Subscribe

Petaluma commercial real estate market activity cools amid global crises, elections and blackouts

Commercial real estate snapshots

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

Read

other analyses of North Bay submarkets in this report.

Editor's note: This story appeared in the March 16 print edition and reflects economic conditions before the lockdowns of a number of local businesses to slow the new coronavirus.

Petaluma's 2019 commercial real estate growth slowed somewhat when compared to 2018.

There were 31 fewer office space lease deals in 2019, an almost 24% decrease. While office prices increased at the beginning of 2018, they remained relatively flat through the end of 2019. Class A, full-service office availabilities have asking rental rates hovering right around $2.30 per square foot monthly.

There are still significant availabilities, and the office sector has experienced a minor 0.3% increase of inventory to an estimated 15.3% vacancy rate at year-end. All told, there were 41 new office leases signed in 2019, compared with 72 signed during 2018. That does not include lease renewals. The office market is soft. There are deals for savvy businesses looking to escape the disproportionate base-rent growth to the south in Marin County.

Conversely, Petaluma industrial space remains in short supply, as I've mentioned in this column for years. Industrial rates continue their upward trend. The availability did increase slightly, at least on paper, as we wait for tenant improvements to be completed on a couple of deals. The number of lease originations, not counting renewals, was flat, with 19 deals each for 2018 and 2019. Industrial vacancy at the end of the fourth quarter in 2018 was estimated at 7.3% and nudged up to 7.4% at the end of 2019 - still a very tight market.

Commercial property sales followed a similar trend. There were 48 sale deals in 2019, which is down from 69 in 2018. When one backs out the closely related transactions, such as transfers from an individual to their trust, 32 sales occurred in 2019 and 54 in 2018.

Institutional investors and developers such as Scannell Properties and DRA Advisors that have long studied this market recently made some large deals in Petaluma. The historical prices we're are seeing in the city as well as the greater Sonoma County area are still very attractive deals when compared with Marin, San Francisco and points south. The local multifamily property market hit a high note with Basin Street Properties' sale of 785 Baywood Drive to Sonoma State University for $42 million, or $466.67 per square foot, for student and faculty housing.

The cannabis industry has cooled substantially, with few parties having hit their stride. Petaluma's ban on storefront cannabis remains in effect, and cannabis delivery services are just now gaining a foothold. Petaluma never capitalized on the cannabis industry. Many of the operators thought that was bound to change, which resulted in a couple of misguided ventures that operated under the “better to seek forgiveness” principle.

Moving forward, I expect a holding pattern for Petaluma commercial real estate activity throughout 2020. Worldwide there have been concerns about trade deals stifling growth, and now the COVID-19 virus has become a pandemic. Nationally, we have seen recent selloffs on Wall Street. We are entering a contentious election cycle, which can cause pause.

But there are local concerns as well. Petaluma lands and structures were unaffected by the 2017 and 2019 wildfires, but we as citizens were. While Petaluma was fortunate enough to avoid the actual tragedies, it was affected by public safety power shutoffs and stress felt by all of us. The resulting fallout buried a couple of contemplated local commercial property deals.

But just ask anybody who works here: This is still the best place to balance lifestyle, work, family and community within the North Bay.

Commercial real estate snapshots

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

Read

other analyses of North Bay submarkets in this report.

Show Comment

Our Network

The Press Democrat
Sonoma Index-Tribune
Petaluma Argus Courier
Sonoma Magazine
Bite Club Eats
La Prensa Sonoma
Emerald Report
Spirited Magazine