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[caption id="attachment_50696" align="alignleft" width="180" caption="James Manley"][/caption]

PETALUMA -- 2011 was a year of significant transactions in Petaluma’s commercial real estate landscape.

Cornerstone Properties expanded their Redwood Business Park holdings with the purchase of two additional buildings.

Basin Street bought back eight buildings in Redwood Business Park and has since sold two of them: 1415 Redwood Way to FuegoGrande Properties, which have a Paul Mitchell Beauty School and are now starting tenant improvements, and 1310 Redwood Way, which will soon house X2NSAT, signaling a possible resurgence in Petaluma’s long-dormant telecommunication sector. 

The trend has continued in 2012 with RNM’s portfolio sale to a group of private investors late in the first quarter. RNM, along with Basin Street Properties, has long been one of Petaluma’s largest commercial landlords. Some might feel alarm at RNM’s liquidation, but the fact that the entire portfolio was sold to one group familiar and already entrenched in the market, along with the rumored price of $77 per square foot paid for that about 840,000-square-foot sale, shows increased confidence in Petaluma’s commercial forecast. Additionally RNM still owns 34 acres of developable land in Petaluma which was not included in the portfolio sale.

Petaluma still has abundant opportunities for all sizes of office tenants. The south end of Petaluma has large office vacancies within the former RNM portfolio: the Legacy Marketing 47,000-square-foot sublease opportunity, and close to 100,000 square feet of former Tegal space.

The transactions mentioned in this article are noteworthy because of size, but there are smaller office tenants investigating the market.

Per-square-foot prices for office space range from $1.00 NNN to $2.15 full service. Landlords are still going to have to earn their deals through 2012, but prices should start firming up by the third quarter. This is due to increased demand from companies migrating north and companies already growing within Petaluma.

Industrial has also been very active. The difference from the office market is that industrial transactions have been more strategic rather than speculative. Petaluma has seen out-of-area users relocating to the area. Dharma Trading Co. moved to Oakmead Northbay from San Rafael, and Mountanos Brothers Coffee is relocating from South San Francisco to the former 3M plant in central Petaluma. Lagunitas Brewing closed escrow on about 3.14 acres for future expansion next to their eastern Petaluma headquarters and is putting close to $10 million into updating its infrastructure.

Smaller, incubator-style industrial space is currently more difficult to tenant. This is unusual as there are typically a number of small industrial requirements in the market. Part of this trend is directly attributable to the economy. People are more willing to try their new endeavor in an expanding economy. While we see economic indicators pointing toward positive growth, it will likely be a slow year for small industrial space.

Industrial space is holding steady at $.75 to $.85 for small space and $.55 to $.75 for larger space. Most industrial rents remain either on a ‘true gross’, meaning no common area operating and maintenance charges, or on an Industrial Gross basis, meaning operating expense increase pass through and common area maintenance charges.

Petaluma industrial vacancy remains at 17.3 percent. However, if the first quarter of 2012 is any indication, we are going to see vacancy fall and prices stabilize or increase toward the end of the year.