Napa copes with office-space crunch

Napa’s plan to build a new City Hall on existing property and relocate staff to temporary space during construction comes as available office space downtown is at a premium.

The City Council on May 30 picked a proposal from Los Angeles-based Plenary Group for a 4-story civic center, 250-room hotel, 60-plus residential units, 11,000-square-foot grocery store and a 6-story expansion to the Clay Street parking garage. Details will be hashed out in months to come, but the proposed timeline calls for construction to start next year and wrap by early 2020.

In the meantime, workers from the current City Hall and surrounding office buildings would shift to temporary quarters, called swing space, until the new facility would be ready to occupy. How much space will be needed is still being worked out, according to city officials. Local real estate experts estimate it could be tens of thousands of square feet of office space.

But as it is, the office vacancy rate in Napa city limits is estimated to be under 5 percent, less than half what’s considered to be a balanced market of landlord supply for tenant demand.

“There’s scarcity of inventory in all segments in commercial (real estate) right now,” said Michael Moffett of Coldwell Banker Commercial Brokers of the Valley. “It’s slim pickin’s and very much a landlord market.”

And such lack of options, called “tightness” in a market, is reflected in rising rents property owners are asking for, Moffett said. The longtime rate for nicer space of $2.50 a square foot per month for full-service accommodations is now in the $2.70–$3 range.

“The interim space they are going to need will be tough to find, because of the tightness of the market,” Moffett said. “And it will be hard to be considered by landlords for a two- or three-year lease, knowing they will be gone. They may have to move people into county business parks to get that done.”

There is roughly twice the office-space availability in the business parks around Napa County Airport south of the city. The first-quarter vacancy rate was estimated to be 8.8 percent of 2.79 million square feet by Keegan & Coppin Co. Inc./Oncor International and 9.7 percent of 1.67 million square feet by Colliers International.

Reasons for the tightness of the Napa office market includes a lack of new construction since the economic recession nearly a decade ago and a rush of local-government workers into temporary space after the August 2014 Napa quake damaged buildings.

The Plenary proposal noted five possible in-town swing-space locations for city workers:

• First American Building, 1700 Second St., with 45,000 square feet available next year.

• Napa County Assessor Building, 1127 First St., 26,000 square feet next year.

• Young Building, 801 Coombs St., 17,000-20,000 square feet this year and next.

• The Wiseman Company’s new 1300 Main Street project, mid-2018.

• Napa County’s former Health & Human Services Department campus, 2344 Old Sonoma Road, this year.

Plenary estimated space available at those locations to be roughly 150,000 square feet between them, some of those locations already are largely spoken for. For example, the First American Building actually has only 1,000 square feet available, according to owner Eric Lehman, whose Lehman & Lehman accounting firm also is in the building.

“I talked to them in the past about the city’s acquiring it under eminent domain,” Lehman said, noting that conversation was roughly five years ago.

Jim Keller, an agent with Coldwell Banker Brokers of the Valley, owns the Young Building as part of a roughly 50,000-square-foot commercial-property portfolio in Napa, about half of which is office space and much of it occupied. He helped the county with 8,200 square feet of swing space in the building after the quake, and those workers are set to leave in September. All together, the Young Building will have about 10,000 square feet available this year, though 2,500 square feet of that is ground-floor space better-suited to retailers, Keller said.

“Not only are we low on vacancy, but I think there is a waiting list for office space, in particular, for small users looking for single- or double-occupancy spaces,” Keller said. But three new buildings in the downtown area are set to bring at least 53,000 square feet of offices next year. But the space has been rapidly leasing to wine industry and financial-services companies.

At 1300 Main St., Solano County-based The Wiseman Co. is under construction on a 3-story building, the Solano County-based company’s third office building in Napa since First & Main in 2001 and Main Street West in 2008. Certificates of occupancy are expected to be ready for the two 7,000-square-foot floors of offices, with the 6,000-square-foot ground floor completion expected by year-end, according to Chris Economou, director of acquisitions and Brian Wills, chief operating officer.

“I cannot respond to people fast enough about the office building and ground floor,” Economou said. Prospects are said to include longtime Napa Valley companies and large companies with valley holdings.

Part of the 325,000-square-foot First Street Napa mixed-use project are two office buildings: 1300 First St., with 28,630 rentable square feet, and the renovated Gordon Building at 1136 First, with 9,849 rentable starting next spring, according to a spokeswoman for the redevelopment team of Zapolski Real Estate and Trademark Property Company.

In addition to the Archer Hotel Napa, retail and office tenants signed so far include, a Maris Collective boutique, Lush, Compline Wine Bar, Silicon Valley Bank, Pacific Union International, Napa Valley Jewelers, Eiko’s Sushi, Charlie Palmer Steak, Brown Estate and, new last week, John Anthony Vineyards, maker of JaM Cellars and FARM Napa Valley wines.

Shops and restaurants are set to start opening in the project this fall.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers the wine business and commercial construction and real estate.