JKG
3Q
2022
R ETAIL
MARKET REPORT MARKET OVERVIEW
Despite the overall economic slowdown, the Retail Commercial Real Estate sector continues with a strong performance. Vacancy rates are down slightly from Quarter 2 in the Sacramento region dropping from 7.8% to 7.6%. Growth in the region remains steady, with a slight increase in new construction from Q2 to Q3. Lately, significant renovation projects have been on an upward trend within shopping centers. Recent renovations in progress and planned include Country Club Centre in Sacramento, Sunrise Village in Citrus Heights, Granite Bay Village, and The Davis Collection (previously University Mall) including a small format Target as an anchor and the existing Trader Joe’s. Due to high construction costs and permit fees, we anticipate continued infill redevelopment of existing centers. Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700 www.GallelliRE.com
As we approach 2023, the market shows an increased probability of a recession in the coming months. Consumer spending currently remains healthy but has shown signs of slowing as COVID-related 2020 savings funds begin to dwindle and consumer confidence appears to be weakening. We anticipate a slight slowdown in deal velocity as the post-COVID era continues in the later part of the year.
*Quarter Over Quarter Change
7.6% Vacancy Rate
±164,515 SF
$19.22
Net Absorption
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 Sacramento region’s net absorption figure at the close of Q3 jumped to 164,515 SF, a positive jump from Q2’s (152,085 SF). While occupancy rose this quarter, this trend has been largely from “COVID-proof” tenants and smaller retail tenants. Costco remains bullish in the region with a new Loomis site moving ahead as well as applications for new stores in Natomas and Roseville. Smaller retailers such as boutique fitness franchises continue to expand. Medical tenants have taken on a new strategy consisting of leasing within retail centers instead of medical offices to provide convenience to customers and increased visibility. Overall, with net absorption and asking rents up, the retail industry continues to experience tenant demand in the region. However, permit and construction timeframes remain sluggish at the city and county levels. Currently, the average timeline from an executed lease to store opening is about 6-8 months, up significantly from pre-COVID timelines. In addition, construction costs remain high, and together they are putting downward pressure on deal-making. Although most anticipate costs to soften as the new home building sector slows, resulting in increased labor and supply of building materials. As we move into Q4, we anticipate a slight slowdown in deal volume as the post-COVID era continues. Interest rates are projected to continue climbing via the Federal Reserve. While the retail industry remains generally healthy, we’re seeing tenant expansion plans being scaled back across the board as caution appears to become a theme as we enter the fourth quarter and early 2023.
±282,528 SF
3.7%
3.5%
Under Construction
Sacramento Unemployment
United States Unemployment
RETAIL INVESTMENT SALES In Q3, the Sacramento retail sales market saw cap rates continuing to slowly inflate as interest rates rose. Overall, there has been an uptick in activity compared to Q2 as owners hope to sell their shopping centers before the economic conditions worsen.
Natoma Junction Plaza, Folsom
In Q3, the Sacramento region saw notable sales such as: • Delta Shores - $122.5M • Fairway Commons - $35.25M • Stanford Ranch Village - $23.85M • Natoma Junction Plaza - $5.05M
Price/SF ($)
Sales Volume ($)
RETAIL INVESTMENT SALES VOLUME VS. PRICE/SF
Source: CoStar
RETAIL Q32022 JKG
Retail Market Statistics
(Submarket criteria based on: Retail in a Shopping Center. Includes existing, proposed, under construction, final planning)
Available Space
Net Absorption Q3-21
SF Under Construction
Avg. Asking Rate (NNN)*
Direct
Sublease
Total
Vacancy Q3-22
7,041,468
1,043,434
6,792
1,050,226
14.9%
(52,691)
35,749
49,289
$16.08
3,120,034
130,077
8,278
138,355
4.4%
(20,277)
7,421
-
$17.16
7,772,417
734,964
4,705
739,669
9.5%
33,411
2,452
-
$15.36
3,286,049
169,569
-
169,569
5.2%
82,653
4,627
50,000
$15.48
1,590,856
123,150
20,050
143,200
9.0%
(22,125)
59,470
-
$30.00
El Dorado
2,470,324
150,013
-
150,013
6.1%
27,397
19,164
-
$23.04
Elk Grove
4,719,207
78,821
-
78,821
1.7%
44,111
15,424
-
$26.40
Folsom
4,440,641
229,671
-
229,671
5.2%
47,931
31,837
-
$20.28
Highway 50
3,459,292
493,268
-
493,268
14.3%
(7,841)
76,276
119,221
$16.08
Natomas
3,067,315
111,859
-
111,859
3.6%
3,605
64
-
$20.64
2,870,632
179,253
-
179,253
6.2%
13,869
11,922
-
$15.36
Roseville/Rocklin
11,568,667
656,888
41,476
698,364
6.0%
6,032
27,762
38,300
$19.08
South Sacramento
8,495,444
531,732
134,635
666,367
7.8%
27,156
93,097
25,718
$16.08
West Sacramento
1,807,741
124,801
-
124,801
6.9%
(18,716)
(5,646)
-
$18.00
Totals
65,710,087
4,757,500
215,936
4,973,436
7.6%
164,515
379,619
282,528
$19.22
Submarket
Inventory
Arden/Watt/Howe Auburn/Lincoln/ Loomis
Q3-22
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