Radius Group Releases 10 Year Findings for Local Commercial Property Sales Market
Radius Group Commercial Real Estate has announced findings from its major study of Santa Barbara commercial real estate sales data from 1995 through 3rd quarter 2006. Radius Group’s Market Report on Commercial Real Estate Trends 1995-2006 shows significant overall increases in local office and industrial real estate values, with the most dramatic increases in price per square foot in the retail property category; and in contrast with drops in capitalization rates for mid-sized buildings in all three commercial real estate categories.
“We are pleased to report the findings for this comprehensive data set,” said Scott Glenn, one of the four partners and co-founders of Radius Group Commercial Real Estate. “While it is no surprise that commercial real estate prices have increased in general, it is now possible to analyze the value from many perspectives, and it is a new view of unique behaviors at the extremities of each commercial category.”
Key factors analyzed across each of the three categories include sales volume, sales price, cap rates, square footage, and price per square foot.
Radius Group’s team analyzed these factors to identify trends throughout the three commercial categories. Some of the most significant trends in office and industrial categories were found in relation to building size, and for retail, in relation to location.
Key trends identified for each category include:
- Since 1995, mid-size office buildings have had the greatest rise in price per square foot compared with small (under 2,000 sq. ft.) or large (over 10,000 sq. ft.) office buildings.
- Income-producing mid-size office and retail buildings saw significant increases in value, while producing lower income ratios to owners: Mid-size office buildings saw an increase in value over 200%, while the Capitalization Rates (or cap rates – a ratio of net operating income to sales price, used to estimate the value of income producing properties) for the same size buildings have dropped 50-60%.
- This trend has also resulted in larger buildings having a lower price per square foot and higher cap rates, while smaller retail buildings gained a higher price per square foot and saw a dramatic drop in cap rates. While the price per square foot for smaller office and industrial buildings has risen dramatically, by over 200% and 450% respectively, the price per square foot for larger retail buildings (more than 10,000 square feet) has remained relatively flat since 1995 – hovering between $200-$300.
- Smaller industrial buildings (less than 5,000 square feet) follow a similar pattern with values increased at twice the rate of mid-size and larger industrial buildings (5,000 square feet or more).
- Cap rates have remained steady for the smaller industrial properties, but for larger properties have dropped 50% since 1995.
- State Street retail has seen a more than 500% increase in price per square foot since 1995, the greatest increase in any kind of commercial building type.
- Off-State Street retail has seen the greatest gain in price per square foot compared to any other commercial building type – an increase of over 500% – against a backdrop of historically low vacancy rates.
“The recent declines for the largest and smallest buildings may be looked to as an indicator of lower prices ahead for all commercial buildings,” continued Glenn.
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