By Meghan Hall
Industrial construction is forging ahead across the Bay Area as investors have increasingly come to realize the importance—and profitability—of industrial product types. This has been no less true in Napa and Solano Counties as well, who are not just beneficiaries of the Bay Area’s booming economy, but of the counties’ proximity to wine country and its associated manufacturing and processing businesses. A third quarter report from Colliers International detailing the industrial market in Napa and Solano counties has found that while construction has taken off, it has been balanced by several large leases including two by the Biagi Bros., which total more than half a million square feet.
The local industrial market in Napa and Solano counties is largely driven by low employment rates and solid consumer confidence, states Colliers. Currently, employment in Napa county sits at 2.7 percent, while employment in Solano County came in at 3.8 percent, well in line with the national average. And, while there is currently more than 52 million square feet of industrial inventory across both counties, strong demographics and market fundamentals have been ample drivers of construction.
During the third quarter of 2019, 263,400 square feet of industrial inventory was brought to market, and there is currently an additional 1.77 million square feet of industrial space currently under construction. Of that 1.77 million square feet, only 894,000 square feet was under construction as of Q2, meaning that an abundance of new projects have broken ground, including Grove Development, a 330,528 square foot warehouse and distribution building on Commerce Boulevard in American Canyon. The property is owned by Stravinski Development Group.
Projects currently in the construction pipeline include Dermody and Colony Properties’ 252,000 square foot warehouse at 2121 Icon Way in Vacaville, whose shell will be completed by the end of this year, as well as two buildings within the Solano Business Park Fairfield, both of which are speculative development. Ridgeline Property Group is building a 378,405 square foot warehouse at 2200 Courage Drive; its anticipated delivery is the end of this year. Ridgeline is also constructing a 104,000 square foot warehouse on Watney Way, whose shell will be completed in March of 2020.
Ample leasing activity, however, as meant that vacancy rates for industrial properties in Solano and Napa counties remained flat at 6.2 percent, an increase of 0.7 percent from a year ago. Net absorption during the quarter came in at a positive 209,950 square feet, compared with a negative net absorption of almost 1.1 million during the previous quarter, when only 39,000 square feet of new industrial space was brought to market. The average asking rate also remained flat at $0.59 per square foot triple net at the end of the third quarter.
The largest leases across both counties during the third quarter were by Napa, Calif.-based Biagi Bros., a 3PL logistics company who took 336,960 square feet of warehouse and distribution space at 4 Middleton Way, part of the Napa Logistics Park, in American Canyon. Biagi Bros. signed the lease in July of this year, and the property is a joint venture between DivcoWest, Orchard Partners and DWS. All together, the Napa Logistics Park will total 218 gross acres, and the development team plans to pursue 2.9 million square feet of warehouse and distribution space for wine and non-wine related users. Biagi Bros. also inked a lease for an additional 168,316 square feet of space at 577-636 Indiana Street in Benicia in August.
Other leases of note this quarter was Walmart’s decision to take 15,000 square feet along Industrial Way in Benicia in September, as well as Stephens Mechanical Corporation’s lease for 9,000 square feet of light industrial space at Edison Court in Fairfield.
Despite flat vacancy and rental rates, Colliers predicts that the industrial market in both Napa County and Solano County will remain strong into the future, thanks in part to eager investors and a mix of healthy fundamentals that leave room for growth.
“The food & wine industry and e-commerce continue to drive demand and the construction of new warehouse/ distribution centers in the region,” the report states. “The near and long term outlook for the region is very good as high demand for premium wine continues to be Napa’s competitive advantage and Solano County’s mix of affordability, available land, new product, good labor, and great location near the Port of Oakland, and between the major markets of the San Francisco Bay Area and Sacramento will continue to make this county attractive for users and investors alike.”