Marin office space gets pricier at midyear; Solano, Napa industrial real estate vacancies climb
North Bay industrial space garnered the most company interest in the second quarter, following a trend in the past several years, but deal activity slowed for warehouses at midyear in step with the office and retail markets.
Solano and Napa counties were the most active areas for North Bay warehouse deal-making, but the pace at which new or existing space is coming on the market outpaced the rate at which it was being leased in the second quarter, leading to the first increase in industrial vacancy in those markets since early 2018, according to Colliers International’s Fairfield office.
Vacancy rates increased to 5.9% at midyear in Napa County from 2.5% of 14.5 million square feet in the first quarter and went up to 7.0% of 37.2 million square feet at midyear in Solano County from 4.5% early this year, according to Colliers.
The brokerage noted that in those two counties, only a few leases were inked in the quarter were larger than 40,000 square feet, including 24Seven Enterprises’ deal for the 404,000-square-foot remainder of the long-vacant Savemart warehouse in Vacaville, meal-deliverer Thistle’s 79,000-square-foot new space also in Vacaville, and wine distributor QX’s lease of 249,000 square feet in American Canyon.
But those vacancy increases came up from the lowest supply of available warehouse space in years: 2.0% in mid-2018 in Napa and a nearly nonexistent 0.8% in Solano.
“While there are signs of a slowing national economy, the outlook for the broader San Francisco Bay Area is more optimistic. Many of this region’s leading businesses, such as the food, wine and e-commerce industries, are growing at a significantly faster rate than the overall economy,” said Phil Garrett, head of Colliers in Fairfield.
About 894,000 square feet of warehouses, all larger than 250,000 square feet, are under construction in Napa and Solano counties.
In Sonoma County, the industrial real estate market had little movement, according to James Manley in Keegan & Coppin’s Petaluma office.
The brokerage reported that the vacancy rate for that product type at midyear was 4.9%, up from 4.6% in the first quarter and 4.0% a year before. The countywide office vacancy rate was virtually unchanged over 12 months, at 12.4% last quarter.
“Right now, people are getting a little bit nervous,” Manley said.
Concerns about global trade have been whip-sawing equities markets.
This is adding to a cooling off of demand for industrial space for the cannabis industry.
“Having cannabis leveling off and a cautious consumer outlook is coming at a time of year when market activity usually levels off.”
New ownership of key office properties in Marin County’s most expensive submarkets — south of San Rafael and closest to San Francisco via the Golden Gate Bridge and ferries — is sending rental rates upward on the new cost bases, but active deal-making to fill vacancies made average rents in southernmost buildings dip from mid-2018, according to Newmark Knight Frank’s second-quarter report. A major sale in the second quarter was of the 114,000-square-foot 1 and 3 Harbor Drive complex in Sausalito to a group led by San Rafael-based Seagate Properties for $53 million, or about $465 a square foot, three years after it had sold for nearly $35 million.
“The spread between rents in the north and the south of the county is at a record high,” wrote Haden Ongaro, who leads the brokerage’s North Bay team. “Expect continued pressure on rents to the north as buildings change hands and leases roll to the south.”