Sonoma County airport office-industrial real estate: Big demand for build-to-suits
The north Sonoma County corridor office real estate market greatly improved in 2016, and industrial vacancy retained historically low vacancy, spurred on recent land purchases and construction projects.
This market includes the business parks around Charles M. Schulz–Sonoma County Airport in north Santa Rosa and Windsor. Office space net absorption in that area was 36,529 square feet last year. Office vacancy has rapidly decreased, down to 8.9 percent in the fourth quarter from 15.7 percent in the fourth quarter of 2015.
Although industrial vacancy rates have increased slightly, demand is substantially higher than current supply. Vacancy was a still-scant 3.4 percent at the end of last year, up from 2.7 percent a year before.
Although office vacancy rates are within normal balances, the volume of office leasing is still slow, so rents have risen slowly in the past year and are not pushing higher. Rents for class A space were $1.75–$1.95 per square foot on a full-service basis last year, and class B rates held at $1.35–$1.50.
Industrial lease rates are 57¢–$1.10 per square foot, on a triple-net basis. That range depends on many factors, such as size, age of the building and product type.
DEMAND FOR BUILD-TO-SUITS
Interest is at an all-time high for industrial build-to-suit deals, in which a developer agrees to construct for a specific tenant. Companies of all varieties of uses are exploring the timing and cost of such a venture, with mixed reactions.
Construction costs and land values are increasing at such a rate that many users are surprised at how expensive it is to build new facilities and the time it takes. Speculative building has not yet started and is not likely to, since average rents don’t support the risk the developer will be taking on the project.
AIRPORT PROJECTS RISING
In 2016 Keegan & Coppin has been involved in about a dozen office and industrial airport-area lease and renewal transactions for 192–32,347 square feet.
Airport Business Center acquired three major pieces of land during 2016. The first was about 15 acres off of Conde Lane in Windsor. It subsequently was sold to Russian River Brewing for a brewery now under construction. Then the developer bought 24 acres at 1630 Airport Blvd., subdivision-approved and available for build-to-suit lease projects, and 5.53 acres on Aviation Boulevard.
Billa Enterprises acquired a portion of the remaining land previously owned by the Westwind Business Park and is seeking the green light to build over 350,000 square feet of industrial buildings. Each would have 48,000–144,000 square feet.
UPBEAT OUTLOOK
With interest rates remaining relatively low, companies are taking advantage and purchasing available properties that have come on the market.
Unemployment has not been this low in Sonoma County since December 2007. Unemployment at the end of the 2016 was 3.7 percent, lower than the state average of 5.2 percent. The county has a labor force of 260,100, which is steadily growing.
County of Sonoma adopted the new cannabis ordinance, which likely will have a major affect on an already limited supply of Santa Rosa-area industrial space. That trend is expected to continue.
Shawn Johnson (sjohnson@keegancoppin.com), SIOR, is managing partner of Keegan & Coppin Co. Inc./ONCOR International in Santa Rosa.
