Fremont Boom on the Horizon?

[The following is from the First Quarter Update to The 2012 AEC Market Guide to California. The Update is a 35-page research report available only to buyers of the Guide.]

The City of Fremont has been in the national press recently as the home of the infamous failed solar energy company Solyndra. Somewhat lost amid the politics was the fact that approximately 1,500 jobs went by the wayside when the plant shut its doors in August. This was on the heels of the 2010 closure of the New United Motor Manufacturing, Inc. (NUMMI) plant, which put 4,500 out of work.

Despite these challenges, Fremont focused forward. In February, the city of about 215,000 people announced a “Jobs Recovery Strategy,” which outlines a plan for the revitalization of an 850-acre area surrounding the new Tesla Factory (at the site of the former NUMMI plant). The plan, aided by a U.S. Economic Development Administration (E.D.A.) grant, “focuses on the creation of high-wage, skilled jobs, promoting innovative technology uses and employment-focused transit-oriented development (T.O.D.),” according to the city.

This and other economic development strategies appear to be working. In our First Quarter Update of the JAGG Development Index, a feature published in The 2012 AEC Market Guide to California, Fremont jumped from 26th to 4th in our list that measures the economic development outlook of 128 California cities and towns.

Fremont’s sudden climb came as a result of an impressive 0.6% drop in the citywide unemployment rate from October (7.3%) to December (6.7%) and the addition of more than 300 new residential permits in the last two months of the year alone. A closer examination of the permit data finds that the vast majority of the new permits were from a single 300-unit multifamily property.

Kamal S. Obeid, S.E., P.E., a civil and structural engineer and the president of Landtech Consultants, Inc. (Fremont, CA), says he is seeing a mild increase in development interest, but that overall construction activity in the city currently remains soft.

“In general, I’m not seeing a great deal of development going on right now,” said Obeid, who has a project on hold in the city due to market conditions. “I know that there is one relatively large project occurring in the Central Business District that appears to be mixed-use, primarily residential.”

Obeid’s observations are not inconsistent with the findings of the Index, however, since it is intended to be a predictive tool. In fact, Obeid sees some market indicators that could foretell a recovery of development in Fremont.

“Office rents have been fairly stable in Fremont,” says Obeid. “There are some vacancies, but landlords aren’t too interested in giving discounts to their tenants right now. The multifamily market is still hot in Fremont, with the city favoring condos over apartments. And though I’m not sure how the research and development market is, Fremont – South Fremont in particular – benefits from its proximity to Silicon Valley, and technology companies do seem to be spending again.”

Fremont’s drastic leap up the rankings is unusual for the index. In fact, most other cities in the Index moved only a few places one way or the other.

The City of San Francisco, which shared the top spot with the Yolo County city of Davis in the last ranking, moved into sole possession of 1st, distancing itself from the field. From January to December 2011, San Francisco’s unemployment rate dropped nearly two percentage points, finishing the year at 7.6%. Residential permits did not return to the level seen during the boom years of 2005-2007, but were only off by about 25% in 2011 from the average of those golden years.

Santa Clara County’s Mountain View jumped from 4th to 2nd. It boasts a 6.4% unemployment rate, relatively low foreclosure activity according to the latest available statistics, and residential permit activity in 2011 that was 65% higher than the city experienced in the boom years.

Holding steady in third place is the small city of Walnut from Los Angeles County. Walnut actually topped the Index in the third quarter, but slid to third in the last two with increased foreclosure activity and a slight rise in unemployment rate.

Davis slipped into a tie for 5th with Orange County’s Irvine (previously 6th) and Alameda County’s Dublin (previously 9th). Rounding out the top 10 are Aliso Viejo, dropping from 4th to 8th; Santa Monica, slipping from 6th to 9th; and Mission Viejo, climbing from 12th to 9th.

As noted in The 2012 AEC Market Guide to California, the JAGG Development Index is:

…designed to be an informational resource that calculates a variety of important metrics that influence the outlook for development in a particular area. This is almost entirely an objective, quantitative analysis based on these metrics in cities across the state. It is not intended to definitively judge the potential for development or the economic outlook for any of the specific cities listed. Cities are not self-contained, so to place too much emphasis on the statistics within a city’s boundaries is unwise.

Instead, the intent is to rate these important factors according to a scale we developed based on our estimate of the impact each will have on the city’s economic health. For this reason, we place a higher emphasis on unemployment rate, foreclosure rate and current permit activity in relation to historical permit activity. Most of the data for the First Quarter Index is from year-end.

JAGG Development Index – 1st Quarter 2012

City (County) Index Score

1. San Francisco (San Francisco) 60

2. Mountain View (Santa Clara) 54

3. Walnut (Los Angeles) 53

4. Fremont (Alameda) 52

5. Davis (Yolo) 51

5. Dublin (Alameda) 51

5. Irvine (Orange) 51

8. Aliso Viejo (Orange) 50

9. Mission Viejo (Orange) 49

9. Santa Monica (Los Angeles) 49

Matkins/Anderson Survey Optimistic About Commercial Sector

The 2012 AEC Market Guide to California found that many market indicators in the commercial sector are pointing toward recovery, particularly in the areas of the state further along the economic recovery curve. A recent survey by law firm Allan Matkins (Los Angeles, CA), in conjunction with the UCLA Anderson Economic Forecast, concurs.

California’s office and industrial space markets have made some, albeit uneven, progress.

The progress, such as it is, has been driven by the steady employment gains in coastal California, particularly in professional, technical and scientific services and health care, users of office space, and in export-related sectors and manufacturing, [as well as] users of industrial space.

The latest survey results, exhibit a continuation of the last 24 months, and for the first time, the Survey provides evidence of a nascent new build cycle.

Although occupancy rates and rental rates have not yet risen to levels required to induce significant new construction, improving economics has induced an increase in alterations and remodeling of existing space. In the last six months. Permits for remodeling of commercial real estate in the seven surveyed markets (exclusive of apartments) reached or exceeded the pre- 2007 levels. While the dollar value of the remodeling does not account for inflation and may be allocated to very different types and uses of commercial real estate, they do indicate a move towards conditions appropriate to engender a revitalization of the commercial structure construction industry.

The Survey Report concludes that the commercial and industrial markets are certainly on their way to full recovery, with a decent chance of seeing solid early-stage activity by the end of 2012.

“The optimism about 2014 in the Survey, which first appeared in some markets in December 2009, is an important indicator of both the probability of new additions to stock being started over the next two years and of opportunities for new investment in office and industrial space,” wrote report author Jerry Nickelsburg of the UCLA Anderson Forecast.

“The eighteen months of pessimism during the recession has now been followed by two years of increasing optimism among the Survey panels. This is qualitatively consistent with the historical pattern of commercial real estate cycles. The depth of the recession and the recent slowing of growth have attenuated the recovery in commercial real estate markets, however, the Survey results [still suggest] a turning point in commercial markets and commercial construction by late 2012.”

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