VACANCY SACRAMENTO’S INDUSTRIAL MARKET POWERS THROUGH THESE UNPRECEDENTED TIMES Net Absorption > Even with Flowmaster moving operations from West Sacramento to Kentucky (-161,941 SF), net absorption was still positive in the second quarter. > In spite of the COVID-19 pandemic, industrial tenant demand is accelerating along with rising e-commerce sales. Amazon occupied 81K SF this quarter and will occupy another 529K SF by the end of this year. Vacancy > Vacancy has increased in recent quarters due to the more than 1.3 MSF of speculative supply delivered since Q2 2019. With active owner-users and expanding e-commerce and logistics occupiers, look for the market vacancy rate to decrease significantly through the second half of 2020. > Speculative development is leasing up. More than 747,000 SF of vacant space in 2019-delivered buildings will be occupied by Q4 2020. Rents > Average warehouse asking rents have decreased slightly over the last two quarters from all-time record highs set in mid-2019 due to large 100,000+ SF blocks of space hitting the market at lower asking rates. Roseville/Rocklin and West Sacramento each posted 9% - 10% year over year rent growth. Sales Activity > Sales volume has been on the decline since 2018 when $938 million of industrial/ flex inventory sold. However, sizeable owner-users are still in the market for new buildings. This quarter, A&B Home purchased 660 N Pioneer Ave in Woodland for $19.6 million. The Rancho Cucamonga-based furniture wholesaler will occupy roughly 200,000 SF of the 323,000 SF building. After a temporary pause in market activity due to business closures and a wave of tenant rent relief requests in April and May, Sacramento’s industrial market picked up where it left off and posted a strong second quarter overall. The industrial market vacancy rate remained unchanged from the first quarter and 2020 year-to-date net absorption is up 122,653 square feet through the first half of the year. Robust leasing activity in the second quarter despite current economic uncertainty is revealing the true durability of industrial property. New leases signed from expanding and new to market tenants, in addition to 1.7 million square feet being occupied by Amazon and Walmart combined this year, will place downward pressure on vacancy through the remainder of the year. Though some new developments have delayed construction starts over the last three months, 232,596 square feet of new development broke ground this quarter. At least 2.5 million square feet of under construction product will deliver in the second half of 2020 as recently delivered speculative development continues to lease up. Look for additional large scale speculative developments to break ground in Metro Air Park and Southport by mid-2021. SACRAMENTO | INDUSTRIAL Q2 2020 +65,631 SF Q2 2020 Net Industrial Absorption 5.0% Q2 2020 Industrial Market Vacancy Rate (Up from 4.5% in Q2 2019) $0.53/SF Avg. NNN Industrial Market Asking Rate (-12.3% YOY) $66.9M Q2 2020 Sales Volume ($92/SF Avg. Warehouse Sale Price) +122,653 SF Q2 2020 YTD Net Industrial Absorption 9.6% Q2 2020 Flex Market Vacancy Rate (Up from 7.0% in Q2 2019) $0.88/SF Avg. NNN Flex Market Asking Rate (-1.1% YOY) 2.5 MSF Under Construction (328K SF 2020 YTD) Research & Forecast Report REGIONAL SUMMARY
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VACANCY
SACRAMENTO’S INDUSTRIAL MARKET POWERS THROUGH THESE UNPRECEDENTED TIMES
Net Absorption
> Even with Flowmaster moving operations from West Sacramento to Kentucky (-161,941 SF), net absorption was still positive in the second quarter.
> In spite of the COVID-19 pandemic, industrial tenant demand is accelerating along with rising e-commerce sales. Amazon occupied 81K SF this quarter and will occupy another 529K SF by the end of this year.
Vacancy
> Vacancy has increased in recent quarters due to the more than 1.3 MSF of speculative supply delivered since Q2 2019. With active owner-users and expanding e-commerce and logistics occupiers, look for the market vacancy rate to decrease significantly through the second half of 2020.
> Speculative development is leasing up. More than 747,000 SF of vacant space in 2019-delivered buildings will be occupied by Q4 2020.
Rents
> Average warehouse asking rents have decreased slightly over the last two quarters from all-time record highs set in mid-2019 due to large 100,000+ SF blocks of space hitting the market at lower asking rates. Roseville/Rocklin and West Sacramento each posted 9% - 10% year over year rent growth.
Sales Activity
> Sales volume has been on the decline since 2018 when $938 million of industrial/flex inventory sold. However, sizeable owner-users are still in the market for new buildings. This quarter, A&B Home purchased 660 N Pioneer Ave in Woodland for $19.6 million. The Rancho Cucamonga-based furniture wholesaler will occupy roughly 200,000 SF of the 323,000 SF building.
After a temporary pause in market activity due to business closures and a wave of tenant rent relief requests in April and May, Sacramento’s industrial market picked up where it left off and posted a strong second quarter overall. The industrial market vacancy rate remained unchanged from the first quarter and 2020 year-to-date net absorption is up 122,653 square feet through the first half of the year. Robust leasing activity in the second quarter despite current economic uncertainty is revealing the true durability of industrial property. New leases signed from expanding and new to market tenants, in addition to 1.7 million square feet being occupied by Amazon and Walmart combined this year, will place downward pressure on vacancy through the remainder of the year. Though some new developments have delayed construction starts over the last three months, 232,596 square feet of new development broke ground this quarter. At least 2.5 million square feet of under construction product will deliver in the second half of 2020 as recently delivered speculative development continues to lease up. Look for additional large scale speculative developments to break ground in Metro Air Park and Southport by mid-2021.
For additional statistics and insights into the Sacramento industrial market’s 16 submarkets, please reach out to Bob Shanahan at [email protected].
The information contained in this report was provided by sources deemed to be reliable, however, no guarantee is made as to the accuracy or reliability. Industrial market refers to existing warehouse, manufacturing, and distribution properties. “Industrial” and “warehouse” are interchangeable terms for the purposes of this report and does not include flex spaces or properties. The industrial market does not include flex properties. Any industrial and flex combined stats will state “combined” in the title. As new, corrected or updated information is obtained, it is incorporated into both current and historical data, which may invalidate comparison to previously issued reports. Statistics include industrial and flex buildings of any size including owner-occupied buildings in the Sacramento metro area. Rents are NNN weighted direct average asking rates.
SIGNED DATE ADDRESS SQ. FT. CLASS TYPE SUBMARKET LANDLORD TENANT
Jun-20 2935 Ramco St 165,342 A Distribution West Sacramento Mapletree Investments Mochila Ful�llmentJun-20 1635 Main Ave * 126,381 C Warehouse McClellan James Stevinson OnTrac Jun-20 8240-8250 Luzon Ave 87,120 B Warehouse Power Inn Link Industrial Properties Siemens
Jun-20 3085 Mary Pl 73,017 A Warehouse West Sacramento TA Realty & Ridge Capital CEVA Logistics
Jun-20 1301 N Market Blvd * 62,521 A Warehouse Natomas/Northgate Link Industrial Properties Southern Glazer's Wine and SpiritsJun-20 3575 Ramos Dr 44,378 A Warehouse West Sacramento NorthPoint Development American Red Cross
Jun-20 4350 Pell Dr ** 40,924 B Warehouse Natomas/Northgate Todd Sperber RoofLine Supply & Delivery
*** Transactions in blue were brokered by Colliers Sacramento
* Renewal / extension
** Expansion
May-20 1121 Striker Ave 25,522 A Warehouse Natomas/Northgate Link Industrial Properties Qualtek
SALE DATE ADDRESS, SUBMARKET SQ. FT. CLASS PRICE/SF SALE PRICE SELLER BUYER
4/29/2020 3050 Ramco St, West Sacramento 300,000 A $92.00 $27,600,000 Panattoni & CALSTRS Link Industrial Properties
6/19/2020 660 N Pioneer Ave, Woodland * 323,475 B $60.67 $19,625,875 Buzz Oates A&B Home, Inc.
4/15/2020 535-555 Menlo Dr, Rocklin * 30,526 B $186.07 $5,680,000 Tcherkoyan Family Trust Farm Credit West
4/14/2020 9980 Horn Rd, Sunrise/Highway 50 * 24,000 B $128.13 $3,075,000 Darryl Thompson Jr. Capitol City Tile & Marble
4/10/2020 7611 Galilee Rd, Roseville 9,669 B $241.91 $2,339,000 BounceU Roseville Kawada Living Trust
5/4/2020 4027 N Freeway Blvd, Natomas/Northgate
45,000 C $51.56 $2,320,000 Arena Christian Center Chavez Management Group, Inc.
D&S Development has started construction on the first building at Creekside Commerce Center located at 11040 N Mather Blvd in the Sunrise/Highway 50 submarket (pictured above on May 20, 2020). The 21,072 SF warehouse is being built speculatively and will deliver Q4 2020. In the same new development, D&S also started construction on 3750 Zinfandel Drive, a 164,179 SF building for Salon Guys (86,196 SF), which currently owns and occupies 100,000 SF at 5980 88th St in Power Inn. There is 77,983 SF available in the building with $0.65/SF NNN asking rates.
In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The infor-mation contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
NEW CONSTRUCTION & FORECAST
Sacramento’s industrial development activity is showing few signs of slowing down so far. After 1.8 million square feet of new inventory delivered from Q2 2019 to Q2 2020, another 232,596 square feet started construction in the second quarter. An additional 379,000 SF of new spec product is slated to break ground in the third quarter. Second quarter deliveries included Natura Life + Science’s 265,000 SF cannabis campus in Power Inn and Warda Brothers’ 13,320 SF speculative warehouse in Elk Grove. Of the 2.5 million square feet of space currently under construction, nearly three-fourths is already pre-leased. Recently delivered speculative development is leasing up as well. After Amazon leased 417,000 SF in McClellan Park last quarter and NorthPoint Development leased up its 407,000 SF Phase I in Southport, speculative development delivered since Q2 2019 is now 67% leased – up from 57% in Q1 2020.
Current demand from large scale distribution and manufacturing occupiers is spurring new development across the market. NorthPoint is on track to deliver Walmart’s 1.1 MSF distribution center in Metro Air Park next quarter. Amazon will open its McClellan and Elk Grove locations (529K SF total) by the end of this year. The Seattle-based e-commerce giant is also rumored to be taking down more space in Metro Air Park. Another multinational manufacturer has signed a 600,000 SF deal in Metro Air Park with NorthPoint.
While the COVID-19 pandemic has given developers like Panattoni and Trammel Crow pause in starting new projects locally, D&S Development is moving full steam ahead. D&S started construction on two new buildings in the Sunrise/Highway 50 submarket this quarter totaling 185,251 square feet combined. The larger building (164K SF) is 53% leased to Salon Guys while the 21K SF building underway at 11040 N Mather Blvd is being built without a tenant in tow.
The current economic downturn has upended other commercial property sectors, but industrial real estate is poised to continue outperforming all other asset classes. With accelerating adoption of e-commerce and higher inventory levels coming, demand for industrial space will continue to increase. Growing demand from tenants in the grocery, food and beverage, e-commerce, logistics, and manufacturing sectors will spur new speculative development in Sacramento later this year and early next year. Large occupancies slated for the second half of the year will push down vacancy and annual net absorption will return to above one million square feet. Despite compounding issues in the office and retail markets, industrial remains the darling of commercial real estate both locally and nationwide. Sacramento’s industrial market is positioned to accelerate its already strong track record of growth in recent years by bringing new occupiers, developers, and buyers to the market.
