North Sonoma County industrial real estate market stays active with projects, deals

In the Sonoma County north corridor (airport area in north unincorporated Santa Rosa, plus Windsor, Healdsburg, Geyserville and Cloverdale), the office real estate market has been challenged by pandemic uncertainty, but the industrial market continues to have historically low vacancy, despite new construction.

The corridor office market has been flat. Office vacancy decreased slightly, down to 6.4% in fourth quarter of 2020 from 6.5% in the fourth quarter of 2019.

COVID-19 caused uncertainty in the direction the office market will be going in the future, and companies are learning if remote office workers are the future or a temporary necessity as well as how office configurations will need to be handled. Will the market be going back to a more heavily private-office plan with minimal open workstation cubicles or to open cubicles that are much larger than in the past?

This uncertainty has caused office rates to decrease. Typical monthly lease rates start at $1.80 to $2 per square foot for full-service class A space, and class B rates range from $1.65 to $1.75 per square foot full service. Office rental activity has remained active for smaller leases under 2,000 square feet.

The significant leases were to the county of Sonoma, which leased 33,879 square feet at the Harvest Business Center at 3843 Brickway Blvd.; expansion lease of 9,400 square feet to Sutter Pacific Medical Foundation at Oak Valley Business Center at 451 Aviation Blvd. Both developments are owned by Basin Street Properties. One additional significant lease was to Comprehensive Employment Solutions at 160 Wikiup Drive for 11,450 square feet.

Industrial real estate in the north corridor continues to maintain historic low vacancy rates, despite COVID-19 circumstances that continue to drive rental rates higher. Higher rents support new construction projects.

Industrial vacancy rates increased slightly to 2.4%, based mostly on newly delivered speculative space. At Billa Landing, a five-building project planned to accommodate approximately 376,000 square feet, the third building in the project was completed, offering 70,000 square feet. Another speculative industrial building nearing completion is located at 1200 Kittyhawk Drive in Windsor. It has 35,000 square feet.

Rental rates range from 80 cents to $1.15 per square foot triple-net monthly, depending on many factors such as size, age of building and product type. Industrial build-to-suit deals are still an option, even with the increased pricing in construction costs as well as the increased value in land due to the lack of existing inventory.

Airport Business Center has a 5-acre parcel zoned for a mix of industrial uses and is poised nicely for a build-to-suit development and can accommodate approximately 100,000 square feet.

Industrial lease transactions completed in 2020 included 7,151 square feet to Soletrac Inc., 7,248 square feet to Black Iron in Healdsburg, 8,773 square feet to the county of Sonoma, and 10,241 square feet to Vintage Label 99.

Vintage Label 99 relocated to the 26,000-square-foot building at 5341-5349 Skylane Blvd. previously occupied by Medtronic. The building was acquired on a speculative basis and repurposed back into office and industrial space.

One important land acquisition was the purchase of 7.1 acres of land fronting Airport Boulevard by Airport Business Center. Development plans for this parcel are still undecided.

The two hotels planned to be built in the Sonoma County airport area include Hyatt Place, a six-story, 166-room luxury hotel, and Tru by Hilton, a four-story, 101-room hotel. Both had been planned to be completed in 2021, but time will tell if COVID-19 has delayed the planned openings.

One important government action taking place in the Sonoma County Airport district is the Sonoma County Airport Area Specific Plan update. It is well underway, and property owners are advised to be part of the process. Otherwise, it is possible their properties could have important zoning changes that could have negative effects on current property use as well as long-term property values.

Shawn Johnson, SIOR, is managing partner of Keegan & Coppin Co. Inc./Oncor International.