Petaluma's Labcon building automated warehouse, buys land to fuel growth

To support steady sales growth for the next decade after two already in Petaluma, medical research products supplier Labcon plans to build a distribution facility at the south end of the city this year and has snapped up among the city's last sizable chunks of industrial land.

Construction is set to begin in mid-April on a 40,000-square-foot warehouse virtually butting up against the Steris Health sterlization center which Labcon helped bring to Petaluma two years ago. Labcon bought the former Stero foodservice equipment manufacturing facility property at 3200 Lakeville Highway and had it retrofitted with shielding for the high-energy beam that kills microbes in sealed packaging that passes through.

When completed, the new Labcon warehouse will have an automated conveyor system to bring the company's sterilized pipette tips and other products in from the Steris facility through an enclosed passage a few feet through the walls of the two buildings.

'It saves us two cycles of handling,' said Jim Happ, president of Labcon North America.

He estimates 10 percent labor savings from skipping the loading pallets onto trucks bound for the Steris facility then the unloading pallets on return. Six or seven employees will staff the facility initially.

Labcon is the largest consumer of industrial sterilization in Northern California. The life science sector contributes about $6.5 billion to the combined $60 billion economies of Sonoma, Marin, Napa and Solano counties, according to a 2014 study by Robert Eyler, a Sonoma State University economics professor, for Novato-based North Bay Life Science Alliance.

With completion of the $5.5 million Petaluma warehouse, Labcon is projected to pick up 30,000 more square feet of production floor space at the 120,000-square-foot Petaluma main facility a few doors down at 3700 Lakeville Highway. The distribution center is set to be open early next year.

'We're packed to the gills with product to ship domestically and overseas,' said Happ. 'And we have more direct sales through the internet. Those sales are on a small-box and -case scale, so it takes a different kind of distribution center.'

Direct sales may be of the 10-packs typically sold through distributors or they may be smaller, such as packs of one or two.

'Some are in places in the middle of nowhere, where they do not have access to distribution centers, don't have trucks delivering to them,' Happ said.

The direct-sales business has barely gotten off the ground for Labcon. It does some internet marketing and advertising of direct sales via trade catalogs. The dozen salespeople traveling the country to support distribution sales offers the direct option for companies that don't use distributors.

Annual sales are in the hundreds of thousands of dollars, compared with the $37 million in total revenue last year, Happ said. But direct dollars may grow to millions.

'We would like to double it each year for the next 10 years,' Happ said.

Labcon continues to benefit from continuing demand for medical care and new treatments. The industry is set to grow by 4 percent in revenue this year. Because 35 percent of production is exported, that has helped Labcon even during U.S. economic downturns.

Last year, Labcon revenue grew by 9 percent. Over the last 25 years, revenue growth has averaged 6 percent annually.

To keep that growth continuing, the company needs room to grow, and the availability of industrial space and land is running out in Petaluma and Sonoma County. Around the beginning of March, Labcon purchased 12 acres next to the future Labcon building, on Cader Lane.

'We have no immediate plans to develop the property,' Happ said.

It was the remaining Petaluma business park land held by investors connected to San Francisco-based RNM Properties.

A construction trade pension fund managed by New York Life and McMorgan & Company of San Francisco in October 2014 bought 20 acres from RNM across Cader Lane from Steris. The city's first large industrial project in years, Cader Corporate Center with 270,000 square feet in three warehouses was built on that property last year. It was fully leased to local companies Clover Sonoma, Scott Laboratories and Hydrofarm well before completion.

'Petaluma historically has had 'X' amount of land dedicated to commercial uses,' said Ingrid Alverde, economic development manager for the city of Petaluma. 'It's positive that they're going to take land that is unused and will be using it. It's a good indicator of what's happening. I anticipate as the market [for commercial real estate] gets tighter, you are going to see more underperforming properties be redeveloped. This is a move in the right direction.'

The vacancy rate for industrial real estate in Sonoma County has been around 5 percent of 24.4 million square feet since late 2015, according to fourth-quarter figures from Santa Rosa-based Keegan & Coppin Co. Inc./ONCOR International. A rule of thumb for a healthy proportion of available space to allow business growth is about 10 percent.

Scant new industrial space is on the near-term horizon in Sonoma County: the Victory Station project near Sonoma and three planned developments north of Santa Rosa.

Labcon started in 1959 in Marin County. The company came to Petaluma from San Rafael in 1994. It is owned by Helena Laboratories of Beaumont, Texas.

The Petaluma warehouse project team includes general contractor R.A. Murphy Construction of Bodega and architecture firm Greg LeDoux & Associates of Cotati.

Trevor Buck, Brian Foster and Steven Leonard of Cushman & Wakefield represented Labcon and seller RNM Properties in Petaluma land sale.

Jeff Quackenbush (, 707-521-4256) covers construction, commercial real estate and wine.

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