WEST: A Wild Ride

ECONOMIC OVERVIEW

While its jobless rate continues to make a slow descent, the West still lays claim to the highest unemployment rate in the country. “The West region has grown but perhaps at a shade or two less than the Midwest and South in terms of overall economic performance,” says Jack Kleinhenz, PhD, chief economist with the National Retail Federation.

San Diego

High unemployment is waning in this region with consumers more confident, but also more cautious in their buying patterns

JOB LOSS

On the plus side, the West has seen nothing but decreases in its unemployment rate since it sustained a high of 11.1 percent in April 2009, according to the Bureau of Labor Statistics (BLS). In April 2012, this rate dipped down to a much more comfortable 9.5 percent, though still the highest by far of any region.

BUDDING CONFIDENCE

Residents are gaining confidence for a more positive economy. In May 2012, 32.2 percent said they were “Confident” or “Very Confident” about the chances for a strong economy during the next six months, according to the BIGinsight Monthly Consumer Survey.

That's way up from the 27.4 percent in May 2011 and is on par with the consumer outlook in the other three regions.

Just 3.6 percent of residents were fearful of being laid off, according to BIGinsight—a big improvement from 7.5 percent in May 2009.

SPENDING OUTLOOK

Despite increasing economic confidence, Westerners are buckling down and spending more wisely today. A full 47.3 percent said they have become more practical and realistic in their purchases (up from 41.3 percent in 2010), according to the BIGinsight survey.

More consumers here have also become more budget conscious—45.8 percent indicated this change in May 2012 while only 39 percent felt the same in May 2010.

Additionally, an increasing number of residents of the West said they are now focusing more on what they “need” as opposed to what they “want” (53.9 percent in May 2012 up from 49.3 percent in May 2010).

People of this region are saving money by doing more comparative shopping online (25.7 percent) and buying more store brand/generic products (33.1 percent), according to the BIGinsight survey.

COST OF GOODS

The Consumer Price Index (CPI/the prices paid by urban consumers for a representative basket of goods and services) in the West rose by just 2.1 percent in the 12-month period ending in April 2012, according to the BLS. Interestingly, the West sustained the lowest increase of any U.S. region.

RETAIL REAL ESTATE

The U.S. Census Bureau's West region is home to both the West and Southwest. While the West's technology and entertainment markets have recently showed stronger results on the real estate front, the overbuilt Southwest (including Las Vegas and Phoenix) remains the country's hardest-hit area.

“We've seen pretty good strength in office and retail real estate coming out of technology-oriented markets like San Francisco, San Jose, and Oakland, plus the Los Angeles market with its more affluent entertainment industry residents,” says Ryan Severino, a senior economist with Reis, Inc.

VACANCY RATES

The West (9.3 percent) was edged out for the lowest vacancy rate only by the Northeast (9 percent) in the first quarter of 2012, according to Reis, Inc. “Vacancy rates are pretty low in the West, and they have held up better in the technology markets,” says Severino.

The situation in the Southwest, however, was an entirely different story. For the same period, the vacancy rate in this beleaguered region came in at 12.9 percent, the highest in the U.S.

Salt Lake City

RENTS

Adding to its vacancy woes, the Southwest exhibited low effective rents of $13.43 per square foot in the first quarter of 2012, according to Reis, Inc. This number was, at least, a very slight increase over the asking rent of $13.35 reported in the first quarter of 2011.

“The Southwest is one of the hardest-hit areas with the fallout from Vegas and Phoenix,” says Severino. “You just don't have the kind of economic and demographic growth as the Northeast and the West to have as tight of a retail real estate market.”

By 2021, however, Reis, Inc., projects vacancy rate here to hit eight percent and effective rents to rise to $19.40 per square foot.

In the West, however, the current picture was a bit rosier. Vacancy rates dropped to 9.3 percent (down from 9.4 percent in the first quarter of 2011) and effective rents were looking fairly healthy at $20.12 per square foot (the same as the first quarter of 2011).

METRO MARKETS

This large region isn't lacking in major metros, but it does have a dearth of cities displaying growth. A few standouts do exist, however.

CITIES TO WATCH

Orange County was living large with a vacancy rate of 5.8 percent and average rent of $30.57, according to Reis, Inc. San Diego also looked good with a vacancy rate of 6.5 percent and effective rent of $28.19.

In Northern California, the urban hub of San Francisco boasted an uber-low 3.8 percent vacancy rate and a sky-high effective rent of $32.67. Also part of California's technology corridor, San Jose reported a 5.8 percent vacancy rate and average rent of $30.64.

FASHION TRENDS

The fall's key fashion trends focus on prints, patterns, and graphic color blocking. Style experts say the fashion-focused residents of the West will embrace the boldest of the season's looks.

“They will wear the bigger houndstooth prints or the more graphic geometric prints for fall,” says Roseanne Morrison, fashion director at The Doneger Group. “The prints and patterns will be smaller in the middle of the country and more graphic on the West Coast, for sure.”

One trend of note heralds a return to dressed-up suits in menswear fabrics, such as black-and-white check and houndstooth. EB