994

107,320

0

107,320

2.3%

2,599

27,378

57,651

$21.60

Folsom

4,461,035

285,995

0

285,995

6.4%

4,316

(7,185)

0

$19.80

Highway 50

3,480,838

489,857

0

489,857

14.1%

59,908

7,198

0

$16.20

Natomas

3,076,739

116,799

0

116,799

3.8%

(2,625)

(4,588)

0

$20.04

3,008,943

200,401

0

200,401

6.7%

(10,033)

2,605

0

$14.64

Roseville/Rocklin

11,617,404

653,306

0

653,306

5.6%

55,452

64,845

38,300

$18.72

South Sacramento

8,543,902

489,647

127,135

616,782

7.2%

97,650

46,345

30,518

$15.96

West Sacramento

1,804,965

87,750

0

87,750

4.9%

(5,280)

(14,109)

0

$18.00

Totals

65,943,966

4,717,191

168,519

4,885,710

7.4%

340,023

10,841

186,377

$19.01

Submarket

Inventory

Arden/Watt/Howe Auburn/Lincoln/ Loomis

Q1-22

Carmichael/Citrus Heights/Fair Oaks/ Orangevale Davis/Woodland Downtown/Midtown/ East Sacramento

Rio Linda/ North Highlands

About Gallelli Real Estate Gallelli Real Estate is a private firm that specializes in commercial real estate services and property management. We believe that as a boutique firm whose understanding of the business runs as deep as our core values, our advantage is large. We take pride in our unique approach to offer more individual solutions that address the ever changing needs of our clients and the industry. After all, our success is measured by the success of our clients and the strength and longevity of our relationships. For the latest news from Gallelli Real Estate, visit GallelliRE.com, or follow us on Twitter: @Gallelli_RE and LinkedIn.

Gary Gallelli President 916 784 2700 gary@GallelliRE.com

Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700