In the Sonoma County North Corridor (unincorporated northern airport area of Santa Rosa, plus Windsor, Healdsburg, Geyserville and Cloverdale), the office real estate market has been challenged by pandemic uncertainty, but the market industrial continues to have a historically low vacancy rate, despite new construction.
The corridor office market remained stable. The office vacancy rate decreased slightly from 6.5% in the fourth quarter of 2019 to 6.4% in the fourth quarter of 2020.
COVID-19 has caused uncertainty about where the office market will go in the future, and businesses are learning whether remote office workers are the future or a temporary necessity, as well as how configurations office will need to be managed. Will the market return to a more heavily private office plan with minimal open work cubicles or to much larger open cubicles than in the past?
This uncertainty has driven office prices down. Typical monthly rental rates start at $1.80 to $2 per square foot for full-service Class A space, and Class B rates range from $1.65 to $1.75 per serviced square foot full. Office leasing activity remained active for small leases under 2,000 square feet.
The significant leases were for Sonoma County, which leased 33,879 square feet at the Harvest Business Center at 3843 Brickway Blvd.; 9,400 square foot expansion lease to Sutter Pacific Medical Foundation at Oak Valley Business Center at 451 Aviation Blvd. Both developments are owned by Basin Street Properties. Another major lease was to Comprehensive Employment Solutions at 160 Wikiup Drive for 11,450 square feet.
Industrial real estate in the North Corridor continues to maintain historically low vacancy rates, despite COVID-19 circumstances continuing to push rental rates up. Rising rents support new construction projects.
Industrial vacancy rates rose slightly to 2.4%, mainly due to newly delivered speculative space. At Billa Landing, a five-building project slated to accommodate approximately 376,000 square feet, the project’s third building has been completed, offering 70,000 square feet. Another speculative industrial building nearing completion is located at 1200 Kittyhawk Drive in Windsor. It has 35,000 square feet.
Rental rates range from 80 cents to $1.15 per triple net square foot per month, depending on many factors such as size, building age and product type. Bespoke industrial construction agreements are always an option, even with the rising prices of construction costs as well as increasing land values due to the lack of existing inventory.
The Airport Business Center has a 5 acre parcel zoned for a mix of industrial uses and is well positioned for bespoke development and accommodates approximately 100,000 square feet.
Industrial lease transactions completed in 2020 included 7,151 square feet at Soletrac Inc., 7,248 square feet at Black Iron in Healdsburg, 8,773 square feet at Sonoma County and 10,241 square feet at Vintage Label 99.
Vintage Label 99 has moved into the 26,000 square foot building at 5341-5349 Skylane Blvd. previously occupied by Medtronic. The building was acquired on a speculative basis and converted into office and industrial space.
A major land acquisition was the purchase of 7.1 acres of land fronting Airport Boulevard by Airport Business Center. Development plans for this plot are still undecided.
The two hotels slated for construction in the Sonoma County airport area include Hyatt Place, a six-story, 166-room luxury hotel, and Tru by Hilton, a four-story, 101-room hotel. Both were due for completion in 2021, but time will tell if COVID-19 has delayed planned openings.
A major government action underway in the Sonoma County Airport District is updating the Sonoma County Airport Area Specific Plan. It is well underway and owners are encouraged to be part of the process. Otherwise, their properties may undergo significant zoning changes which could adversely affect the current use of the properties as well as the long-term value of the properties.
Shawn Johnson, SIOR, is Managing Partner of Keegan & Coppin Co. Inc./Oncor International.