[caption id="attachment_89533" align="alignright" width="224"] James Manley[/caption]
2013 was the year we turned the corner in Petaluma, much as it was throughout the region. Through a series of purchases, developments, and leases, Petaluma suddenly became a target market. This is partially due to prices in Marin climbing higher over the past year.
Construction always fuels excitement -- and grievances -- within a community. East Washington Place -- anchored by Target, Dick’s, etc. -- seemed to spring up overnight. Deer Creek Village, anchored by Friedman’s and bolstered by City Sports and Mary’s Pizza, is fully underway. Every Highway 101 interchange in Petaluma is going through major upgrades. Traffic signs regarding lane closures for infrastructure and building improvements are common on Petaluma’s major surface roads.Industrial market tightens
There was a more than 3 percentage point drop in industrial vacancy throughout 2013, ending at 10.4 percent. As we near the end of the first quarter, we expect that number to be in the single digits
The asking price for industrial space is inching upward, ranging from per square foot $8.40 a year, or 70 cents a month, on a gross basis to $10.20, or 85 cents, on a net basis. There are still some industrial and flex investment opportunities for users, but those are going to dry up shortly.
It is quite difficult to find small industrial space in Petaluma, and the larger spaces have active listings.Big office deals, new space
Office space absorption is also pretty impressive, though that market is not nearly as tight as the industrial sector. The beginning of 2013 reflected an estimated 820,000 square feet of office space available out of approximately 3,300,000 square feet of standing space. That 25 percent vacancy dropped to 20.7 percent by the end of the year. AVRS did back-to-back deals totaling about 23,000 square feet at 1135/1137 North McDowell. Cowgirl Creamery leased about 24,000 square feet at the former Front Row space on Lakeville Highway. Symbio leased close to 12,000 square feet at 1031 N. McDowell Blvd.
Basin Street Properties is erecting a 56,000-square-foot office building at the Redwood Business Center largely for Cyan expansion, and that project should be completed by September.Active first quarter
The first quarter of 2014 has been very active. There are tenants who have been out in the market kicking tires for several quarters starting to get serious about leasing space.
Likewise, investors are taking greater interest in grabbing equity while the market continues to tick upward. There are some marquee-style investments under various stages of the transaction cycle.
Prices are still attractive with flex-style user buildings hovering around $95 to $100/psquare feet. Leased investments are still at a 7 percent or greater capitalization rate. But it is also attractive for sellers to get motivated before interest rates move upward. Higher interest rates demand higher cap rates in order for a building to pencil out financially. Brokers are marketing some investments at 6 percent cap, but those are triple-net, coupon-clipper investments.
We will see a steady market throughout the balance of 2014 without too much upward pressure on price for office and minor upward pricing on industrial.
