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Monday, February 24, 2014, 6:55 am

Commercial Real Estate: Industrial space market sizzles in 2013

Also: Koenig joins Meridian; Pur-Fect expansion

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    Jeff Quackenbush, Business Journal Staff ReporterNot surprisingly from the flurry of deals related to industrial uses in the North Bay in recent months, industrial space had the biggest improvement in vacancy in the North Bay in the fourth quarter.

    Marin County commercial real estate vacancy, fourth quarter 2011--2013 (source: Keegan & Coppin)

    Sonoma County commercial real estate vacancy, fourth quarter 2011–2013 (source: Keegan & Coppin; click to enlarge)

    In Sonoma County, 10.0 percent of 24.2 million square feet of industrial space was available for lease at the end of last year, according to estimates from Keegan & Coppin Co. Inc./ONCOR International. That’s down from 12.3 percent at the end of 2012 and 13.7 percent a year before that. Industrial vacancy in the third quarter last year was 10.4 percent.

    Marin County commercial real estate vacancy, fourth quarter 2011-2013

    Marin County commercial real estate vacancy, fourth quarter 2011–2013 (source: Keegan & Coppin; click to enlarge)

    In Marin County, where little industrial space has been built in years because of the cost, 4.9 percent of 6.44 million square feet was available in the fourth quarter, down from 6.9 percent at the end of 2012 and 7.8 percent a year prior.

    Industrial vacancy plunged faster in Solano and Napa counties, filling up projects under construction and spurring others long moth-balled.

    “2013 was one of the strongest years in recent memory for the industrial market in Solano and Napa counties,” according to Rob Gerard, research director in the Fairfield office of Colliers International.

    The industrial vacancy rate for the 46.35 million square feet of industrial space in both counties, 29.3 million of which is for warehousing, was 7.5 percent in the fourth quarter, down 3.7 percentage points for the year, according to Colliers. The large industrial parks of southern Napa Valley have vacancy rates of 2 percent or less.

    Key to that movement were the 330,000-square-foot and 473,000-square-foot leases by Encore Glass and Saxco International, respectively, at the under-construction Solano Logistics Center on the southeast outskirts of Fairfield and the sale of the 365,000-square-foot Dey Labs campus in south Napa to the county of Napa, though about 150,000 square feet of that will be for lease.

    Vacancy rates for office space in Sonoma, Marin, Solano and Napa counties remained around 20 percent or above in the fourth quarter, according to the brokerages.

    Dipping below that threshold again was Marin, reaching 19.5 percent at the end of 2013, according to multiple brokerages.

    Of the 700,000 in Marin office leases last year, net absorption was just 78,000 square feet, according to Haden Ongaro, who oversees the North Bay offices of Cornish & Carey Commercial Newmark Knight Frank.

    “It was somewhat musical chairs and subleasing space, but there was more activity in volume than in a few years,” he said.

    A lack of new construction and a well-educated workforce are attracting office property investors, he said.

    “There are a lot of major deals in the market, with new investors coming into Marin,” Mr. Ongaro said. “In many cases, they are putting in capital and improving buildings. Hopefully, the new buyers will help push up rental rates.”

    Chipping away at those vacancy rates will be the forthcoming purchase of San Rafael Corporate Center by Novato-based BioMarin Pharmaceutical, which also plans to build a laboratory building there.

    ***

    Mark Koenig, who has been brokering larger-sized retail leases and sales in the North Bay for two decades, in early February moved his affiliation to San Rafael-based Meridian Commercial from the San Rafael office of Cassidy Turley.

    Mark Koenig

    Mark Koenig

    “I’m going back to a nice smaller-shop scenario that gives me the opportunity to do what I like, more of a consultative approach to brokerage,” Mr. Koenig said.

    From its second lease on life several years ago, Merdian Commercial has grown to have a half-dozen agents. Matt Brown and four other agents started Meridian Commercial in 1993. It grew to eight agents by late 2007, when five left to join Cassidy Turley and the brokerage disbanded. Mr. Brown left Cassidy Turley in late 2009 to form a new iteration of Meridian Commercial.

    Mr. Koenig moved to the North Bay in 1992 and worked with CBRE’s San Francisco office to build a retail-property brokerage presence north of the Golden Gate Bridge. Mr. Brown and Mr. Koenig met around that time.

    “My passion for all these years is the supermarket side of the business,” he said. “I’ll focus further on that at Meridan.”

    Mr. Brown and Mr. Koenig spent two years working on the Good Earth natural foods store expansion in Fairfax. Today, Mr. Koenig’s assignments include a Safeway grocery store in Petaluma, an expansion project with a controversial gas station, and a joint marketing project with Cassidy Turley agent John Schaefer to find new tenants for the former Safeway store in Petaluma.

    The news that Pleasanton-based Safeway is an acquisition target is part of a coming wave of consolidation in grocery, natural foods and discount retail, according to Mr. Koenig.

    ***

    In one of the larger industrial leases for the fourth quarter, blow-molding equipment servicer Pur-Fect Plastics is consolidating a warehouse and a testing and research-and-development site in a move 10,000 square feet of newer, better-equipped space at 1320 Scott St. in Petaluma. Peter Gettner and Dirck Brinckerhoff of HL Commercial Real Estate represented the company in the deal for the new space.

    The company had been operating from a rural warehouse before moving to offices at 9 Jupiter Ct. and a 7,000-square-foot warehouse at 1304 Scott four years ago to have more room to rebuild machinery, according to owner Dennis Purwin. The company sells and services new and used equipment worldwide.

    “Our economy took a turn in 2006 and has not recovered since then,” he said. “I’m looking at redefining my business.”

    ***

    Six acres of vacant land behind The Home Depot store in Windsor, the site of a mixed-use project once known as Shiloh Sustainable Village, sold to a Southern California couple on Dec. 30 for $1.1 million, half the price developer North Street Partners, LLC, paid in 2001.

    Fallbrook-based Bottle Peak Ranch, LP, purchased the property from Umpqua Bank, whose Circle Bank acquisition had foreclosed on the property in June 2010 for $2.4 million owed. The project was approved for 65,000 square feet of retail space anchored by a 12,000-square-foot specialty grocer, 20,000 square feet of office space and 136 market-rate and affordable dwellings.

    The new owners said they plan to hold the property.

    “We have no plans to develop right now,” said Susan Gabrych, one of the owners. She’s the daughter of Eugene Gabrych, a California businessman whose 200,000 acres of holdings nationwide made him the 47th-largest owner last year, according to trade journal Land Report.

    The project was a favorite on the roster of projects vying for the right to build under the town of Windsor’s growth-management ordinance.

    The Shiloh Vision Plan document that specifies what town government is looking for in development along Shiloh Road around the Shiloh Center regional shopping venue remains in effect, calling for a blend of “boulevard commercial” and higher-density compact residential development on the recently acquired property, according to town planner Pauletta Cangson.

    “We have not had much in the way of inquiries from that site over time,” she said.

    Submit items for this column to Business Journal Staff Writer Jeff Quackenbush, jquackenbush@busjrnl.com.

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