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Industrial real estate demand outstrips supply in Solano County

Solano County demographics

Population: 447,643 (up 0.231% from a year ago)

Median age: 38.5 (no change)

Employed population: 215,481 (down 0.405%)

Median household income: $86,652 (up 2.67%)

Median property value: $460,500 (up 4.02%)

Source: Datausa.io

Read more commercial real estate market analysis.

While demand has been quiet for office and retail space in Solano County even before the coronavirus pandemic, deal-making for industrial properties has been steady enough to increase the pace of construction.

Office vacancy in the county ticked up to 18.3% of 3.55 million square feet, and many companies have pushed back their dates for a full return to the office with the rise of the delta variant, according to Colliers.

It’s quite a different picture for industrial space. Out of 2.43 million square feet of industrial space under construction in Solano, Napa, Sonoma and Napa counties, the bulk of it (1.9 million square feet) is in Solano, and all of that is for warehousing and distribution, according to JLL’s third-quarter report.

“It’s a challenge out there for tenants to find space, and it competitive when there’s any space out there,” said Chris Neeb of JLL.

Of the dozen projects underway across all four counties, 42% of the space already is preleased, the brokerage reported. Over 50 companies were out looking for more than 4 million square feet of industrial space in the region last quarter, the company said.

When proposed projects and newly acquired land by industrial developers is included, there’s potential for roughly 5 million square feet to be built on a speculative basis just in Fairfield and Vacaville, according to Brooks Pedder of Cushman & Wakefield.

“Some of that may be preleased and some may not get built, but we need all of it,” Pedder said. “We’re bullish on the 2023 industrial market.”

Warehouses underway

Here are some of the Solano warehouse projects in construction now or shortly set to be, according to Cushman & Wakefield, Colliers International and JLL.

Scannell Properties is building a 502,000-square-foot warehouse and distribution center at 250 E. Dorset Drive in Dixon, and it is preleased to appliance company Haier.

Panattoni Development has 415,000 square feet under construction at 4555, 4750 and 4700 Business Center Drive in Green Valley Corporate Park in Fairfield. Sized at 197,000, 113,000 and 103,000 square feet, the warehouses are set for completion by mid-2022.

Buzz Oates Companies has a 304,600-square-foot warehouse coming out of the ground at 1051 Aviator Drive in Vacaville, also set for completion in the opening months of 2022.

Dermody Properties is set to start construction this fall on the first two of five planned LogistiCenter warehouses with 700,000 square feet altogether. The Reno, Nevada-based company recently purchased the 49 acres northeast corner of Cordelia Road and Beck Avenue in Fairfield. The project is set to start with two warehouses of 259,000 and 102,000 square feet, with completion sometime late next year.

Phelan is set to complete a 69,000-square-foot warehouse in the middle of this quarter in Fairfield Commerce Center. Phelan completed two other warehouses in the third quarter: nearly 252,000 square feet preleased to beverage container company Ball and 175,000 square feet for hydroponics equipment supplier Hydrofarm, which previously was based in Petaluma.

Projects planned

Further out to the horizon are these projects, according to Cushman & Wakefield and JLL.

Seeno and Sierra Pacific plan to build three warehouses with 385,000 square feet at 1 Redtop Road in Fairfield.

USAA and Ridgeline Properties recently got approval for a modification to their mammoth 1.5 million-square-foot, three-building Midway Commerce Center project on almost 90 acres at Eubanks and Midway drives in Vacaville.

Approved last year for 1.68 million square feet in five warehouses, the project now would have the footprint of three of them combined into one 1.23 million-square-foot structure, according to documents filed with the city.

If built, that would be the North Bay’s largest commercial structure to date. Previously, the region’s largest warehouses have been the 823,000-square-foot North Bay Logistics Center in Vacaville, 702,000-square-foot warehouse at Napa Logistics Park in American Canyon, and Biagi Bros./Jackson Family Wines’ 644,000-square-foot wine storage warehouse also in that southern Napa Valley city.

The phasing of that project would build the largest first, starting next spring and finishing in the first half of 2023, followed by starts on the 198,000- and 104,000-square-foot buildings in early 2023 and 2024.

Conco Companies wants to build a 415,000-square-foot warehouse on Eubanks Drive in Vacaville.

Trammel Crow has come in strong to the Solano market with two projects. On Low Court in Fairfield, the developer has a 205,000-square-foot building planned, perhaps to get started next year. Further into the future is a plan, needing a Fairfield general plan amendment, to redevelop a former Walmart store into two warehouses with almost 329,000 square feet.

Solano County demographics

Population: 447,643 (up 0.231% from a year ago)

Median age: 38.5 (no change)

Employed population: 215,481 (down 0.405%)

Median household income: $86,652 (up 2.67%)

Median property value: $460,500 (up 4.02%)

Source: Datausa.io

Read more commercial real estate market analysis.

And the purchase of 120 acres of industrial land east of Genetech’s Vacaville production plant by East Bay firm Agenus this summer is a game-changer, according to Pedder, who represented the biomedical company in the $18 million transaction. Agenus plans to build on 90 of the acres.

“This would be the first real (biotechnology) research facility in Solano, with high-paying jobs,” he said. “Some of the land (Agenus has) will be surplus, and it could be sold to two or three other good-sized companies.”

Industrial vacancy drops to new lows

Solano’s industrial vacancy rate was just 3% of 37.5 million square feet of inventory in the third quarter, down 1.4 percentage points from a year earlier, according to JLL and Cushman & Wakefield.

Also complicating the supply of projects is the cost of construction, which was complicated by the crunch on the building industry amid rebuilding after the California wildfires in recent years and now with supply-chain problems during the pandemic.

“It is difficult for developers to quote pricing,” Neeb said.

A mitigation tactic that builders have been using is stockpiling of materials and components to help mitigate spikes in pricing and hurdles in the construction timeline from delayed deliveries.

Neeb has seen that happening with Panattoni Development’s three-warehouse, 415,000-squre-foot project under construction in Green Valley Corporate Park in Fairfield and at Napa Commerce Center by The Pigman Company, Kraemer Land and Cardinal Development.

The dwindling supply of available space and increasing costs of new construction have helped push up rental rates for warehouse space in Solano and Napa counties by at least 10% in the past 12 months, Neeb said.

A wave of warehouse construction in Napa and Solano counties two decades ago sent vacancy rates up over 10% as more than 2 million square feet came on the market in rapid succession. But the rise in demand for large-scale warehousing for e-commerce could pose a challenge if the region doesn’t build enough, according to the JLL report:

“The North Bay is now dealing with the same market pressures the East Bay and Silicon Valley faced three years ago, enticing tenants with more affordable rents and newer big-box space. However, with sub-4% vacancy and demand pushing rents, unless new space is made available, tenants may be driven into tertiary markets like Sacramento or the Central Valley.”

One challenge of few available big spaces in the southern Napa Valley business parks is that some wine warehousers are starting to scout Solano space for alternatives, although the only such lease that’s been inked is 178,000 square feet for Caymus Vineyards, which already has a large winery in Fairfield, Neeb said.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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