Rents rise south of San Rafael; developers plan warehouse projects
Two hot markets for North Bay commercial real estate in mid-2014 are industrial space in Sonoma, Napa and Solano counties and office space in central and southern Marin County.
Industrial space vacancy in Sonoma County dropped to 8.3 percent of 24.2 million square feet in the second quarter of this year from 10.1 percent in the first quarter and 10.6 percent a year before, according to Keegan & Coppin Co., Inc./ONCOR International.
Net absorption of space — how much came off the market vs. became available — totaled nearly 662,000 square feet over those 12 months. Most of that absorption — 630,000 square feet — was in Santa Rosa and the business parks near Charles M. Schulz–Sonoma County Airport, Windsor and Healdsburg.
Industry vacancy plummeted to 3.2 percent of 5.7 million square feet near and north of the airport, down from 5.0 percent in the first quarter and 7.0 percent a year before. The rate in Santa Rosa dropped to 9.3 percent of 10.1 million square feet from 11.3 percent the previous quarter and 12.1 percent a year before.
“There certainly has not been any new product built in a very long time,” said Shawn Johnson, Keegan & Coppin managing partner, about the tightening industrial market.
While leasing in the Santa Rosa-area office space market in has been slow but steady, there is growing interest to buy land for building industrial and office buildings, he said. For example, American AgCredit bought land for its 120,000-square-foot headquarters offices under construction near the airport. Kaiser Permanente has been considering purchasing land in southwest Santa Rosa for a medical office building.
Real estate sources say there is serious interest in building industrial space in southern Sonoma County.
In Napa and Solano counties, though, land purchases have been happening, and industrial projects are lining up.
“Bay Area-wide, industrial vacancies are falling,” said Glen Dowling, who leads Cushman & Wakefield‘s North Bay team.
With vacancy rates for larger-sized warehouses in south Napa and American Canyon between 3 percent and 4 percent, projects by Stravinski Development Group, Panattoni Development, Orchard Partners, New York Life/McMorgan & Company and The Pigman Cos. have several hundred thousand square feet warehouse space planned to be under construction this year, or already underway, in Stravinski’s case.
A few requirements for 750,000 to 2 million square feet are being shopped at projects in Napa and Solano counties as well as in the Central Valley and East Bay, Mr. Dowling said.
“Napa has never had the product type to absorb that kind of requirement until now,” he said.
In Marin County, local businesses seem to be doing well, as seen by an increased appetite for office space, according to Whitney Strotz, managing director of Cassidy Turley‘s San Rafael office.
“There’s a limited supply of quality space and increasing pricing for quality spaces,” he said.
Rents for class A office space in central Marin County have been increasing at double-digit rates for the past few years, according to a Cassidy Turley analysis of transactions. From just 1 percent growth in the 12 months ending in mid-2011, average effective rents in deals jumped 9 percent by mid-2012, 12 percent by mid-2013 and 15 percent by the mid-way point this year.
Average asking rent for class A space is $4.10 a square foot per month in central Marin, and views of the bay cost as much as $4.50–$5 at some properties, the brokerage reported. Effective rents were in the low- to mid-$3 range for top southern Marin properties in 2011, Mr. Strotz said.
In the first half of this year from Sausalito to San Rafael there have been a number of situations in which multiple companies vied for the same class A office spaces in prime locations, he said. In some cases, prospective tenants offered to pay more than asking rental rates to outbid competitors.
“As tenants do that and space becomes tighter, they are starting the search process earlier,” Mr. Strotz said.
Several space requirements for medium- to large-sized space and occupancy in the first quarter of 2015 are active now, he said.
BioMarin Pharmaceutical continues to expand into the San Rafael Corporate Center campus it purchased in downtown San Rafael in March for $116.5 million. Construction of BioMarin’s 89,000-square-foot research-and-development laboratory building, the final one for the development, and 600-space parking garage are set to start this summer.
BioMarin occupied 40 percent of the 315,000 square feet of existing office space in four buildings at the time of the sale. It planned to expand into the rest of the existing space as tenant leases expired.
So far, tenants have vacated roughly 15,000 square feet for other spaces in San Rafael, according to Mr. Strotz. Wealth managers at Private Ocean leased about 10,000 square feet, somewhat of an expansion, at 100 Smith Ranch Rd. U.S. Sports Camp leased around 5,000 square feet at 1010 B St.
Steven Leonard of Cassidy Turley represented Private Ocean, and Bryan Vidinsky and Mr. Strotz represented the new landlord. Steve Easley of Cassidy Turley represented U.S. Sports Camp.
“It’s nice to remember that there is a positive impact for dry cleaners and restaurants as BioMarin expands and tenants move elsewhere,” Mr. Strotz said. “And there’s the construction jobs for the (tenant-improvement) work needed.”
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