PETALUMA MARKET: Area offers companies plenty of choices

<p>PETALUMA – The Petaluma office market struggled through 2008 and will continue to do so through 2009.</p><p>Office vacancy remains at a very high level of 992,732 square feet at 32.6 percent. We are seeing a bit of an increase in activity from companies considering relocation from outside the area realizing bargain rental rates available in Petaluma. </p><p>The Petaluma Marina, the newer Basin Street Theater Square office and the vast amount of office space available in Redwood Business Park, Lakeville and Oakmead Northbay business parks are all competing for the same tenants.</p><p>Office vacancy is still plagued by the sublease market as companies continue to downsize or move out of the area. Nonetheless, there are several great projects ready to start but waiting for market conditions to improve, including RNM Properties with Cader Corporate Center, a 354,000-square-foot campus-style office complex, and Basin Street with 58,000 square feet planned at the north end of Petaluma.</p><p>Rental rates for Class A office space has a very wide range of $1.09 to $2.50 per square foot, full service, and the single-story Class B and C space will range from $0.99 gross to $1.25 per square foot NNN with varying incentives for moving costs, free rent and furnished space.</p><p>Fourth-quarter industrial vacancies dropped over the previous quarter from 16 percent to 13.9 percent, or 743,338 square feet. There were also some significant industrial transactions in 2008, most notably the sale of 755 and 775 Southpoint Blvd., two industrial buildings totaling approximately 183,272 square feet, for just under $18 million. LBA Realty’s 230,000-square-foot Petaluma building portfolio enjoyed 65,000 square feet of absorption since January 2008. We will see more activity in the industrial sector and expect rental rates to increase toward the end of 2009. There are currently no plans for new industrial development in Petaluma due to the lack of available industrial parcels. Those parcels that are available are priced beyond feasibility for industrial development.</p><p>There are a few large vacant industrial spaces in the market that were designed for bigger companies that will be challenging to subdivide. The first quarter of 2009 so far is experiencing more tenant activity in the 20,000- to 40,000-square-foot sizes, with companies looking at the building inventory six to 12 months in advance that offer the best facility at the lowest rates.</p><p>Warehouse-industrial space rents ranged from $0.55 per square foot gross for space larger than 10,000 square feet to $0.75 to $0.95 per square foot for spaces less than 5,000 square feet. The smaller sizes warrant a premium rate as the industrial vacancies in that category remain very low and tend to be quick to fill.</p><p>On the retail front, Petaluma’s market has weakened with the recession hitting both small and large corporate retailers. Mervyn’s and Yardbirds/Home Depot have given notice that they are closing stores in Petaluma, and several small independent retailers have folded. The retail sector will continue to struggle through 2009.</p><p>The major projects that are working through their entitlements include the Regency center just west of Highway 101 and just off East Washington. </p><p>It should have entitlements by the end of 2009 for a 377,000-square-foot retail center with Target as the major anchor and other smaller building spaces less than 30,000 square feet for junior anchors. The development will include a small component of 16,000 square feet of second floor office. Construction is planned for 2010 with completion expected in 2011.</p><p>Meanwhile, Merlone Gier Partners is in the planning stages of Deer Creek Village on the Petaluma eastside between Highway 101 and N. McDowell Boulevard with a combination of mixed-use commercial, retail and residential. </p><p>In summary, the forecast for 2009 is for more of the same with continued downsizing and repositioning of company requirements.</p><p>Homecomings Financial and Jandy, have moved out of Petaluma, and companies such as 3M and Avalon/Hain Celestial have given notice that they are moving to consolidate elsewhere. Tellabs and Alcatel continue to downsize. 3M, which owns and occupies 72,000 square feet, plans to exit the market, and Avalon will vacate lease space increasing the vacancy and job loss. </p><p>This market for 2009 offers the best opportunity for companies that either need to reposition their requirements to save rent or acquire new space at bargain prices. Rents and prices are heavily discounted, with incentives offered by landlords to attract a business prospect.</p>