Few industrial real estate options in North Bay Hwy. 101 corridor
The industrial market in the North Bay has been very strong for the last three years. With limited inventory and relatively limited building, we continue to experience falling vacancy rates and rents rising to historical levels.
Since the bottom of the market 2008–2009 we have seen double-digit percentage increases in rents and per-square-foot building sales prices. That has resulted in current historically low vacancies rates.
This is a similar trend that we are seeing in markets all around the Bay Area: limited inventory, rising rents and new construction at levels we haven’t seen for decades. Much of the new development projects across the Bay Area are coming out of the ground preleased or leased upon completion with rents higher than existing construction but in most cases less than it would cost to completely redevelop old infrastructure into comparable product.
The North Bay industrial market closed 2015 on a strong note. The vacancy rate for Sonoma and Marin counties was 6.2 percent, down from 7.5 percent one year before. Net absorption for the fourth quarter was a healthy 73,000 square feet. The total for the year was more than 333,000 square feet. Meanwhile, the monthly average asking rent continues to climb and now stands at 89 cents per square foot on a triple-net basis, up from 84 cents in the first quarter of last year.
PETALUMA LEADS SONOMA COUNTY ACTIVITY
Because of these strong market forces, tenants have been struggling to find quality space, which has resulted in projects. Petaluma is getting its first speculative industrial development project in decades, with 268,000 square feet of space at the Cader Corporate Center project in southern Petaluma. It is expected to be ready for tenant improvements in the third quarter of this year. There are two other large industrial projects in the planning process that could add another 200,000 to 300,000 square feet of quality product to the market in 2017.
Petaluma has been the center of activity in Sonoma County and ended the quarter with 3.7 percent vacancy. That’s an incredible drop from 8.1 percent 12 months prior. The average asking rent in Petaluma posted a modest gain in the fourth quarter, closing at 88 cents, up from 82 cents one year before. The thriving Petaluma industrial market is still being fed by food and beverage companies.
For the rest of Sonoma County, industrial vacancy rate was less than 5 percent, 140,000 square feet of space is currently under construction and another 370,000 square feet is planned. Food, wine and craft brewing companies remain particularly active throughout the county, along with other local service space users. Most of the planned or under constructions new product is preleased or in negotiations to be leased prior to completion.
The Santa Rosa and Rohnert Park markets are similar too. The largest potential development project in the north end of the county is a 20-plus-acre parcel in Westwind Business Park near Charles M. Schulz–Sonoma County Airport. With no quality or significant existing product being available, active tenant requirements for more than 500,000 square feet in the market spurring preleasing of planned projects. If these projects can get through the gantlet of county and/or city approvals, we could see as much as 300,000 square feet of new product being built over the next two years in that submarket.