Marin/Sonoma
The Marin industrial vacancy rate dropped 1.5% from the 1st quarter 2007,
and currently reports a rate of 3.6%. This decline is due to very high
levels of tenant demand and a shortage of useable inventory. Most availability
consists of smaller spaces, and few opportunities exist for tenants in
need of more than 10,000 square feet. Asking rents have reported sig-nificant
upward pressure in the last year and currently range between $.80 and
$2.00 psf on a gross basis.*”.
In Southern Marin, the vacancy rate of 1.2% marks a decline from 2007.
A major transaction involved the sale of a 135,000 square foot, 11-building
portfolio, which included 85,000 square feet of warehouse/light industrial
space. This was a value-add purchase by an investor for $26,100,000. Tenant
demand has been highest for smaller industrial spaces, and most industrial
leases signed in this submarket tend to range from 1,000 to 5,000 square
feet.The Vineyard, a mixed-use condominium development at 4300 Redwood
Boulevard in San Rafael, has illustrated the pent-up tenant demand for
small light-industrial properties. With over 72,000 square feet of light
industrial/warehouse space, The Vineyard represents the largest influx
of new industrial inventory to enter Marin since the 1980’s. The Vineyard
was designed to offer ownership opportunities to business owners with
space needs ranging from 2,000 to 6,500 square feet. Every unit has been
sold since construction was completed in 2004, and several units have
already re-sold.
The San Rafael industrial vacancy rate remains unchanged from this same
time in 2007. The va-cancy rate currently stands at 4%. Tenant de-mand
for industrial space in San Rafael remains strong, and current available
inventory leaves few options for tenants. A transaction of note oc-curred
at 3160 Kerner Boulevard where Kern-er Optical signed a lease for 40,000
square feet.
The Novato industrial market reported a vacancy rate of 3.7%, down from
5.7% one year ago. The majority of industrial inventory is located in
the Bel Marin Keys area and several lease deals were signed for spaces
sized between 1,000 and 4,000 square feet. Demand has been especially
high from small, growing businesses. A significant transac-tion occurred
at 94 Galli Drive where an inves-tor purchased the 8,300 square foot multi-tenant
industrial building for $2,050,000, or $237psf.
The high levels of tenant activity witnessed at The Vineyard and Bel Marin
Keys, and the low vacan-cy rate throughout Marin underscores the demand
for industrial space countywide. With no new in-dustrial inventory on
the horizon, existing space continues to draw high levels of interest
from in-dustrial tenants. We expect low vacancy rates and strong tenant
demand to continue throughout 2008.
Sonoma County
The Sonoma County industrial market reported a 2% vacancy rate decline
from one year ago and cur-rently reports a rate of 6.4%. A number of large
in-dustrial property sales occurred in 2007. Several significant leases
ranging from 10,000 to 50,000 square feet were signed as well. Tenant
demand for large and small industrial spaces has grown, and high levels
of leasing and sales activity are expect-ed to continue. Lease rates have
changed very little from this time in 2007 and currently range between
$.45 and $1.00 per square foot on a gross basis*.
Petaluma reports a vacancy rate of 8.9%, virtually unchanged from this
point in 2007. In 2006, Ado-be Creek Partners, LLC purchased 2249 North
Mc-Dowell Boulevard, a 233,000 square foot warehouse/distribution center
for $15,500,000. The property was then split into 3 condominium units
and is now occupied by Hydrofarm Inc., Alvarado Street Bak-ery, and Mike
Hudson Distribution Inc. A signifi-cant lease occurred at 2200 South McDowell
Bou-levard where DHL Express took 40,000 square feet.
Rohnert Park reported a 4% vacancy rate decline from last year, with a
current vacancy rate of 8.5%. Tenant demand for large blocks of space
has increased in 2007, and most current vacancies range between 1,000
and 5,000 square feet in size. AT&T Services signed a 30,000 square
foot lease at a newly constructed facility at 373 Blodgett Avenue. Also,
Sonoma County Vintners leased 40,000 square feet of warehouse space at
the former Agilent campus at 1212 Valley House Drive.
Santa Rosa reported a vacancy rate of 6%, down 1.5% from this date in
2007. Tenant demand has remained high for industrial properties both for
sale and lease. A major lease was signed at 3430 Brickway Boulevard where
Express Wine Delivery signed a lease for 23,000 square feet. 3950 Brickway
Boulevard, a 72,000 square foot project, was purchased by Thermalsun Glass
as an owner/user. Other significant lease deals include a 19,000 square
foot lease signed at 2815 Duke Court by Pace Supply and a 58,000 square
foot lease signed at 150 Todd Road by Dan Gamel RV Centers.
The Sonoma County flex market continues to provide tenants with a less
expensive alternative to traditional office space. The Sonoma County flex
market reported 50,000 square feet of positive absorption for the year.
The vacancy rate for Petaluma flex properties, at 11.9%, is unchanged
from the end of 2006. The Santa Rosa flex market reported a 26.1% vacancy
rate, up 10% in past year. Lease rates for flex space have changed very
little in the past 2 years. The countywide decline in available industrial
space has been due to an increase in tenant demand, especially in the
wine industry. Several large lease transactions have occurred in past
year, and the majority of these have been signed by growing, existing
tenants. Despite these large transactions, opportunities for large users
still remain such as the recent availability of the 220,000 square foot
JDSU campus in Santa Rosa. We expect tenant demand to remain high and
for vacancy rates to remain low throughout 2008.
David A. Walwyn is Director of Research at Orion Partners Ltd. He can be reached at 415-223-2038.