Companies nibble at big Sonoma County spaces

<p>SONOMA COUNTY – Despite high vacancy rates in some areas, Sonoma County's office market generally was more dynamic in mid-2007 than it had been in a few years, while the industrial market tightened and development hurdles remained for large additions to the already taut retail market, experts said.</p><p>Five new speculative class-A office buildings have brought about 340,000 square feet to the Santa Rosa and Petaluma markets.</p><p>However, buildings by Blackstone Realty Group, Brondi Development and Basin Street Properties have landed initial tenants for their Santa Rosa buildings, and Basin Street has an undisclosed taker for a fifth of its 50,000-square-foot first building at Redwood Business Center in Petaluma.</p><p>RNM Properties completed a 144,000-square-foot two-building south Petaluma campus called South McDowell Landing that is awaiting tenants. </p><p>Overall, Keegan & Coppin figured the countywide vacancy rate to be 19 percent in mid-2007, a significant improvement from the firm's estimates of 21.3 percent in the first quarter and 21.9 percent in mid-2006.</p><p>Orion Partners estimated a mid-2007 countywide rate of 20.2 percent for pure office space and 18.9 percent for combination warehouse and office space, called flex space, centered mainly in Santa Rosa and Petaluma.</p><p>NAI BT Commercial figured the mid-2007 county vacancy rate to be 22.9 percent, up from 21.6 percent a year before.</p><p>Both San Francisco-based RNM and Petaluma-based Basin Street have built office space in Petaluma in anticipation of the historical northward migration of companies from Marin County. The overall office vacancy rate in Petaluma was 35.9 percent in mid-2007, up from 30.5 percent a year ago, according to Keegan & Coppin. </p><p>Mid-2007 class-A vacancy in Petaluma was 28.2 percent, while class-B was 10.6 percent and flex was 12.2 percent, according to Orion.</p><p>Some real estate experts see harbingers of corporate northward migration along the Highway 101 corridor from Marin County to Sonoma County. </p><p>"Historically, we see migration to the north when vacancy rates in Marin are down and rents are up, and we're beginning to see that," said Orion Partners CEO Bill McCubbin.</p><p>Southern and central Marin office vacancies are in the single digits, while top-class monthly full-service rents there are pushing past $4 a square foot as Blackstone flexes its 40 percent stake in Marin class-A space. Owners of the new class-A buildings in Sonoma County are asking $2.50 a square foot or more, which is up to 50 cents a square foot more than older high-end buildings.</p><p>The unemployment rate in Sonoma County was 4.3 percent in June 2007, basically unchanged from the estimate of 4.1 percent for a year earlier, according to state figures. That was below the California rate for June 2007 of 5.2 percent and a bit under the national rate of 4.7 percent.</p><p>As an indicator of where the Sonoma County commercial real estate activity could be coming from, businesses in the county added 3,200 jobs from mid-2006 to mid-2007, with 700 added in professional and business services; 600 in manufacturing; 600 in trade, transportation and utilities; 400 in leisure and hospitality; and 300 in agriculture.</p><p>Downtown and central Santa Rosa are set to see significant commercial real estate added in coming years. Novato-based West Bay Development is aiming for a 2008 start of construction on its 14-story residential-and-retail Comstock downtown project. At press time, the City of Santa Rosa and San Rafael-based Monahan Pacific were in disagreement over the cost and scaling of the 12-story residential-retail-public parking project called The Renaissance. </p><p>In the meantime, Santa Rosa-based Hugh Futrell Corp. proposed a seven-story residential-and-retail "green" project near downtown, and Rohnert Park-based Codding Enterprises is set to propose a $100 million renovation and redevelopment of its Coddingtown regional shopping center in Santa Rosa.</p><p>Speaking of Codding, the company has set up a steel-frame factory at its 175-acre "green" redevelopment of the former Agilent Technologies campus in Rohnert Park, a project it is calling Sonoma Mountain Village. </p><p>Until that is complete, the vacancy there, amounting to 640,000 square feet of office, R&D and warehouse space, has been a dominant factor in the county office vacancy rate. In mid-2007, Codding landed a 30,000-square-foot wine warehousing lease to growing Sonoma County Vintners Co-Op.</p><p>However, the factory, a 30,000-square-foot green-business incubator and AT&T's relocation of 235 employees to 40,000 square feet there have been chipping away at the empty space as the company plans development of 1,900 homes and commercial space on the rest of the property.</p><p>The industrial real estate market in Petaluma has been more active than the office market in the county's second-largest city, according to Keegan & Coppin partner Chris Castellucci.</p><p>"The Petaluma leasing market remains soft," he wrote in a report on the second quarter.</p><p>The industrial activity is evident in deals such as Alvarado Street Bakery's planned expansion from south Santa Rosa to 70,000 square feet in the former 233,000-square-foot Russ Berrie & Company toy warehouse at 2249 S. McDowell Blvd. Extension, a building that has filled with Hydrofarm and a fall 2006 expansion by longtime Petaluma tenant Mike Hudson Distribution in 55,000 square feet.</p><p>Also, computer-chip fabricator maker Tegal Corp. decided in mid-2007 to keep its 50 employees in 40,000 square feet in Petaluma to fulfill $22 million in orders after earlier saying the company would move to Silicon Valley.</p><p>Then there's the 132,000 square feet Adobe Creek Wine & Storage leased at 1250 N. McDowell Blvd. in Petaluma.</p><p>Those deals and many smaller than 4,000 square feet helped keep the industrial vacancy around 10 percent to 12 percent in mid-2007 even as Tellabs put the 185,000-square-foot Advanced Fibre Communications' building in south Petaluma on the market and found a 40,000-square-foot tenant in DHL.</p><p>In Santa Rosa, Rizzo & Associates found three nearby tenants to expand into most of the first of three buildings at its 175,000-square-foot Industry West Commerce Center. </p><p>Near the Charles M. Schulz–Sonoma County Airport, a wine-related company was aiming to buy the vacant warehouse building originally built by Panattoni Development for Agilent. More light-industrial and flex space will be opening up on 20 acres Airport Business Center is developing just north of the airport on Conde Lane in Windsor.</p><p>Also, the former Weigh-Tronix building at 2350 Airport Blvd. was getting significant nibbles, according to Paul Schwartz of Colliers International.</p><p>"A lot of smaller companies are expanding," Mr. Schwartz said. "There is a need to demise larger office buildings and in the industrial market for smaller owner-user buildings at a price that makes sense to the owner against leasing."</p><p>Aiming at that market are 40, 1,000-square-foot industrial incubator condominiums for sale by William A. Saks & Company in the first building under construction at Carneros Business Park south of the city of Sonoma.</p>