Asking Rates Rise as Vacancy Declines
All signs were positive for the Sonoma County industrial market in 2007. Its average asking rate continued to steadily increase, and its vacancy rate decreased into single-digit territory as leasing activity proved to be very strong. The average asking rate in the county increased a total of $0.03, or 4%, from 2006 to $0.79 per rentable square foot (NNN) to close 2007. This asking rate increase complemented what was nearly a three percentage point decrease in overall vacancy in the county, which ultimately closed 2007 in single digits at 9.6%, its lowest vacancy rate in the past three years. Vacancy had remained between 10% and 13% since 2002 through third quarter 2007, fluctuating slightly during this time, but fourth quarter 2007 experienced a sizable, 80 basis point decrease to finally break vacancy into single digits.
Sonoma County finished 2007 with 1.67 million square feet of available industrial space on the market, comprised of more than 1.3 million square feet of direct space and 320,000 square feet, or 19%, of sublease space. Since 2006, total availability has decreased by more than 485,000 square feet, as both direct space and sublease space saw significant declines during this time.
Gross leasing activity in Sonoma County increased compared to last year, finishing the year with 1.7 million square feet. Net activity again recorded in positive territory with a whopping 485,439 square feet, a significant turnaround from 2006, which reported a negative 253,051 square feet of net activity.
Petaluma
Petaluma’s leasing activity picked up greatly during the year as its vacancy decreased nearly six full percentage points to 11.7%. The fourth quarter alone accounted for half of the year’s total vacancy decline. Petaluma’s average asking rate also increased $0.03, to $0.85 per rentable square foot (NNN). Petaluma had a total of 571,352 square feet of industrial space on the market at the close of 2007, a decline of 278,750 square feet from 2006. Sublease space still plays a key role in this market, as it accounted for 26% of total availability at year’s end.
Rohnert Park/Cotati
The combined Rohnert Park/Cotati submarket finished 2007 with a single-digit vacancy rate of 9.1%, representing a decline of 50 basis points from 2006. The average asking rate in this submarket increased $0.04, to $0.83 per rentable square foot (NNN).
Santa Rosa
The Santa Rosa industrial market was the only submarket that reported an increase in vacancy for 2007, finishing the year at 9.4%. Santa Rosa, however, still experienced a nickel increase in its average asking rate from a year ago, to $0.73 per rentable square foot (NNN) at the end of 2007, drawing it closer to the county’s other submarkets. For the past three years, Santa Rosa industrial vacancy has hovered in the 8 to 10% range, reflecting a well-balanced market.
The Santa Rosa Airport submarket was reduced nearly threefold from a year ago, seeing a 12 percentage point decrease from 18% in 2006 to just 6.1% by the close of 2007. Despite the huge decline in vacancy, this submarket experienced a $0.05 decrease in its average asking rate, to $0.72 per rentable square foot (NNN); however, the decline wasn’t a reflection of the market trend, but simply attributed to the lease up of the better and pricier industrial space over the year. The huge drop in vacancy was due to the expansion of the wine storage industry absorbing warehouse space in the Santa Rosa Airport submarket.
