Petaluma Forecast for 2016

Petaluma experienced positive industrial absorption throughout 2015. The market vacancies over 4 quarters were:

• Q4, 2014 Industrial: 6.6%
• Q4, 2015 Industrial: 4.1%

Result: The tight Industrial Market got much tighter. There were some large deals, such as the sale of 1450 Technology Lane (roughly 80,000 sf of Industrial with a total building size of 125,000 +/- sf) and 80,000 +/- additional sf at 3800 Lakeville leased to Morris Distributing. Those two deals took a healthy bite out of the standing vacancy, but the absorption was primarily driven by deals in the sub-10,000 SF range. Because of lack of Southerly inventory, the asking rate for Industrial space has increased by about 10% to the $.90 – $1.00/psf range on a Standard Industrial Gross basis.

Forecast: We will continue to see upward pressure on Industrial rates throughout 2016. While there will be some moves generated within town for existing tenants addressing their needs, we also expect migration from both directions on 101. Those moving north will be primarily cost driven, while those moving south hope to increase market draw and more favorable distribution routes. There are two projects in the market which should alleviate some of the pressure; however neither has broken ground yet.

Petaluma’s Office did not fare well. The most previous four quarters were virtually flat:

• Q4, 2014 Office: 15.8%
• Q4, 2015 Office: 15.9%

Result: Petaluma, despite its quality of life draw, continues to be a tough sell for office space. Most office deals are still in the incubator-sized range and businesses that ‘right-size’ basically create a wash. Some grow, some shrink, others watch the pot simmer and wait to see how the economy performs. Office tenants are always more cautious than Industrial tenants. This is partially due to a higher level of oversight, but is also due to fear of previous market corrections being projected against current national and global developments. It doesn’t matter if Google moves in to the market. It doesn’t matter if a biomed obtains FDA approval. While these developments impact the local economy, the office market is driven by tenants and buyers with an eye on global enterprise. It doesn’t make any sense, but it is a consumer confidence-driven package.

Forecast: Despite the gloomy numbers above, we should start to see some positive market absorption. I don’t believe we will see any upward pressure on rent, but I do believe we will see a reduction in vacancy due to dwindling supply and steep rent increases in Marin County office rents. There comes a point where decision makers start looking at their bottom line despite that which is happening hundreds (or thousands) of miles away.

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