Q2 2012 Sacramento, California Industrial Market Trends

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Q2 2012 Sacramento, California Industrial Market Trends

Over the past year, laments Cassidy Turley Commercial Real Estate Services in a second-quarter report, “the market has failed to build any consistent growth trends.” Put more optimistically, the lack of substantial expansion is described by Jones Lang LaSalle as “stabilization” across a broad spectrum. Reis’ data on 92 million square feet of warehouse/distribution space show modest progress. Alongside no new supply deliveries, net absorption through the first half of 2012 was positive 275,000 square feet in the wake of an interrupted series of quarterly losses over the preceding two years. While the total for the second quarter of 2012 alone was only 12,000 square feet, July followed with 77,000, again with no new supply arriving online. Indeed, no warehouse/distribution projects are expected to deliver at any point in 2012. Only one, the 44,000-square-foot Sacramento Municipal Utility District (SMUD) East Campus warehouse in the Highway 50 Corridor submarket, was under way per the date of this report. Reis cites a June 2013 completion date.

The sole project to complete construction metro wide this year will be a 195,000-square-foot manufacturing facility for machine tool manufacturer Mori Seiki, which delivered in June in Davis. Net absorption of warehouse/distribution space, meanwhile, is forecast to remain positive all told over the remainder of the year. Relentless expansion by Amazon.com, meanwhile, could bring demand to the Sacramento area market. The firm is looking for 500,000 square feet in Northern California, reports Jones Lang LaSalle. It “will likely identify land to build a state-of-the-art facility in the Sacramento area.”

Vacancy in the warehouse/distribution sector ended the latest quarter at 16.0%, same as a quarter and a year earlier and well above the 12.7% second-quarter national rate for this product type. July’s positive net absorption brought a 10 basis-point decline. Growth, following substantial losses in 2010 and 2011, has returned to average sector rents. Reis puts the second-quarter asking and effective averages at $4.15 psf and $3.81 psf, up 0.2% and 0.5% for the period, up 0.7% and 1.3% since year-end. No subsequent changes are indicated for July; growth should resume over the remainder of the year.

Sacramento has emerged in the recent past as an attractive area for high-technology business; Intel, for example, has substantial facilities in Roseville. Including second quarter’s 11,000 square feet, net absorption in Reis’ 14.3-million-square-foot Flex/R&D market through the first half of the year was positive 37,000 square feet. Vacancy ended the second quarter at 21.8%, same as the quarter before, down 80 basis points year-over-year. At $8.02 psf and $7.33 psf, second-quarter asking and effective average Flex/R&D lease rates were up 0.1% and 0.3% for the quarter and were up 1.0% and 1.4% since year-end. No space of this type has completed construction since 22,500 square feet delivered to the Roseville Commerce Center in April last year.

The 55,000 square feet of positive warehouse/distribution space net absorption of anticipated for the final five months of 2012 would not be enough to reduce the vacancy rate reported for July. Rent growth at 1.7% asking and 2.4% effective is expected for the year as a whole. A better performance across the board is expected for 2013.