By Jack Stubbs
Similarly to the commercial leasing markets throughout the Bay Area, the industrial leasing market in Union City appears to be on the up-and-up. One of the more recent deals in particular serves to suggest and reaffirm the current strength of Union City’s industrial market: SEKO Worldwide, a global freight transportation and logistics provider, has recently leased the entirety of a 191,868 square foot freestanding warehouse and distribution facility—located at 33300 Dowe Avenue in Union City—which along with various property amenities also provides a convenient location with nearby access to Interstate 880. SEKO leased the facility from James Campbell, LLC. SEKO Worldwide was not reachable for comment, and DTZ, the leasing broker for the transaction, declined to comment on the deal.
One of the more significant factors that might have prompted SEKO to lease the nearly 192,000 square foot space is Union City’s optimal location within the Bay Area, according to Joe Fabian, leasing broker at Newmark Cornish and Carey in Hayward.
“Union City is a small submarket within the East Bay that is centrally located to the overall Bay Area. SEKO has Port Of Oakland clients and Silicon Valley clients. The central location [of Union City] optimizes their business plan,” Fabian said.
By signing the new lease, SEKO effectively consolidated three of their distributions into one at the new location. Location-wise, the draw of the Bay Area might also have factored into SEKO’s business strategy, according to Craig Hagglund, managing partner at commercial real estate firm Lee & Associates. “There are limited quality distribution buildings, so they only have so many buildings that they can possibly consider and look at. I don’t know if they considered going out to the Central Valley, but most [distribution companies] want to be in the Bay Area proper. The I-80 corridor is a great location for distribution companies so they all tend to be concentrated [there],” Hagglund said.
Regardless of SEKO’s exact motivations for leasing the space, it appears that their deal is a coup—industrial and warehouse space is in extremely high demand in Union City currently, according to Colliers International’s Q1 Industrial Market Report.
Industrial space, spread across 162 buildings with a combined 7,883,678 square feet, had a vacancy rate of 1.3 percent, a figure considerably lower than Richmond’s 7.4 percent, Oakland’s 2.7 percent, San Leandro’s 3.4 percent, and Hayward’s 2.2 percent. Union City’s 1.3 percent vacancy rate decreased from the 1.7 percent of last quarter.
Although the vacancy rate for industrial space is down from last quarter, it is not expected to continue dropping, according to Antony Prokopiou, industrial research analyst for Colliers International in Oakland. “With regards to the vacancy rate, it’s difficult for this vacancy rates to drop from where it is. If it decreases, the increments will probably be a lot less,” Prokopiou said.
Another factor that might be affecting the high demand for industrial space—and the subsequent low vacancy rate—is the lack of available inventory in Union City. “We see continued demand for Class A space—existing tenants from the corridor and tenants from outside are attracted to [Union City’s] location, specifically.”
Indeed, that SEKO leased 100 percent of the entire space might also have been driven by the lack of inventory in Union City generally. “As we move forward, there will be fewer [deals involving large amounts of space] because a lot of people are taking up space. In this market, I think a lot of [tenants] are signing deals so that they can get into a space, because the supply is so limited,” Prokopiou added.
The relatively small size of Union City’s industrial market is accentuated by the fact that it is a highly desirable location, according to Joan Malloy, Union City’s director of economic and community development. “We’re a small city that’s built out, so we don’t have a lot of new space going up. We are a highly desirable location, especially for warehouse and distribution [facilities],” Malloy said.
The attractiveness of Union City’s industrial market for potential tenants is also affecting the area’s residential market. “We’re virtually built out; we have to balance our land uses. There’s a huge demand for residential, which is putting a tremendous amount of pressure on our industrial base,” Malloy added.
The large volume of industrial and warehouse inventory in the city—15,071,204 square feet in total, according to Colliers’ report—means that there’s a subsequent need and demand for higher-quality buildings, according to Malloy. “We have a lot of warehouse distribution and we’re starting to see those redeveloped into a higher quality business developments, [like] office or Class A industrial [buildings] with higher ceilings, more amenities, better finishes, more parking and more utilities that can accommodate more needs.” Moreover, the substantial upgrades that Malloy suggests are occurring to industrial space in Union City are a crucial selling point for companies looking to locate there, according to Fabian of Newmark. “Tenants are willing to pay for higher quality, more function. Further, some are demanding it. Tenants require high clear height and state of the art fire suppression, and they’ll pay for it,” he said.
Although it may seem like Union City, specifically, is attracting industrially-oriented businesses looking to locate there—SEKO as one notable example—the low vacancy rates and high absorption rates might be due just as much to the attractiveness of the I-80 Corridor more generally, according to Hagglund. “The [SEKO] deal could have gone to Hayward [or somewhere else] but the building fit their criteria in a number of aspects. If you’re trying to service the Bay Area proper, the likelihood is that you’ll be doing that somewhere in the region between Richmond and North San Jose, because that’s just where the warehouse product is,” Hagglund said. Nonetheless, it does appear that industrial space is at a premium in Union City relative to its neighbors along the I-80 corridor. Union City’s 106,256 square feet of vacant industrial space is significantly smaller than Richmond’s (360,874), Oakland’s (681,466), and Hayward’s (375,284).
Currently, the future over the next few months looks bright for Union City’s industrial marketplace—however, the current prosperity won’t necessarily continue indefinitely, according to Hagglund. “We’re at a point where the availability and vacancy numbers are very low and rates are high. We’re anticipating that to continue through the year. [But] everyone’s really trying to keep a pulse on the market to see what’s happening in the overall market. At some point, some event has to happen for there will be a catalyst for change from an industrial and warehouse real estate perspective.”