SONOMA COUNTY -- Like the economy, which is in slow recovery, so is the Sonoma County industrial market.
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Overall vacancy for the county for 2011 stands at 10 percent for warehouse and distribution buildings, down from a vacancy rate of 12 percent in 2010. The absorption rate was on a roller coaster ride in 2011, with the rate being negative for the second and fourth quarters and positive for the first and third quarters. Overall, there was positive absorption of approximately 200,000 square feet of space for Sonoma County (Santa Rosa, North Corridor, Rohnert Park and Petaluma) in 2011.
In the fourth quarter leasing activity slowed from the three previous quarters with fewer leases signed in Santa Rosa and the North Corridor (Airport area and Windsor). Notable transactions were La Tortilla Factory for 21,536 square feet in Santa Rosa, 12,667 square feet for Traditional Medicinals in Santa Rosa and 36,059 square feet for Trans India (ShiKai) at 3354 Coffey Ln. Industrial space is limited in the North Corridor particularly in the Airport area where the vacancy rate is around 6 percent. The only large space exception in the area is the sublease at 1010 Shiloh Road for 115,000 square feet and a three year plus term.
There were several significant industrial leases in Santa Rosa earlier in 2011. Amy’s Kitchen which seems to continue to grow and expand every year added 110,000 square feet at 3000 Dutton Ave. and Playland Enterprises for 62,000 square feet at 170 Todd Rd. While these were significant deals Petaluma overshadowed the Santa Rosa deals with Innovative Molding, Inc. in 124,500 square feet and Workrite Ergonomics in 87,339 square feet. In addition Petaluma had quite a few industrial-flex buildings sell in 2011.
Rental rates in Santa Rosa and the North Corridor have decreased from around 65 cents triple-net per square foot earlier in the year to less than 60 cents triple-net per square foot in the fourth quarter 2011. We are seeing some listings going as low as 40 cents triple-net per square foot for larger spaces that have sat on the market.
While activity seemed to slow down in the fourth quarter of 2011 we anticipate that leasing activity will increase in 2012 and demand will grow. There are now at least 250,000 square feet of industrial requirements that are in the Sonoma market with the possibility that at least 100,000 square feet will land in the Santa Rosa/North Corridor markets. With little or no construction planned for industrial in the next year we anticipate that the vacancy rates will continue to go down and that absorption will increase positively.
Normally, that would trigger developers to begin thinking about building again. But with the magnitude of the effects of the past recession, we believe developers will continue to move cautiously and don’t anticipate any development activity until 2013.