The real estate market in the corridor north of Santa Rosa showed an increase in vacancy over the past 12 months, while deal-making for industrial space there slowed for lack of inventory.
Net absorption of office space for the year went approximately 30,992 square feet into the red. Vacancy rates have risen, to 9 percent in the fourth quarter from 7.7 percent a year earlier. As a consequence, office rental rates are declining due to the slower activity, with class A rates of $1.85–$2.05 per square foot full service, and class B rates held to $1.45–$1.65.
Office rental activity is modest, but with no office development planned, vacancy rates are holding at competitive levels as compared to other areas in the county.
Industrial real estate in the submarket saw continued historic low vacancy rates, which continue to spur increased values on land purchases. Vacancy rates have dropped to all-time lows, falling to 1 percent at year-end from 2 percent in the fourth quarter of 2017. Smaller industrial lots have been selling for $12–$18 per square foot, compared with larger parcel sales in recent history priced at $10–$12 in recent years.
Industrial leasing has slowed drastically mostly due to a lack of available space. Rates range from 80 cents to $1.15 per square foot monthly on a triple-net basis, depending on many factor such as size, age of building and product type.
Industrial build-to-suit deals continued to be options for larger tenants looking for facilities, but increased pricing in construction costs continues to negatively impact the negotiations between the developer and the tenant prospect.
One project under construction in the submarket is Billa Landing in Santa Rosa, which just completed the second of two 48,100-square-foot buildings. One is leased to All American Containers, and negotiations continue with a tenant for two-thirds of the second.
In 2018 there were some significant transactions completed in the area. PG&E sold a 3.25 acre parcel on Mitchell Lane in Windsor to a local winery for about $15 a square foot. The owner of Westwind Business Park carved off a 3.5-acre lot at the corner of Airport Boulevard and North Laughlin Road and sold it to a hotel developer. Conde and Associates started construction in the Conde Business Park at Conde Lane and American Way in Windsor on a new 56,000-square-foot office-warehouse facility for Encore Event Rentals. Golden State Cider leased 26,200 square feet at 1451 Grove St. in Healdsburg. Russian River Brewery opened its new production and events facility off Conde Lane in Windsor.
It is clear that the October 2017 fires continue to create uncertainty about available labor and pricing for construction. This has impacted the market significantly, and nothing appears to be changing in the immediate future.
The county’s newly adopted cannabis ordinance seems to have had little impact on the region, mostly due to the fact industrial vacancy is very low and the timeline for obtaining the various cannabis use permits is longer than in other jurisdictions.
And the expanding Charles M. Schulz–Sonoma County Airport continues to be a bright spot with increased flights and destinations, which is having a positive impact.
Shawn Johnson is managing partner 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: nbbj.news/crereports19