Warehouse demand drives Solano-Napa vacancy to record low
The vacancy rate for industrial space in Solano and Napa counties decreased in the second quarter to 3.1% from 3.8% at the end of March.
“This represents the lowest vacancy rate we have recorded for this region,” wrote Rob Gerard, senior research analyst in Colliers’ Fairfield office, in the quarterly report. “Market fundamentals remain strong, driven largely by the continued rapid growth of e-commerce and the food and wine industry.”
Relatively scant availability of space and steady demand from such users have led to high levels of construction, the brokerage reported. In the two counties, 1.86 million square feet of mostly distribution warehouses is currently under construction.
Because of higher-cost Napa Valley space and increasing prices for construction, average asking rent in Napa-Solano increased by a penny over the second quarter, to 72 cents a square foot monthly on a triple-net.
Sonoma County is similarly seeing lease-up of warehouses. Of the 25.4 million square feet of industrial space in the county, only 4.7% was available for lease, according to Keegan & Coppin. That’s down from 5.1% in the first quarter and the recent peak of 5.7% at the end of last year.
Of the 453,000 square feet of industrial property planned to be built in Sonoma County, almost 300,000 square feet is in the industrial area near Sonoma County airport, according to the brokerage.
Smaller tenants reinvigorate the office market
Marin County office space totals 7.5 million square feet. The market has suffered from some space going vacant or being subleased during the coronavirus pandemic, with the vacancy rate going up from 16.3% to 19.0% in the first quarter and 19.4% at the half-year point, according to Newmark.
That was also reflected in how much space was taken off the market (positive absorption) versus put back on (negative absorption). In the first quarter of this year, net absorption countywide was negative 140,000 square feet, but only negative 29,000 in the second quarter, according to Newmark.
By comparison, Sonoma County’s office market has 14.8 million square feet, and the vacancy rate moved up to 14.4% at mid-year from 13% at the end of the second quarter last year and the roughly 12% plateau over the preceding several quarters, according to Keegan & Coppin.
But demand for Marin office space is poised to return in the second half of the year, market watchers said.
“Touring activity grew steadily over the quarter and is anticipated to grow stronger as more people are vaccinated and offices begin reopening,” wrote Paolo Polese, brokerage research coordinator in the Newmark’s second-quarter Marin office report.
Whitney Strotz, who leads Cushman & Wakefield’s North Bay brokerage team, noted that activity is being led by smaller companies.
“A lot of the second-quarter activity was in the small- and medium-sized tenants that maybe shut down their office or their lease expired and didn’t renew while under the stay-at-home orders,” he said. “As people were vaccinated and California targeted the June 15 reopening date, people were more eager to get space.”
Buildings that had the most activity were in central Marin — in and around San Rafael — particularly, properties where the owners took the advantage of few workers going in and out to complete refresh projects, Strotz said.
And with some of the county’s highest-priced spaces have been getting occupied, Marin’s average asking rents are edging downward, as remaining spaces are those with lower rates, he said.
Larger companies continue to be surveying their employees and doing cost-analysis before committing to leases for more space, Strotz 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.
