WESTERN SNAPSHOT, OCTOBER 2009

Sacramento & San Joaquin Industrial Market

1. MARKET MOVES

The capital market crash of summer 2007 and the global recession still reign supreme on casting a pall on Sacramento’s industrial market and landscape. Landlords are paying close attention to the State of California, the city’s biggest tenant, and its desire to extend leases where landlords will reduce rent by up to 30 percent in some cases. There are no speculative developments of any significance underway in Sacramento and only a few spec developments in San Joaquin markets closer to the Bay Area, where greater population densities create some optimism. To date, the standout deal in Sacramento has been Buzz Oates Real Estate’s inking of Nestle Waters North America to a 215,000-square-foot deal on existing space at Younger Creek Drive in the Florin Fruitridge Industrial Park for a two-line bottling plant slated to open early next year.

Sacramento’s traditional strength in securing large distribution commitments has recently been diverted south and west to Stockton, Tracy, Lathrop, Cordelia and as far south as Patterson. Dealmakers point to the availability of large tracts of land and closer proximity to bigger markets like the Bay Area and Southern California as key drivers. Right now, a geographic difference of 50 miles in one direction or the other is less of a site selection factor than parcel size and availability. Panattoni Development Corp. has landed Whirlpool (445,000 square feet) in Stockton, FedEx (330,000 square feet) in Cordelia and Ghirardelli Chocolate (200,000 square feet) in Lathrop. Stockton is also now home to a 750,000-square-foot building for General Mills (Opus Southwest) and O’Reilly/Kragen Auto Parts for 520,000 square feet (Buzz Oates). Farther south in Patterson, WW Grainger has committed to 820,000 square feet.

2. MARKET MEASURE

As consumer confidence, new home sales and retail sales go, so goes the health of the Sacramento industrial sector. When new home sales screech to a halt and retailers close in record numbers, industrial demand follows suit. Therefore, watch for any sign of improvement in any of these key indices, and the industrial demand crystal ball should begin to sharpen! Until these statistics improve and liquidity returns to commercial real estate, do not expect much speculative building in the area. One exception to this may be in the Bay Area, specifically in Hayward, where demand and barriers to entry may compel a well-capitalized developer with access to entitled land to deliver a building and be rewarded.

3. THE MARK OF A MARKET

Why is Sacramento/San Joaquin industrial relevant? Because of affordability, its proximity to key Bay Area and Southland markets, and its strategic position on the major transportation corridors of the nation and the West Coast, the Sacramento/San Joaquin area will continue to attract key industrial users who choose to do business in California.

— Mark Hefner is a senior vice president at UGL Equis’ Sacramento office.

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