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| Proposed Vanir Tower at 601 J Street - Sacramento, CA |
As of yesterday, the Vanir Tower project has not submitted
any revised plans to the city after withdrawing them shortly after November of
last year. A city planner has labeled the project as "inactive" because
they haven’t worked on the project for several months. In my opinion, this is a
big indicator that despite being located across the street from new Golden 1
Center, the downtown office market vacancy rate is still to high to absorb a
project of this size. Colliers-Sacramento
predicts that Class A asking rates will increase 4% year-over-year due to
activity surrounding the Golden 1 Center. As of the end of the third quarter, there
is currently 813,617 SF vacant class A office space in downtown and another
586,408 SF vacant class B office space open. Combined, that’s about the size of
3 ½ 25 story towers vacant in downtown. Even with all the improvements the
market has shown from several years ago, actual rents are not currently at a
level high enough to justify new construction.
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5 comments:
And that's not counting the 2 million+ square feet of office space planned for the Railyards.
That 2 million square feet probably won't be built unless there are tenants signed up to pre lease the buildings... the same troubles as this tower. There is only one high-rise in downtown that I know of that was built on speculation with out a loan from a bank and that's 500 Capitol Mall. It was fully financed by the Tsakopoulos family for $115 million in 2009.
Supply and demand...this project didn't make sense from the get-go based on the points you wrote about. While I believe that Sacramento needs every angle it can utilize in order to attract more quality private sector employers to the downtown region, I don't think that this tower would have helped as much...the more addressable problem with downtown is a complete lack of life after 5pm and the giant delta of residents needed to resolve this issue (50 units here and 150 units there barely whittles away at a 10,000 unit problem).
An almost no-brainer is to re-zone long dormant office space (ie Renaissance Tower and other smaller buildings) into residential, solving downtown's lack of housing as well as shrinking the oversupply of office space. I believe a few cities have done this and have had some success.
Plus, with all this retail going in - especially in an era where most brick-and-mortar retail business models aren't as diversified/sustainable due to the more profitable shift to e-commerce - a huge increase in downtown residents is especially necessary to make this influx of retail sustainable. Otherwise I fear a short resurgence ala Downtown Plaza in 1993-95 followed by the same ol' problem again.
https://www.youtube.com/watch?v=d1q9b57zJh8
Some brokers state the downtown office market is running out of space. The broker from JLL says Sacramento might be able to squeeze another skyscraper that will "enhance the skyline." So maybe there is hope.
Hilarious! Did the post above with the JLL link just video tape that silly statement as a response to this blog post? Greg Levi represents the Vanir Tower developer and brokers will say anything to generate hype or create a since of urgency when there is none. Back in June Greg Levi also said in an interview with the Sacramento Business Journal “Though rents are rising, though, they’re not high enough to bring construction cranes just yet. The highest rents, around $3.10 a square foot, are still about 40 cents below what a brand-new building would have to charge,” Levi said.
If this Vanir Tower proposal had a shred for intent to actually be built, they would start the process to pay the city for the entitlement and environmental review process… they can’t even do that. Why won’t they re-submit this tower to the city if there is so much built up demand for class A office space? It because Greg Levi is TRYING to generate hype, if there was serious demand Greg and the Vanir Tower would be pressing forward and putting their money where their mouth is.
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