Over 1 million square feet of Solano-Napa commercial property deals in first half of 2022

Based on deal-making for North Bay commercial space at the mid-year point, local businesses seem to remain cautious about taking on more office space as the pandemic and wider economy evolve, while companies that need more warehouse and other logistics space continue to compete for whatever is available, according to market experts.

Solano and Napa counties have been the leading the way with construction of big warehouses — and big leases for the space, often spoken for before completion. And the upwards of 2 million square feet worth of projects largely in Solano started over the past two years have attracted over 1 million square feet of leases in the first half of this year, according to Chris Neeb, part of the Dowling-Bracco Team at brokerage JLL.

“It’s been really solid for leasing activity,” Neeb said. “Most of the deals have closed in the last 30 days.”

Recent leases include Vallejo-based cookware giant Meyer Corp.’s lease of the 365,000-square-foot balance of the 400 Boone Drive warehouse at the Napa Logistics Park project in American Canyon.

“With little industrial inventory, what we have is about to be gone,” said Brooks Pedder, a Cushman & Wakefield agent who brokered the Meyer deal with Steve Crocker of the same brokerage. “We’re really focused on buildings that are under way. We should see some excellent preleasing activity. We do not anticipate the space sitting once it’s complete.”

In south Napa, Theoni Collection leased a new 51,000-square-foot warehouse at Pigman Companies’ Napa Commerce Center project, which has 12,000- and 22,000-square-foot buildings left to construct.

In Fairfield, Beverage alcohol wholesaler Southern Glazier’s Wine & Spirits leased a new 113,000-square-foot warehouse at 4750 Business Center Drive, set to be occupied in July. It’s part of Panattoni Development’s new Green Valley Corporate Park project that also has newly completed 200,000- and 103,000-square-foot buildings.

In Vacaville, Buzz Oates Group projects landed these tenants:

• Global Import Solutions at 2041 Cessna Drive in 207,000 square feet.
• Kane Logistics at 2051 Aviation Drive in all 304,000 square feet.
• St. John’s Transport at 2034 Monte Vista in 63,000 square feet.

And Crocker Owner II LLC, a joint venture of LDK Ventures and PCCP, sold the recently completed 93,000-square-foot second phase of their NorthBay Logistics Center project at 4790 Midway Drive in Vacaville on May 5 to Mettler Toledo Rainin LLC, according to public records. The property sale came with 2 acres of land.

Real estate sources put the sale price at just over $20 million.

Columbus, Ohio-based Mettler-Toledo in 2001 acquired Rainin Instrument. Oakland-based Rainin makes laboratory equipment such as automated pipettes.

As a result of this activity, the vacancy rate for sizable industrial space in Solano and Napa counties has fallen to well under 1%, according to Neeb. He pointed to one availability of 24,000 square feet at 110 Dodd Court in south Napa.

“That’s it. That’s how tight it is,” Neeb said.

The market activity and rising construction costs have escalated Solano industrial rents by over 10% in the past 12 months, he said.

A number of industrial projects are under construction or soon to be so in Solano:

• Ridgeline Properties and USAA have broken ground on all three buildings at the 89.7-acre Midway Commerce Center project at Eubanks and Midway drives in Vacaville. The project includes warehouses with 1.23 million, 198,000 and 104,000 square feet. Cushman & Wakefield is marketing the project.
• LDK Ventures and PCCP plan to break ground on phase 3 of NorthBay Logistics Center late this year. The project includes warehouses with 169,877 and 257,512 square feet at 2040 and 2030 Cessna Drive, respectively, in Vacaville. Completion is anticipated in the second half of next year. Cushman & Wakefield is marketing it.
• Tramell Crow Company and Clarion Partners are starting construction on the 205,000-square-foot Fairfield Industrial Center on Chadbourne Road between Low Court and Guittard Way in Fairfield. It’s set for completion in spring of next year. Cushman & Wakefield and CBRE are marketing it.
• Dermody Properties has broken ground on the first of a five-warehouse LogistiCenter at Fairfield project with 715,000 square feet off Cordelia Road in Fairfield. JLL is marketing the project.

Office leasing tough inside Napa city limits

Inside the city of Napa, the market for retail space has been filling up, especially for newer space like the First Street Napa redevelopment project, according to Michael Moffett of Coldwell Banker Commercial Brokers of the Valley. But older retail space where shops are selling goods like housewares rather than services such as spa and nail treatments has been more challenging, he said.

The office market in the city limits has been even more difficult, as a number of tenants still haven’t returned all workers from COVID-era remote work, Moffett said.

“Pre-COVID, I did 50 to 80 lease deals a year,” Moffett said. “But I probably have done 30 deals this year, and it’s a mix of sales and leases — some renewals and some smaller offices with one or two rooms.”

Some owners of larger office properties in the business parks near Napa County Airport are considering reverting them back to flex-type spaces, which are industrial properties that can accommodate some office space, Moffett said. That can involve replacing windows in the back of the buildings with roll-up doors for truck access.

“It ends up being expensive flex space,” Moffett said.

Small-tenant leases buoy Marin office market

In Marin County, a string of smaller office leases seems to be amounting to a third straight quarter of net absorption of office space, according to Haden Ongaro, who oversees Newmark’s North Bay operations.

Net absorption is a metric for tracking whether more commercial space is coming off the market via leases and sales than being put back on the market.

Out of 123,000 square feet of total Marin office leasing in the first quarter of this year, net absorption was 55,000 square feet, down slightly from 67,000 square feet in the fourth quarter, Newmark reported. When estimates for the second quarter are completed in mid-July, Ongaro is expecting to see similar improvement as in the past two quarters.

“We’ve done a lot of deals in the last three months for smaller tenants,” Ongaro said. “There’s an increase in activity and actual deals done.”

Active in the market now are companies looking for 1,000 to 3,000 square feet, and some are considering older, class B space, Ongaro said. Law firms are key players in this size range now.

Also out looking are medical-related businesses, and some of those are looking for 8,000 to 10,000 square feet, Ongaro said.

Even with the recent activity, the needle has barely moved on how much office space is available to lease in Marin. Newmark figured the first-quarter availability rate (also called the vacancy rate) was 18.9% of 7.5 million square feet the brokerage tracks in the county. That’s down slightly from 20% at the end of last year but nearly identical to what was on the market a year before.

The trend of short-term renewals from the early months of the pandemic, when economic uncertainty reigned, is continuing, Ongaro said. He pointed to one unnamed national financial firm that just renewed its lease locally for two years and is inking one- to two-year deals across the country, so it can reassess the economy at a later time.

Conversion of some office space into housing continues, Ongaro said. Beyond the announcements about big projects like the reworking of the former Fireman’s Fund campus in Novato and the Northgate Mall in north San Rafael, some developers are in negotiations for options on property while prepping applications to local planning departments for the conversion projects.

Sonoma County: Industrial deals brisk, office leases extended

In Sonoma County to the north along the Highway 101 corridor, Keegan & Coppin Co. Inc. agent James Manley said he already has seen the impact on commercial real estate activity from the Federal Reserve’s mid-June three-quarter-point hike in its prime rate.

“It was kind of like dusting off a cookie with a sandblaster,” Manley said about the Fed action. “Mind you, the cookie needed dusting.”

He had been working with a client on a cash purchase of a southern Sonoma County property. But the effect that the Fed’s move, intended to rein in the highest inflation in four decades, had on financial markets took a big bite out of that buyer’s resources. The deal was heavily dependent on the buyer’s investments, which took a 40% hit in just days.

Like in Marin, a number of Sonoma County office tenants have been seeking short-term lease extensions, Manley said. The office vacancy rate moved up for the third straight period, to 14.6% in the first quarter, according to Keegan & Coppin. That’s barely changed from the level of vacancy in the county since the second half of 2020.

But the market for industrial space, what little of it that’s available in Sonoma and Marin counties remains hot, Manley said.

“I put a small industrial condo on the market two weeks ago, and I’m getting five to 10 calls a day on it,” he said about the 1,500-square-foot space that’s for sale.

The vacancy rate for industrial space in Sonoma County declined for the third straight quarter, down to 6.9% in the first quarter from the peak of 8% in the middle of last year, according to Keegan & Coppin.

Jeff Quackenbush covers wine, construction and real estate. Before coming to the Business Journal in 1999, he wrote for Bay City News Service in San Francisco. Reach him at jquackenbush@busjrnl.com or 707-521-4256.