Demand for Petaluma commercial real estate outpaces supply

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North Bay commercial real estate market reports

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Petaluma is active for all sectors of commercial real estate. In some, the demand is far greater than supply.

Since the beginning of the second quarter of 2018 and continuing to March 1 of this year, 63 leases were signed for Petaluma commercial properties totaling 450,000 square feet, of which tenants have taken occupancy of 135,000 square feet since the beginning of 2019. Petaluma’s entire commercial base (office, retail, industrial and flex space) is estimated at just over 12.1 million square feet. This shows a turnover of 3.7 percent of the entire base.

Sales have been active. Two of New York Life’s Cader Corporate Center buildings, totaling 174,000 square feet of class A industrial space at 1470 and 1490 Cader Lane, sold over the summer for $168 and $201 per square foot, respectively.

All told, there were 10 industrial sales, eight land sales and 14 office sales. While the land and industrial sales included some impressive transactions, the office sales were primarily in the incubator or small user-investor range, with a strong performance by office condominiums.

Petaluma’s office availabilities outpace demand. At the end of 2018, our office vacancy stood at 11.6 percent. This number, along with higher-end offices generating $2.25 per square foot full service, is virtually unchanged from the end of 2017.

The deals happening are not altering the office market. Spaces are refreshed to serve specific tenant requirements, particularly for the higher-end users. Current strike points for office sales seem to have leveled out around $238 per square foot. There are currently in excess of 75 office spaces available for lease in Petaluma. There is only one space openly marketed for sale, but it is located in a flood-prone area.

As of this writing, there are 13 industrial vacancies in Petaluma for lease or sale. Three of them are at Southpoint Business Park and account for 225,000 square feet out of about 330,000 square feet available.

Escrow is closing on approximately 43,000 square feet at Southpoint. Out of the remaining 105,000 square feet, two buildings almost equally account for 47,000 square feet, one of them on the flood-prone part of Industrial Avenue. Another 11,700 square feet are in escrow.

Users looking for 5,000–6,000 square feet have two choices. Users looking for 1,500 to 3,000 have three choices. Virtually all are above $1.10 per square feet — a bargain compared to Marin County.

Construction is expensive, with skilled labor in high demand. This should level out once the area’s residential projects near completion.

People want to come to Petaluma, and Petaluma wants to house them. Many residential projects are in various stages of construction while some continue to navigate the entitlement and feasibility waters. Some projects are stalled, as developers want to see what happens with the current residential inventory.

Going forward — and subject to the standard crystal ball disclaimer — I expect office demand to remain flat and industrial demand greater than supply. The days of the drafty, dark warehouse are long behind us. Nice warehouses are bright, comfortable, productive and in demand. Once they’re up, they’re leased.

Dear Petaluma developers and commdev: Feed your market; get some industrial space built.

James Manley is a senior real estate associate in the Petaluma office of Keegan & Coppin Co. Inc./Oncor International.

North Bay commercial real estate market reports

Read more insights from experts in various product types and areas in Sonoma, Solano, Marin and Napa counties:

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