Big wine warehouses stacked high with wine that rivals the Old World is what the business parks of southern Napa Valley have been known for in recent decades. But now, shoppers in that industrial real estate market want more out of the big-and-tall store — and want it to be primed for e-commerce.
Thirty years ago, warehouses with 20- to 24-foot clear height (vertical space under the roof for inventory) were the norm, and now the standard for new buildings is 32 to 36 feet, according to Brooks Pedder, who leads Cushman & Wakefield’s East Bay team covering Napa and Solano counties.
“It’s happening in a lot of markets, with consolidations of facilities and is driven by e-commerce,” Pedder said. “We’re looking at a lot of deals. You’re going to see a lot of bigger buildings going up next year.”
In the past five years, demand for e-commerce distribution space increased from 5 percent of leasing for U.S. industrial buildings to 20 percent to 22 percent last year, according to a Cushman & Wakefield research report.
Site work began recently for over 1 million square feet in two more buildings at DivcoWest/Orchard Partners’s 218-acre Napa Logistics Park project Pedder is marketing on Middleton Way in American Canyon. The first building in the project, with 644,000 square feet at 1 Middleton Way, was leased last year to Ikea as part of a new focus on e-commerce. An investment group recently purchased the building.
When the 362,000- and 702,000-square-foot concrete tilt-up cross-loading buildings are completed, tentatively set for late next year, they will have clear heights of 40 feet, Pedder said. Taller racking for inventory and faster throughput is calling for upgrades in equipment and layout, such as forklifts with higher reach and sometimes mezzanine decking.
“There are some upfront costs, but long-term costs may be lower,” Pedder said. “Conversion of inventories to support e-commerce will take years to occur, so there will be years ahead of demand for new industrial space.”
Vacancy rates for large industrial spaces is in the low single digits in the southern Napa Valley business parks plus demand for newer, class A buildings is moving rents upward, according to Chris Neeb of The Dowling-Bracco Team of JLL. Sales of higher-end wine, such as Napa’s forte, have been growing steadily, so vintners and logistics companies have been steadily snapping up scant available large spaces, he said.
“To have market sit tight and not move upward with vacancy after all this construction is showing how steady the market is,” Neeb said. “It is not red hot but steady.”
Rents for spaces larger than 200,000 square feet have increased to 75-80 cents per square foot monthly on a triple-net basis from the 60 cent range a year ago, Neeb said. And prices for land suitable for such large projects is over $10 a square foot in the south valley.
“It’s been an education process for larger (third-party logistics) companies on the rental increases,” Neeb said.
BIG PROJECTS PLANNED
Sacramento’s Buzz Oates Group of Companies recently finished a 120,000-square-foot wine-oriented warehouse at 100 Jim Oswalt Way in American Canyon. The Pigman Companies and Kraemer Land Co. has an 81,000-square-foot first warehouse at Napa Commerce Center under construction.
Channel Properties is nearing permits to break ground on a 104,000-square-foot warehouse on Technology Way in Napa Valley Gateway Business Park next summer, contingent upon preleasing. After building 54,000 square feet for Bergin Screen Printing & Etching in that park, Innova plans to build a 72,000-square-foot warehouse on Gateway Road East, fronting on Highway 29.
Commercial Real Estate Guide