Sonoma County industrial real estate: ‘So little inventory out there’

An architectural rendering of the 260,000-square-foot Victory Station distribution warehouse project set for construction in late 2016 at 22801 Eighth St. E. south of Sonoma. (RMW Architecture & Interiors, May 5, 2016)

JEFF QUACKENBUSH,

Firms looking for production, distribution and storage space in Sonoma County are having to take a number because hot demand and limited supply in its two biggest population centers. Artisanal food and beverage companies are snapping up available buildings in Petaluma, and the emerging legal cannabis industry is driving pricing higher for Santa Rosa buildings, the North Bay’s most welcoming city for the herb.

“There is a fantastic renaissance of foods and beverages that have coalesced in Petaluma, with breweries and Sonoma Portworks and ice cream like Three Twins and Straus, food makers like Miyoko’s Kitchen, and dairy like Cowgirl Creamery and Clover,” said Matthew Brown of Meridian Commercial. The brokerage has Marin County origins going back decades, but it opened a Petaluma office earlier this year because of the activity there.

The dairy and eggs connection between Petaluma and western Sonoma and Marin counties that stretches back a century was upstaged in the late 1990s by the rise of a cluster of telecommunications-hardware makers that came to be called Telecom Valley.

“It’s really new again,” Brown said of the artisan-food renaissance in Petaluma. “Demand for those types of companies is pretty robust right now.”

Such interest led to the construction of a 260,000-square-foot warehouse complex in Petaluma, and the three-building project was fully preleased to four local agricultural products companies before completion last fall. Cader Corporate Center is now home to Scott Laboratories in 87,000 square feet, Hydrofarm in 80,000, and Clover Sonoma and Tomales Bay Foods (dba Cowgirl Creamery) in 94,000.

“Warehouse vacancy is very low, and plenty of people are out there looking for space,” said James Manley, an agent in the Petaluma office of Keegan & Coppin Co. Inc./Oncor International.

The vacancy rate for industrial space in the city was 5.0 percent of 5.44 million square feet in the middle of this year, according to Keegan & Coppin. That’s tightened from 5.4 percent a year before, even with the completion of Cader since then, and 5.7 percent in mid-2015. The final tally on the third quarter was getting finalized at press time, but an early look appears to show a slight uptick in Petaluma industrial vacancy, Manley said.

“Some are perhaps giving up on (finding space), because there is so little inventory out there,” he said.

Cannabis businesses already take up roughly 3 percent of Santa Rosa’s available industrial space, according to a city report. Santa Rosa has 10.3 million square feet of industrial space, and only 5.3 percent was available for lease in the middle of this year, according to Keegan & Coppin. That’s about half the proportion of space that’s often considered to be a healthy for a local economy, providing options for companies.

It’s projected that the cannabis business could officially account for 8 percent of Santa Rosa’s industrial space, if 33 more businesses are successful in getting the city green light, the Press Democrat reported. Demand for the dwindling number of available industrial spaces has been causing sale prices in certain Santa Rosa areas to jump. Asking prices for warehouses being bought for cannabis that usually sell for $120 per square foot are going for $240, said Al Coppin, president of Keegan & Coppin, to the Press Democrat.

“The cannabis industry is driving up prices elsewhere,” said Manly, also of Keegan & Coppin. “My guess is that Rohnert Park will come out the winner, because there is so much generation-B space over there.”

A challenge with such older space can be it doesn’t have key features of modern warehouses, such as allowable clear height under the roof to go vertical with inventory and use floorspace most efficiently, Manley said. Exceptions to that in Rohnert Park are modern or upgraded buildings such as at the former Hewlett-Packard campus, now called SOMO Village.

Rohnert Park has the highest industrial vacancy in the county, at 7.1 percent of 3.13 million square feet at the midway point of this year, according to Keegan & Coppin. That’s down from 7.7 percent a year ago and 8.4 percent in mid-2015.

Some new industrial projects are in the offing for Sonoma County.

The planned $30 million Victory Station development is situated in the Eighth Street East industrial area south of Sonoma and on the Highway 12 thoroughfare between Napa and Sonoma counties. A local company is in advanced negotiations for all 260,000 square feet, according to Steven Leonard, part of the Cushman & Wakefield team marketing the project.

Backed by Washington Capital Management, VSP, LLC, purchased the property early last year. Fairfield-based McNeill Real Estate Services, which coordinated the Cader Corporate Center project, is leading development of this project.

In the business parks around Charles M. Schulz–Sonoma County Airport north of Santa Rosa, there’s virtually nothing available for lease but several projects in the offing, according to Shawn Johnson, managing partner of Keegan & Coppin. Airport Business Center and Ajaib Badhare are seeking entitlements for projects with several hundred thousand square feet of space.

Airport Business Center purchased 24 acres of land at 1631 Airport Blvd. in August 2016 and is pursuing entitlements to build up to 150,000 square feet of space.

Also just east of the airport, 22 acres of the master-planned Westwind Business Park along Copperhill Parkway between Westwind and North Laughlin boulevards last year were sold to Billa Enterprises, LLC. Billa plans to build a 48,000-square-foot building to have something ready for prospective tenants.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers the wine business and commercial construction and real estate.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers the wine business and commercial construction and real estate.