North Bay warehouse construction part of California's fast-growing commercial property segment

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The few million square feet of warehouses and other industrial space being built or developed on hundreds of acres of the North Bay is part of a wave of commercial property construction that has made California a top contender for such projects.

In Napa and Solano counties, 1.01 million square feet of industrial buildings are under construction, the most in two years, while another 4 million-plus square feet is planned, according to Phil Garrett, who runs the Fairfield office of commercial real estate brokerage Colliers International.

Meanwhile, an international developer with experience in big North Bay warehouses just made a sizable investment in the limited supply of available industrial land in Sonoma County.

“What you see when you look around (Sonoma County), Napa and Richmond is a lack of available land,” said Trevor Buck, who leads Cushman & Wakefield’s North Bay agents.

He was part of the team that brokered a deal with Midwest-based Scannell Properties to buy 40 acres of industrial-zoned land along the Petaluma River plus almost 200,000 square feet of existing warehouses in the city. “There are projects coming out of the ground, but they are preleased or leased when they are completed.”

Examples of that are the leases of all or most of the twin 48,100-square-foot first-phase buildings just completed in the Billa Landing development near Charles M. Schulz-Sonoma County Airport north of Santa Rosa. They were preleased to Veritiv Corporation’s All American Container of the Pacific Coast division and to Occidental Leather.

At the 218-acre Napa Logistics Park project in American Canyon, the first 644,000-square-foot building was leased to Ikea within a couple years of completion, and the 702,000-square-foot building underway is rumored to be in play for a substantial deal, roughly a year and a half before completion.

A full-building lease to a hydroponics supplier for the 260,000-square-foot Victory Station warehouse project near Sonoma had been in advanced stages before the budding legal cannabis market started cooling. But one impediment to leasing it is now set to be resolved by the end of July, according to developer Jose McNeill. Improvements to the intersection of Highway 121 and Eighth Street East needed coordination between Sonoma County, CalTrans, SMART and Northwestern Pacific Railroad agencies, he said.

“It is the largest contiguous space of warehouse space available in Marin, Sonoma and Napa counties, so although not leased yet, we feel very good about the opportunity and the market,” McNeill said.

CALIFORNIA AMONG BIGGEST U.S. DEVELOPMENT MARKETS

At $11.9 billion, the Golden State ranked No. 4 last year for $207.8 billion in U.S. direct spending on “soft costs,” site development, “hard costs” and tenant improvements on commercial real estate developments, behind Texas ($25.7 billion), New York ($19.8 billion), Tennessee ($17.6 billion), according to a new report from NAIOP, a national trade group for building and investing in nonresidential properties. NAIOP report draws on figures from Dodge Data and Analytics and the U.S. Bureau of Labor Statistics.

The construction industry classifies soft costs as preconstruction services such as architecture, engineering, legal, marketing, management and administration. Site development covers grading, paving, landscaping, roadways, parking and off-site improvements. Hard costs include labor, materials and construction management.

For office space, California ranked fourth, after New York, Texas and Virginia. For retail, it came in third, trailing Texas and Florida, the report said. And for warehouses and flexible spaces that can be used for e-commerce distribution and fulfillment facilities, the state placed second ($4.01 billion), with its only rival being the Lone Star State ($4.48 billion).

“With GDP growth projected at 2.5 percent in 2019, demands for additional building space will support continued growth in construction spending,” wrote economist Stephen Fuller, Ph.D., author of this year’s 64-page edition of the “Economic Impacts of Commercial Real Estate” report. He’s director of the Stephen S. Fuller Institute in the Schar School of Policy and Government at George Mason University in Arlington, Virginia.

Fuller pointed to U.S. Census Bureau data that residential construction spending increased 1.3% last year and noted it is being held back by uncertainty about the direction of mortgage interest rates. He expects that to change next year. Meanwhile, nonresidential construction increased 7.9% last year in the Census data.

“The U.S. economy has been in recovery since July 2009,” Fuller wrote. “This recovery now extends to nine and a half years as of January 2019, making it the second longest in U.S. history. If this business cycle continues through June 2019, as expected, it will become the longest in U.S. history at 120 months.”

Jeff Quackenbush covers wine, construction and real estate. Contact him at jquackenbush@busjrnl.com or 707-521-4256.

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