The first half of 2011 brought the first major improvements in the Solano County commercial property markets in a few years, but active deal-making to fill buildings vacated as the economy contracted continues to drive down rents.

Solano's warehouse, production and research space dominates the county commercial property market. In the second quarter, 13.4 percent, or 3.93 million square feet, of 29.4 million square feet of industrial space Colliers International tracks was available for lease. The overall industrial vacancy rate for Solano and Napa counties declined for the first time in four quarters and only the second time in three years, according to Robert Gerard, research analyst in Colliers' Fairfield office.

"After years of increasing vacancy and limited activity during the Great Recession, the industrial markets are finally turning a corner,"Mr. Gerard said.

The market had a number of industrial leases larger than 40,000 square feet in 2011. The largest was Blu Homes' lease of the 245,000-square-foot former submarine repair facility on Mare Island in Vallejo for a prefabricated home factory. Other big recent leases include North Bay Distribution of 220,800 square feet in Vacaville, Updike Distribution Systems of 127,665 in Fairfield, Royal Tencate of 64,861 square feet in Fairfield, DC Solar of 60,400 square feet in Benicia and Synergy Glass Packaging of 48,000 square feet also in Benicia.

Solano Economic Development Corporation interim president Sandy Person noted some other significant developments for the Solano economy and jobs.

In the past month three other companies have announced plans to relocate and/or expand their operations into Solano County.

Coda Automotive will complete assembly of its new Coda EV, all electric sedan, in Benicia, bringing some 50 jobs to the community, she noted. The firm expects to complete assembly and ship some 10,000 to 14,000 vehicles in the coming year.

Altec has announced it will expand its green vehicle operation in Dixon, increasing the job force to 200 employees at that location.

And enXco recently celebrated Shiloh III — a $300 million expansion of its windmill farm operation between Rio Vista and Fairfield.  The new project features 50  2.05 MW turbines and will generate over 100 MW of power.

In the second quarter of 2011, the vacancy rate for 2.8 million square feet of Solano County office space declined for the first time more than a year, reaching 26 percent, compared with 27 percent of 2.65 million square feet tracked in the third quarter of last year, according to Colliers International.

The second quarter had more office space come off the market than went on the market, the first positive absorption since 2009. That's reflected in the 19,000 square feet in net positive absorption in the second quarter eking out just 8,000 square feet for the first half of 2011.

That increased activity is the result of hiring. Solano County’s rate dropped to 11.6 percent in August from 12.2 percent and below last year’s rate of 11.9 percent, according to state figures. Yet the county had 2,600 fewer jobs than 12 months before.

Civic and business leaders should focus on defined industry clusters in life sciences, food and energy, according to Robert Eyler, Ph.D., a regional economist at Sonoma State University. They should also recognize that regional competition will continue from all directions as both housing markets and job markets continue to recover slowly.

“The challenge for Solano County will be continuing to grow in the midst of macroeconomic uncertainty and slow movement in other markets that would support business clusters,” Dr. Eyler said. Such clusters include construction, professional and business services.

The tepid office leasing market is reflected in rental rates that have yet to stabilize. Asking rates in the second quarter continued the recent and rapid decline, down to $1.70 per square foot per month on a full-service basis from $1.83 in the first quarter, according to Colliers. Owners are reducing the asking rates on long-vacant properties, and a number of formerly higher-priced properties and new listings are being marketed under “negotiable” rental rates, according to Colliers.

An example of that pressure on leases surfaced recently when the lender on Westside Professional Building in Fairfield foreclosed on the property when enough tenants weren't found to fill the building. The Wiseman Co. purchased it for less than half the $10 million-plus assessed value.

A number of notable commercial properties have sold. The largest in several years was USAA's purchase of the fully leased 607,208-square-foot distribution building at 5195 Fermi Dr. in Fairfield for $33.5 million. Sales for the purpose of company expansion included a 30,000-square-foot building in Dixon to Crimsonco and 13 acres and two dealerships in Fairfield Auto Mall to used-vehicle giant CarMax.