Given the state of the housing industry and credit markets, is the commercial real estate office sector poised for a downhill spiral following its 2007 peak? While many believe the housing sector controls the fate of our economy, it actually accounts for only 4% of the U.S. Gross Domestic Product (USGDP).
Consumers have led the economy for the last half-dozen years—but now they appear to be on the sidelines, so what’s fueling office demand? Manufacturing and exports, which accounts for 12% of USGDP. With the dollar falling, inventories depleted and international demand increasing, this fundamental economic segment is currently being overlooked. In Napa Valley, our chief export is wine (95% of U.S. wine exports come from California), and that’s not likely to change soon. The wine business and the services that support it (CPAs, attorneys, suppliers, and the like) are all here, in the Napa Valley, doing well and looking to expand.
American Canyon
In American Canyon, Cabernet Village recently started tenant improvements on the second floor. This 25,444-square-foot building was purchased last year by the city of American Canyon, which plans to move its Town Hall to the 12,000-square-foot second floor and also buy the adjacent corner lot for further expansion. Only two units remain available in the complex (1,998 square feet and 2,450 square feet) at $2.50 per square foot. Current tenants include Vision Security, Cabernet Construction, Eagle Vines Realty and Gravett & Frazer Attorneys.
Napa
In South Napa, the Napa Gateway Business Park is nearly sold out, and a number of new leases have been inked this past quarter. The only significant amount of office space available in this submarket is in Carnera Corporate Center. Shell construction was recently completed on this 40,000-square-foot campus. This complex is comprised of four buildings with units ranging in size from 2,100 to 14,000 square feet.
“Going green” is the wave of the future for the office world (we believe the impact will be similar to that of air conditioning on offices in the late 1950s), and green buildings have proven to increase employee productivity while decreasing absences. In Napa, two projects are following this trend. The Napa Executive Center’s design phase is nearing completion. This 67,500-square-foot, three-story, “green” office complex is designed with state of the art construction and amenities and is anticipated to be certified with a silver LEED rating.
Downtown’s Napa Square has applied for a Silver LEED rating as well. This 68,000-square-foot complex is designed to have primarily retail on the first floor and offices on the second and third floors. The project is aiming for completion in February 2009. Currently, CDI Development, US Advisors, MK2 Engineering, Capital Retirement Strategies and Spinelli Jewelers have already signed leases. The asking leasing rate is $3 per square foot (NNN).
Main Street West has recently completed its shell construction. This $12 million project is The Wiseman Company’s second office complex in the city. The first building, located at First and Main, was originally designed for offices on all three floors, but retailers now occupy the ground level, pushing offices up to the second and third floors. Using the First and Main project as a model, The Wiseman Company designed Main Street West to include retail on the ground level and offices above. Only 13,000 square feet of office space remains in this 40,000 square foot building. Space is available for $3.25 (full service). Pizza Azzurro, AUL Corp and the California Rehabilitation Department have already moved into this prime location.
The Riverfront has gone vertical and will be bringing top dollar office space into the market early next year. Pre-leasing has already begun.
Up-Valley
In St. Helena, Inglewood Village is nearly complete. Of the three planned wood-frame office buildings, two single-story, 4,030- square-foot buildings have already been built and leased. The third is scheduled for occupancy in late November. This final structure is two-stories tall and roughly 15,600 square feet. First floor space is available for $3.25 per square foot (NNN), while second floor space is available for $3 per square foot (NNN). These rates include a $25 to $30 credit for tenant improvements; space can be divisible to 750 square feet. Dean & DeLuca market, Sunridge Nursery and Tuck Beckstoffer Vineyard are current tenants.
Summary
The office market in Napa is in transition, with new space offering numerous advantages, such as improved location; dramatic tenant improvements; “green” energy savings, features and amenities; and, in some instances, parking. Rents are climbing toward $4 per square foot (NNN) and, as these spaces are vacuumed up by demand, $5 can’t be far off. If you’re looking for office space, you’re in luck. Choices have never been so innovative nor plentiful. Don’t wait too long, though, because occupancies are pushing vacancies down in a hurry.
