One of the hottest product types in Sonoma County commercial real estate for the past few years remains industrial space, with growing demand from makers of specialty agricultural products beyond wine and dairy.
Trouble is, the county may be running out of places to locate businesses that need to produce, process, package, store and ship premium goods such as craft beer, hard cider, gourmet foods and, lately, cannabis, market experts say.
The countywide vacancy rate for industrial space was 5.6 percent of 24 million square feet in June, according to Keegan & Coppin Co. Inc./ONCOR International. But as low as that availability is overall — 10 percent vacancy is a rule of thumb for a market balanced between supply and demand — it’s even lower for new space and properties with the right land-use allowances.
“If you look at the inventory of space for lease or sale, there is very little inventory,” said Keegan & Coppin partner Rhonda Deringer. “Developers are marketing land available for build-to-suits [leases], but that could take a year or two, depending on where it is and in what stage of development.”
The largest industrial projects under construction in Sonoma County urban areas are fully preleased to growing Petaluma companies. Construction on the nearly 260,000-square-foot Cader Corporate Center project just off Lakeville Highway in south Petaluma started in February and set to wrap around the end of the year.
But 58 percent was already committed to Clover Stornetta Farms for a dairy products warehouse and Scott Laboratories for one to hold supplies for making wine, beer and cider, according to Steven Leonard, part of the Cushman & Wakefield team marketing the project.
Hydroponics equipment developer and distributor Hydrofarm this fall inked a deal for the rest of the project.
The other big industrial project under construction is a production facility Airport Business Center is building on Mitchell Lane in Windsor for Santa Rosa’s Russian River Brewing. It’s part of a couple dozen-acre extension to the 263-acre business park east of Charles M. Schulz–Sonoma County Airport. A 50,000-square-foot custom winery also is being proposed there, fitting with the DuMol and Marcassin boutique wineries built there in the past few years.
In the offing is a 40,000-square-foot industrial building on Lakeville Highway in Petaluma recently approved for Labcon to expand local operations.
DEMAND FOR CANNABIS
About a year ago, California enacted the Medical Marijuana Regulation and Safety Act, or MMRSA. It created a legal framework for local governments to say where various aspects of the business from crop to dispensary can happen. And California voters in November will decide whether recreational use will be allowed.
These legal shifts have spurred a real estate rush in the state. Santa Rosa’s evolving land-use policy to allow certain operations in certain locations has made the city a focus of leasing and purchase activity related to the burgeoning industry, as other North Bay cities have taken a pass on such allowances.
“Owners can get premium rents for those uses, because of the risk level,” Deringer said. “It will affect fair-market rents for industrial properties in the county, especially in Santa Rosa.”
LAND RUNNING OUT?
The county currently has nearly 4,000 acres of land designated for industrial uses, according to a recent tally by Keegan & Coppin. Roughly 70 percent of that land has been built upon, leaving around 1,200 acres vacant, the Santa Rosa-based brokerage figures.
Commercial Real Estate Guide