By Meghan Hall
Tenant expectations and profiles have changed dramatically over the last ten years thanks to the rise of the high-tech, medical and life science industries. Company requirements for space have evolved dramatically, and the Bay Area is seeing changes in tenant’s desires not just office space, but industrial as well. Traditional industrial tenants still thrive throughout the Bay Area, but srmErnst Development Partners and Hillwood are building to cater to an even more diverse array of industrial tenants, those who require not just traditional manufacturing or warehouse space, but lab, office and research and development space as well. For srmErnst, these new industrial trends are reflected in the developer’s latest project, North Loop 3. Located in Alameda, the six building project is nearing completion and will cater to a wide variety of tech, stem and life sciences tenants.
“Within the industrial sector, we’re definitely seeing the growth of certain sub-industries, such as life sciences; they have been very attracted to Alameda, too,” said Steve Kapp, executive managing director at Newmark Knight Frank, the brokerage firm in charge of marketing the project. “Traditionally industrial was a minimal amount of office. Now these other industries are more employee-intensive. They are going to have more extensive build outs of office and lab areas, so the owner has positioned the property to handle that.”
Since the mid-90s, srmErnst has developed nearly 30 buildings and 1.5 million square feet in Alameda, and has seen the transition in tenant requirements occur over the course of the last market cycle. North Loop 3 is composed of six buildings — for sale or lease — and range in size from 23,955 square feet to 38,047 square feet. The buildings feature two-story glass entries with partial second story floor space, which can be used as an office, two loading docks and two grade doors per building and 24-foot clearance heights. Future tenants and owners also offered a wide range of tenant improvements; srmErnst is offering full turnkey delivery and build-out should companies choose. According to Kapp, the developer has allotted a much higher amount of money for tenant improvements than most industrial developers.
“We focused on smaller buildings, not just big box logistics, and they’re tailored to companies who want a better aesthetic,” explained Joe Ernst, president at srmErnst. “They can cater to a lot of different needs; tenants can design them for a variety of uses.”
The pricing of the buildings and how much they lease for will ultimately depend on the companies that move in, stated Ernst.
“The wide range of tenant improvements will drive pricing,” said Ernst. “We don’t have one stated rate. For the quality of the product and the wide range of options we can deliver, I think we’ll be competitively priced.”
The six buildings sit on a 12-acre parcel in Harbor Bay, which over the years has become a hub for growing medical tech and STEM companies, stated Ernst. North Loop 3 is just five minutes from Oakland International Airport and 20 minutes from the Hayward/San Mateo Bridge. The development is also easily accessible by the San Francisco Ferry, BART and Interstate 880, which is just minutes away. Additionally, its location on Alameda island means that future tenants can get their energy and utilities supply from Alameda Municipal Power, which is almost 20 percent cheaper than PG&E.
“Harbor Bay is becoming more of a campus environment for companies who have a broad or flexible need for manufacturing-type uses,” said Ernst.
So far, said Ernst and Kapp, the development has attracted a good amount of interest from tenants in the area, particularly those in the life sciences sector. That interest is expected to accelerate after next week, when srmErnst and Hillwood raise the walls for the project at a wall tilting event on Thursday.
“We have some negotiations going with a couple of potential tenants,” said Kapp. “We expect interest to build even more after the wall tilting. The project will start to feel like a real structure and will represent the project becoming a reality. We expect that it will accelerate interest.”
As the project nears completion, Kapp estimates that all six buildings will be leased or sold by the end of the year, and Ernst remains optimistic that the Bay Area’s industrial market will remain strong in the coming years.
“I think long-term, the industrial market will always remain strong,” said Ernst. “We will have a market correction at some point, but I think that just given the lack of new, quality space in good locations, this asset class will be very resilient.”