Financing tough, but industrial markets hold own

Financing tough, but industrial markets hold own
Monday, March 16, 2009
BY CHRIS NEEB, GLEN DOWLING AND MATT BRACCO

NAPA-SOLANO – The industrial markets in Napa and Solano counties seem to be holding steady, even though we are in the midst of an extremely volatile economic climate.

Throughout 2008, a significant percentage of the industrial transactions in Napa and Solano were primarily lease deals with only a few building sales. What is occurring right now in the building sales market is the ongoing restructuring of the financial markets, and so obtaining reasonable financing compared to the previous few years has definitely been a challenge for even qualified investors.

The turbulent financing market is also impacting new construction. Speculative construction toward the end of 2008 came to a complete halt, and we expect to see few, if any, speculative projects break ground in 2009. However, with the consistent leasing activity and minimal new speculative construction, the vacancy rates in both Napa and Solano are presently at a very healthy level.

The year-end 2008 overall vacancy rate for industrial space in Solano and Napa is 7.6 percent compared with 7.2 percent at the end of 2007. The Napa and Solano vacancy rates are holding up fairly well under the ongoing downturn in the national and global economy.

Solano County currently has approximately 2 million square feet of industrial space available with a 7.8 percent vacancy rate compared with an 8.3 percent vacancy rate at the end of 2007, while Napa County currently has 822,745 square feet available and an 8.3 percent industrial vacancy rate, which increased from a 4.2 percent vacancy rate at the end of 2007.

The key contributor to Napa’s current rise in vacancy is the completion of Brock/Stravinsky Development Group’s two new high-cube warehouse buildings in American Canyon totaling approximately 718,000 square feet, which is 90 percent vacant except for 60,000 square feet occupied by Billet Transportation on a short-term lease.

Notable lease transactions during 2008 in Napa and Solano include the Winetech lease of 36,000 square feet at 2515 Napa Valley Corporate Drive in Napa. The facility is being used for wine production and barrel storage. Bacchus Distribution leased 33,000 square feet at 1245 Commerce Blvd. in American Canyon, using space for storage and distribution of wine.

In Solano, Fed-Ex leased 330,000 square feet at 5191 Fermi Drive in Cordelia, relocating from Benicia to expand its operation. Greatwide Distribution Logistics (3PL Co.) leased 114,000 square feet at 400 Crocker Drive in Vacaville, a relocation in the city to expand its storage and distribution facility.

The food production company ABCO leased 91,000 square feet at 2445 S. Watney Way in Fairfield. Cork Supply leased 100,000 square feet at 521-527 Stone Road in Benicia, expanding its facility to accommodate for the growth of cork and its wine barrel manufacturing operations.

The most significant investment building sales in Napa and Solano during 2008 included the Blake Trust’s acquisition of 2260 Cordelia Road in Fairfield, which is a 47,000-square-foot multi-tenant industrial building. PAMCO purchased 801 Chadbourne Road, a 191,000-square-foot distribution facility, and Jaeger-McHugh acquired 2850-2870 Cor-delia Road in Fairfield, which includes three multi-tenant industrial/flex buildings totaling approximately 98,000 square feet.

Year to date, Solano County experienced more than 1.5 million square feet of gross industrial absorption, while Napa’s gross industrial absorption was approximately 457,000 square feet. However, both markets did see a dramatic decline for land, building and investment sales in 2008. The key factor for this rapid slowdown as mentioned above is the current financing climate and overall poor condition of the national economy.

Rental rates for existing high-cube warehouse space have remained flat, even though the inventory levels in both Napa and Solano are relatively tight. Rental rates for high-cube distribution space currently range from $0.28 to $0.50 NNN in Solano and $0.47 to $0.59 NNN in Napa. Rental rates for light industrial space in Solano range from $0.50 to $0.75 NNN and $0.65 to $0.90 NNN in Napa.

The Napa and Solano region also benefits from the outstanding labor pool in Solano County, which combined with Napa’s central location, outstanding demographics and its world renowned name, make Napa well positioned to experience continued growth, especially when the economy regains some consistency.