Year in Review: Top 10 Sonoma County business stories of 2016

Sonoma County business owners may remember 2016 for what they found at times in short supply: job seekers, mall shoppers and homes.

Some of these shortages were a sign of a growing economy. Others stemmed from disruptive technology, such as online shopping, or from the eight-year aftermath of a national housing crash. Whatever the reasons, the shortages could continue into 2017 and beyond.

Even so, the year still featured new investments for several business sectors in the county. A number of lodging projects came to fruition, led by the opening of the $175 million hotel at the Graton Casino and Resort. And both the wine and craft beer sectors enjoyed a surge in activity, in Sonoma County and abroad.

Looking ahead, business leaders await several new developments in 2017. The long-planned reunification of Old Courthouse Square, now slated for early spring, is one that leaders say will signify a new era for downtown Santa Rosa.

American Airlines is scheduled in February to begin daily service from Santa Rosa to Phoenix, linking the county to a major airport for east-west travel. And the North Bay’s SMART train is expected to start service in late spring, ushering in commuter rail service in central Sonoma and Marin counties.

Here are the top business stories ?of the year:

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1. Housing remains in short supply.

This year, a shortage of homes and apartments ­- for sale or rent - dominated the local housing market.

Home prices rose 9 percent during the year, as the median price for a single-family home reached $575,000 in November. In 2011, the median stood at $318,000 in November, meaning the price has risen ?80 percent in five years.

Renters, meanwhile, continued to share horror stories of trying to secure an apartment or rental home. Rents increased 7.6 percent through the third quarter, compared to a year earlier, reaching $1,813 for the average apartment, according to Real Answers, a Novato company that tracks data from large rental complexes. In the past five years rents have climbed 49.5 percent.

The one bright spot was an expected increase in construction of new homes. A number of projects broke ground this year; the largest concentration is in Rohnert Park, where three separate housing companies are moving to construct a total of 175 single-family homes, part of a new University District neighborhood that one day could hold more than 1,600 housing units. However, the construction industry had nowhere to go but up: local builders pulled permits to build only 250 single-family homes in 2015, the lowest amount in at least 45 years.

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2. Low unemployment causes headaches for business.

Can you have too much of a good thing? In September, Sonoma County’s unemployment rate dropped to ?3.7 percent, the fifth-lowest in the state. While that would be cause for celebratrrecession, it brought one immediate ?challenge: Where to find qualified workers?

Some sectors were hurt more than others. Vineyard managers again struggled to find agriculture workers to pick grapes in the fall. The construction and health care sectors also were impacted.

But nowhere was the struggle greater than in the North Coast hospitality industry, a key economic driver. Many hotels and wineries are paying $12 an hour and part-timers are earning benefits. Calistoga was under such a tremendous strain that business leaders attempted to develop a shuttle to transport workers from Santa Rosa.

The outlook is not getting any better for 2017 as a legalized marijuana industry will bring even greater pressure to the labor market and poach talent from other sectors such as agriculture and hospitality.

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3. Grocery store upheaval.

Sonoma County has a diverse array of grocery stores, with large chains, locally owned supermarkets, natural foods outlets and specialized discounters such as Trader Joe’s. In 2016, however, many of those businesses underwent tremendous change, a reflection of the intense competition for local shoppers by a competitive industry known for its low profit margins.

In May, Oliver’s Markets opened its new Windsor location which featured a taqueria, a sushi stand, a gelato counter and a deli with a prime rib carving station, along with a family-friendly bar area. The move was made to keep up with a trend for to-go food and alcohol service that has been used at Whole Foods Market as well as Community Market.

Others decided it was easier to sell out. Both Sonoma Market and Glen Ellen Village Market sold to Nuggets Markets, based in Woodland. In October, G&G Supermarkets sold its Santa Rosa and Petaluma stores to Safeway. The move closed the 53-year-old business, known for its fresh seafood and hard-to-find Asian cuisine. “It’s tough. The grocery business is very, very tough,” said Robert Gong, founder of G&G, on its last day of operation.

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4. The Graton Resort & Casino opens its $175 million hotel.

The county’s hotel industry had a growth spurt in 2016, with roughly a dozen lodging projects that developers were pursuing. By far the largest was the 200-room hotel that opened in November at the Graton Resort & Casino along the northwest edge of Rohnert Park.

The resort added 300 workers to staff the hotel, making the resort one of the county’s largest employers with ?2,000 workers overall. Its management expressed confidence the resort will attract more conferences and conventions to the county by offering 30,000 square feet of space for meetings and other gatherings.

What makes such construction easier to justify is that the county’s hotel revenues have risen for seven straight years. For the first 11 months of 2016, hotel room revenue increased 9 percent from a year earlier to $264.3 million, according to travel research company STR.

For the same period, the average room rate rose 7.1 percent to $163.56 and hotel occupancy reached 78.6 percent, compared to 77.1 percent for the same period in 2015.

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5. Shopping centers feel chain store upheaval.

One analyst called 2016 the worst year for chain store closures since the recession, and the county’s two biggest shopping centers weren’t immune.

Clothing retailers Gap and Banana Republic this year exited the Santa Rosa Plaza shopping center. And Macy’s said it will close 100 department stores nationwide in 2017, prompting speculation on whether Santa Rosa would continue to boast a Macy’s at both the Plaza and the Coddingtown shopping centers.

Online shopping remains the most disruptive force in U.S. retail in a half-century and helps explain why the number of U.S. shopping malls has declined to ?1,350 from 1,500 in the last six years, according to real estate company Cushman & Wakefield.

But the North Bay continues to enjoy a relatively strong demand for retail space, Cushman & Wakefield said. And Coddingtown, which had lost its Old Navy clothing store, in September celebrated the opening of a newly created space of 31,000 square feet for a Nordstrom Rack discount outlet.

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6. The day draws near(er) for SMART, Old Courthouse Square.

Two sizable public works projects were supposed to be ready for Christmas. But business leaders nonetheless remain upbeat about the difference they will make once they open to the public in 2017.

The Sonoma-Marin Area Rail Transit Authority moved its opening date back to late spring, partly due to engine problems on the trains. And some major employers in Santa Rosa continue to explore whether they can offer a shuttle service between work and the train stations. Jonathan Coe, president and CEO of the Santa Rosa Chamber of Commerce, said city and county transit officials are determining how their bus services might work with the shuttles. And SMART officials, whose trains would run from north of Santa Rosa to San Rafael, are contemplating free or half-off fares for the summer to encourage ridership.

Meanwhile, the reunification of Old Courthouse Square in downtown Santa Rosa - an idea that had been studied and debated for three decades - is underway after the City Council in January approved the $12 million project. Now traffic will flow around the square rather than through it on Mendocino Avenue. Its opening has been delayed by such setbacks as a redesign of the square’s electrical system and the discovery of an old underground fuel tank.

Business people acknowledge construction has dampened activity for nearby retailers, but also point to the promise of a new downtown gathering place, one already attracting a proposed $18 million hotel project that would include the historic Empire Building.

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7. Two airlines announce new service.

Next year will mark a decade of continuous passenger service from the Charles M. Schulz-Sonoma County Airport. And 2016 saw two new airlines announce plans to expand the offerings.

The big announcement came in October when American Airlines said it will offer daily service starting in February from Santa Rosa to Phoenix. Both airport and business leaders hailed the news as a way for local travelers to connect to an airport with more than 300 daily flights to 75 destinations.

And in May, low-cost Allegiant Air began operating twice-weekly flights to both Las Vegas and the Phoenix-Mesa Airport. However, the airline this month confirmed it will make its last flight to the Phoenix area on Jan. 2, blaming the cut in service on a lack of demand. The Las Vegas service will continue.

Airport and business officials still hope to attract air service between Santa Rosa and Denver or Salt Lake City. Such east-west routes would add to Alaska Airline’s daily service to West Coast destinations, including San Diego, Orange County, Los Angeles, Portland and Seattle.

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8. Local beer business continues to grow.

It would be hard to top 2015 for the local craft beer industry. After all, that year Heineken International paid approximately $500 million for a 50 percent stake in Lagunitas Brewing Co. in Petaluma, making it one of the biggest craft brewing deals in the modern era.

Lagunitas was at it again this year, but with more of a small-ball approach. It bought Southend Brewery and Smokehouse in Charleston, S.C., and turned it into a Lagunitas taproom; took an investment in Independence Brewing Co. in Austin, Texas; and bought a 50 percent stake in Moonlight Brewing Co., the Santa Rosa brewery operated by craft beer pioneer Brian Hunt. There is more action in 2017 for Lagunitas: It plans to open its third brewery in Azusa next year.

“These aren’t conquests .?.?. It’s not for scale,” said Lagunitas founder Tony Magee. “This is a thread to make more local connections.”

But that wasn’t all the activity. Russian River Brewing Co. decided to build a new brewery in Windsor to the relief of its fans who find it hard to get inside the crowded downtown Santa Rosa brewpub. And Bear Republic Brewing Co. will open up a new location in Rohnert Park in 2017. Also, five new breweries were in business or slated to open by the end of the year, bringing the overall total to almost 30 breweries in Sonoma County.

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9. No wave of major wine deals, but the Oregon trend continues.

It was a year in which the local wine industry went without many blockbuster mergers or acquisitions. The most notable one was Constellation Brands Inc. buying The Prisoner Wine Co. portfolio of brands from Huneeus Vintners for $285 million. There were no vineyards included in the deal. The Prisoner label, based on an etching by the Spanish artist Francisco de Goya, had been a hit with millennials.

But the year also saw a continuing trend of local vintners looking beyond the state to pursue growth. States such as Oregon and Washington had more deals because the land is cheaper, regulations are less stringent and the quality of the grapes can rival those from the North Coast.

Nowhere was this movement greater than at Jackson Family Wines as the company continued building its empire in Oregon. It started the year by buying a large industrial facility in McMinnville for $4.6 million to process more grapes from its properties in Oregon. In April, it purchased Penner-Ash Wine Cellars, a highly-regarded pinot noir producer in the Willamette Valley. And in October it acquired WillaKenzie Estate, a Willamette Valley producer of single-vineyard pinot noir and pinot gris.

There also were additional pressures to curb winery events and related traffic in both Sonoma and Napa counties, though officials in both counties did not take any final steps this year.

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10. Cowgirl Creamery sells to Swiss dairy giant.

One reason the North Bay’s dairy industry remains afloat today is that farmers and food makers found ways to make premium niche products, including quality cheeses and organic milk.

One of those early leaders in artisan cheese making, Petaluma’s Cowgirl Creamery, was acquired this spring by Emmi, Switzerland’s largest milk processor.

Cowgirl, which was started nearly 20 years ago by Sue Conley and Peggy Smith, had grown to employ 95 people. Its operations included a Petaluma production facility and retail outlets in Point Reyes Station and the Ferry Building in San Francisco.

Emmi previously had acquired goat cheese makers Redwood Hill Farm & Creamery in Sebastopol and Cypress Grove Chevre in Arcata.

The acquisitions remain a bright ?spot for local dairies, whose ranks ?have greatly declined over the past ?three decades. Today 80 percent of the remaining dairies in Sonoma and Marin counties have made the switch to producing organic milk, which receives a premium price over conventional dairy products.

You can reach Staff Writer Robert Digitale at 707-521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit. You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.