Petaluma commercial property deals pick up in 2021

2020 has already gone down in history as a year preferably left behind. We weathered a pandemic, a highly polarized election, civil uprisings, a recession, wildfires, and compulsion to either constantly listen to and debate headlines, subtext and rumors, or cut the data stream and hunker down. Best said, we survived it and it is time to reflect, learn and move on.

Petaluma was not immune to the trials we all faced. The hardest hit sector was retail, and the close runner up was office. Every day throughout the past year brought new challenges and opportunities. While fortune favors the bold, evolution favors the cautious. That is not a dichotomy, rather it is a balance. And it can be tied directly to then-current events.

Petaluma closed out 2019 with a total 7.4% industrial vacancy, and it finished 2020 at 8.3%. The significant journal adjustments that reflected the total base square footage added 145,000 square feet of previously unreported industrial space — typically under-the-radar, older or repurposed space — shows a net increase of 63,000 square feet.

There was a protracted period of back-and-forth negotiations during the first quarter of 2020 that resulted in four Industrial leases commencing in April. After the shelter-at-home orders hit in mid-March, we did not see another industrial commencement until July. All told, there were only 14 industrial leases throughout the year, most of them with terms of five years or less.

Petaluma closed out 2019 with a total 15.3% office vacancy and closed 2020 with 18.7%. Journal adjustments (corrections of data) reflected a base inventory increase of 52,000 square feet. That is significant.

Office lease rates averaged $24.45 per square foot annually ($2.04 a month) on a full-service basis (power, common-area maintenance and service inclusive). That’s based on the 18 full-service leases reported.

The high water mark for lease pricing remains the Petaluma Marina, (asking $28.20 per square foot a year; $2.35 a month). Smaller spaces are demanding greater per-square-foot costs than larger leases.

For 2020, there was a total of 39 lease originations and five lease extensions for office leases, with another 10 for flex-space leases. Four of those extensions occurred prior to the shelter orders, yet the most active month was October, partially due to wildfire migration. Landlords have begun incentivizing lease originations, so it’s a good time to consider that move.

Sales were down slightly as well. There were 16 building sales, three mobile home park sales, and two land sales within Petaluma. Most of these were smaller owner user sales, and the largest was a two-building complex sale at Southpoint Business Park.

We can expect to see mortgage rates continue modest upticks, as the 10-year treasury yield returns to pre-pandemic numbers, but we are still well within affordable rates.

In the first three months of 2021 we have had four buildings sold and one land deal. There are an additional seven properties under contract. Likewise, we have had nine lease closings. So when compared to what last year saw, we’re off to a fair start. As we emerge from the dreaded purple tier of California’s maximum coronavirus-related restrictions, expect to see modest increases in activity building steam throughout the balance of 2021.

James Manley is a senior real estate adviser in Keegan & Coppin Co. Inc./Oncor International’s Petaluma office.