Solano-Napa warehouse vacancy falls amid building boom, while Marin-Sonoma office vacancy rises
Vacancy rates declined in the North Bay’s largest industrial real estate markets in the first quarter amid robust construction and leasing of distribution facilities, with strong demand for e-commerce logistics, according to newly released figures.
Conversely, the region’s biggest office real estate markets experienced an uptick in available space in the opening month of this year, as firms continue to mull over what their space needs will be after the coronavirus pandemic.
About 833,000 square feet were added to the supply of industrial space in Solano and Napa counties at the end of last year, and another 2 million square feet under construction, according to Colliers International. Even so, the vacancy rate in the two counties slightly decreased to 4.0% of 53 million square feet in the first quarter from 4.1% of the same square footage in the fourth quarter and 4.7% of 51 million square feet a year before.
“Low vacancy rates throughout the region are driving record high levels of new construction,” wrote Rob Gerard, senior research analyst in Colliers International’s Fairfield office, in his latest report.
The biggest improvement came warehouses and distribution centers, the largest category of industrial space in the market and accounting for all by 64,000 square feet of new construction. That vacancy declined to 4.1% of 35 million square feet in the first quarter from 4.7% of 36.8 million square feet to 4.1% in the first quarter.
The vacancy rate for production space in Solano and Napa counties decreased to 3.8% of 14.9 million square feet in the first quarter from 4.0% at year end.
Net absorption for the first quarter — how much more space was leased than became available — was positive 132,600 square feet. The biggest warehouse leases of the quarter were of 253,000 square feet to Ply Gem at 2041 Cessna Drive in Vacaville, 252,000 square feet to Ball at 2255 Huntington Drive in Fairfield, 152,000 square feet at 2200 Courage Drive in Fairfield and 68,000 square feet to Allios at 4345 Industrial Way in Benicia.
Average asking rental rates for Solano-Napa industrial space increased in the quarter by a penny a square foot monthly, rising to 71 cents on a triple-net basis.
Along the North Bay’s Highway 101 corridor in Marin and Sonoma counties, the vacancy rate for office space rose to 12.9% of 22.5 million square feet from 12.1% in the fourth quarter, according to Cushman & Wakefield. Sonoma County’s rate increased to 10.6% of 12.6 million square feet from 10.3%, while Marin’s rate jumped to 15.8% of 9.85 million square feet from 14.4%.
The brokerage attributed that rise in Marin-Sonoma office vacancy mostly to 20,000 square feet of space that had been secured by WeWork at Belvedere Place in southern Marin which came back on the market. The global coworking company still occupies 25,000 square feet there.
Another trend in the North Bay office market is that vacancy hasn’t increased as much as in San Francisco to the south, according to Whitney Strotz, who leads Cushman & Wakefield’s North Bay operations.
San Francisco had 18.7% vacancy at the end of the first quarter, up from 15.8% in the fourth quarter and just 6.0% one year ago, according to the brokerage. A vacancy rate of 10% is generally considered a balanced market between supply and demand.
“Sublease space has not increased significantly in Marin, but is approximately half of the vacancy in (San Francisco),” he said.
San Francisco sublease vacancy totaled 7.8 million square feet in the first quarter, nearly the same amount of office space available directly from property owners in the city. In contrast, Marin sublease vacancy was just 323,000 square feet, compared with 2.5 million in square feet directly available.
Also, he’s watching whether average office rental asking rates will follow the historical pattern in the North Bay market’s more expensive buildings of going up as vacancies rise.
“However, on a property-specific level we are seeing pricing 5% to 15% off from pre-pandemic levels,” Strotz said.
Demand for North Bay office space is coming back to the best-quality spaces and buildings first, he said.
“Many businesses are looking for shorter term and more flexible solutions as we all look for clarity on the next chapter,” he said.
But sales activity for Marin-Sonoma office buildings is still slow, he said.
“We have seen a couple office buildings sold with business plans to convert to residential – like the Fireman’s Fund campus. We expect sale activity to pick back up as office usage rates stabilize,” Strotz said.
Two commercial property types Sonoma State University economist Robert Eyler is keeping an eye on are apartments and stores.
“Multifamily has seen a small pick up in vacancy, and that may speed up a little toward summer,” Eyler told the Business Journal in an email. “Retail concerns depend on location. Sonoma County (is) having more vacancy than Napa and Marin. Mendocino and Lake counties (are) a mix. Solano County (is) more like Sonoma County, with slightly more vacancy in their malls.”
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 email@example.com or 707-521-4256.