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Experts Bullish on Office-Retail-Hotel Elements of Arena

Source: Sacramento Business Journal

Brokers: Ken Turton

Downtown real estate experts say building 1.5 million square feet of office, retail and hotel space as part of Sacramento’s latest arena plan makes sense — even in a market with high vacancy rates.

The location — on the site of Downtown Plaza, in the city’s heart — plus the momentum and excitement of a sports and entertainment complex would create demand for all that new space, say real estate professionals and others with downtown interests.

If the region wins over the National Basketball Association owners next month with its counteroffer to keep the Sacramento Kings from moving to Seattle, Sacramento would work with would-be investors in the Kings to develop other uses around the Downtown Plaza arena site.

This week the Sacramento City Council gave preliminary approval to a deal with investors, who also want to buy the city’s NBA team. The deal would require the city to chip in $258 million of the $447 million needed to build the arena. The city also would support the investors’ efforts to develop the surrounding 1.5 million square feet by modifying existing zoning as necessary.

The development could include 475,000 square feet of office, 250 hotel rooms, 300,000 square feet of retail and 600 units of condos or apartments.

All that extra space would be in demand if the arena is built, said Ken Turton, a commercial real estate broker who specializes in Sacramento’s central city. Other commercial real estate brokers agreed.

A new sports and entertainment complex attracting concerts, family shows and conventions — in addition to Kings games — would create tremendous interest and excitement, brokers said. Restaurants, nightclubs and national retailers would want to locate nearby.

The area would become the place to be seen and the place to be, said Kary Moore, a commercial real estate broker who specializes in downtown and midtown.

“I think there will be a lot of national retailers interested,” said Scott Reynolds, an independent retail real estate broker. That would boost business at existing restaurants, which would in turn create more housing demand, he said.

And more residents could attract other types of retailers, such as grocery stores.

“I think that it will change downtown from being a 9-to-5, 9-to-7 district,” he said.

“Once you keep (consumers) there, it becomes an economic engine,” Moore said, and the arena area builds on the existing activity in Old Sacramento and Raley Field. “There’s a cumulative effect.”

In all of the Sacramento Convention & Visitors Bureau surveys, visitors cite shopping high on their list of desired activities, said bureau CEO Steve Hammond, who supports the arena’s plan for more retail space.

Just like people would want to live near all the activity, companies considering office space would be attracted to the area for what it could offer their workers, the brokers said.

Office demand could come from three sources, Turton said. Companies benefiting from the boost in downtown economic activity may need to increase their workforce and lease more space. Companies located elsewhere in the region could decide to pay more for downtown space in the hot new arena district, partly as a way to retain and attract workers. In addition, companies located elsewhere in the state might decide to move to downtown for the new, active environment, Turton said.

All that would create demand for new office space. At the moment, the four-county region is suffering from a glut of office space, with a fourth-quarter office vacancy rate of 23.44 percent, according to Cornish & Carey Commercial Newmark Knight Frank.

But the vacancy in downtown Sacramento is much smaller — 11.36 percent in downtown Class A buildings in the fourth quarter. And the vacancy level around the Capitol is almost nil, Turton said.

As for new hotel rooms that would be built, they would be filled by concertgoers and by attendees of the additional conference business Sacramento expects to pick up.

“With new product, additional marketing and the significant impact of a sports and entertainment complex, clearly there will be more demand for hotel rooms,” Hammond said.

With a new arena, the Convention & Visitors Bureau would be able to attract more and larger groups, he said. Some groups that need the large general assembly space offered by an arena won’t book at the Natomas arena because it isn’t in a downtown location with lots of hotels, shopping and activity. Other groups needing both arena and convention space would come if attendees could walk from one building to the other. With an additional hotel or two built near the proposed arena, the bureau also could market to groups that want all their members close together in one or two hotels.

All the additional concerts and shows that would be attracted to a newer, nicer sports and entertainment center would help fill hotel rooms too. A concert drawing 20,000 people would need only a couple hundred couples to sell out a new hotel, Hammond said.

Whether any of this comes to fruition, however, is uncertain. Next month the NBA will decide whether to allow a Seattle group to buy the Kings and move the team to that city. If that happens, the discussion would have to shift to the feasibility of an arena without an anchor tenant.

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