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2012 1Q Industrial
2012 1Q Industrial
Colliers commitment to market excellence is transparent through our core values of service, expertise and
community. In our efforts to extend these values to the
local real estate community, we are pleased to share our
Industrial Report for 1st Quarter 2012.
Q1 HIGHLIGHTS
Overall performance during 1st Quarter 2012 in the Sacramento industrial market
was very strong, confirming recovery is underway; we continue to see this
recovery being a slow process. The following is a summary of the market during
the quarter.
Vacancy declined by 50 basis points, ending the three-month period at
12.6%.
Total leasing activity continues to remain active with almost 2.5 million
SF of available space being occupied during the quarter, yielding
717,293 square feet of positive net absorption from January through
March.
Tenants still hold the upper hand in lease negotiations, and continue
negotiating favorable concessions.
Lease rates continue to remain soft, and will continue to favor tenants
until economic stability returns to the region and long-term employment
sources are identified.
Vacancy
Over the next 90 days we expect vacancy to increase and net absorption
to be net negative as a result of Hewlett Packards vacating almost
800,000 square feet in Woodland, while lease rates should remain
unchanged.
2012 will look quite similar to 2011, with more sustainable recovery
activity waiting for 2013 and 2014.
TOTAL
MARKET
ADJUSTED
12.6%
15.8%
717,293 SF
848,557 SF
0 SF
0 SF
Construction
200,000 SF
0 SF
Average Direct
Asking Rate NNN/Mo
$0.39 / SF
$0.39 / SF
Net Absorption
Deliveries
Note: Statistics in the Total Market column include all flex & industrial
buildings in the Sacramento MSA. Statistics in the Adjusted column
does not include owner-occupied & government buildings.
12.8%
UP 0.2% FROM
1Q 2012
ASKING RATES
NET ABSORPTION
DELIVERIES
NO CHANGE
FROM 1Q 2012
VS. 717,293 SF
1Q 2012
SQUARE FEET
VS. 0 SF
1Q 2012
CONSTRUCTION
SQUARE FEET
VS 200,000 SF
1Q 2012
VACANCY
The overall industrial vacancy rate in Sacramento improved significantly during 1st Quarter
2012, declining 50 basis points to end the three month period at 12.6%. This decline is indicative
of the slow, but steady, recovery activity Sacramentos industrial market continues to experience.
10.5%
12.6%
12.6%
13.1%
13.5%
187 MillionSF
187,141,890
SF
User requirements in Sacramentos industrial sector will always be correlated to the health of
the local economy, measured predominantly by employment. Unfortunately, Sacramentos employment continues to struggle, as there remains a lack of definitive sources identified for future
employment growth. The graphic below illustrates the relationship that has existed between
industrial vacancy and local employment over the past three years.
89.5%
Warehouse
Vacancy Comparison
25.00%
Employment in Thousands
Forecast Period
20.00%
850
13.8%
840
13.6%
13.4%
830
13.2%
820
13.0%
810
12.8%
800
12.6%
15.00%
10.00%
5.00%
0.00%
Warehouse
Flex
12.4%
790
12.2%
780
12.0%
770
11.8%
# Employed
Vacancy
ABSORPTION ANALYSIS
The 717,000 square feet of positive net absorption experienced in Sacramentos industrial market during 1st Quarter
2012 is the second largest single-quarter total since early
2008. Though the quarterly total was significant, the recovery in this sector will still be at a slow pace. A review of the
last four quarters of net absorption performance shows two
quarters with net negative results and two with net positive
leasing activity. The market is still a bit erratic from quarter
to quarter, but overall showing recovery activity.
Net Absorption
Forecast Period
Square Feet
1,000,000
500,000
(500,000)
(1,000,000)
Much of the leasing activity accounting for the strong performance during 1st Quarter 2012 is the result of almost 60
(1,500,000)
2Q
3Q
4Q
1Q
2Q
3Q
4Q 1Q 2011 2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
move-ins during the quarter that involved at least 10,000
2009 2009 2009 2010 2010 2010 2010
2011 2011 2011 2012 2012F 2012F 2012F 2013F
square feet of space, with the largest of these accounting
Sources: CoStar & Colliers Research
for almost 65,000 square feet. This type leasing activity
will continue to be tempered by consolidations and closures, as well as by the excess space owners have been sitting on that they bring
back to the market, referred to as shadow space.
From a submarket perspective, some submarkets during 1st Quarter 2012 recorded strong net leasing activity, while others struggled to
generate positive leasing results. The following tables summarize which submarkets garnered the most and least tenant activity during
the quarter.
CLASS
ABSORPTION
SUBMARKET
CLASS
ABSORPTION
Warehouse
(69,305 ) SF
Flex
(16,420) SF
Warehouse
173,620 SF
Roseville / Rocklin
Sunrise / Highway 50
Warehouse
123,815 SF
Power Inn
Warehouse
111,346 SF
Folsom / El Dorado
Warehouse
(10,036) SF
Davis / Woodland
Warehouse
108,136 SF
West Sacramento
Warehouse
(5,699) SF
Northgate / Natomas
Warehouse
103,388 SF
East Sacramento
Warehouse
(4,400) SF
There are still leases being consummated in Sacramento for larger blocks of space including 10 leases completed during 1st Quarter
2012 at, or greater than, 20,000 square feet. In fact, in-house brokerage is currently working with several users seeking large blocks
of space, up to 350,000 square feet.
LEASE RATES
As of March 31, 2012, the average annual direct asking rent for all
industrial properties (all types and all classes of buildings) throughout the Sacramento metro was reported at $0.39 per-square-foot
(on a monthly, triple net basis).
Note that these are the direct asking rents of all industrial property
types and classes in the Sacramento reporting area, and that there
is often a wide spread between ask and actual rents.
Lease rates among the various product classes continue to slowly
decline, a byproduct of the prolonged weakened market also still
exists in the region. Distressed sale activity also continues to put
downward pressure on lease rates as new ownership takes advantage of its low cost basis.
$0.39
$0.39
$0.40
$0.41
1Q 2011
1Q 2012
% CHANGE
Warehouse
$0.37
$0.36
-3.6%
Flex
$0.73
$0.71
-2.6%
FULL SERVICE
Forecast
Period
FLEX
Forecast
Period
WAREHOUSE
Monthly$0.84
Lease Rate Comparison
$0.27
$0.18
Increases
INCREASES
$0.76
$0.10
Reduction
($2.00)
DECREASES
($0.61)
($0.47)
Elk Grove /
Laguna
South
Sacramento
($0.41)
($0.33)
$1.05
Annual Lease Rate
$0.45
$0.35
$0.25
McClellan/
North Highlands
Northeast
Q1 2011
West
Sacramento
Davis /
Woodland
Downtown /
Midtown
$0.95
$0.85
$0.75
$0.65
$0.55
$0
$0.45
$0.35
$0.25
East
Sacramento
Q1 2012
CONCESSIONS
The first three months of 2012 look familiar as it relates to tenant
allowances and free rent, as well as lease recasting. Tenants still
have the leverage, but with rates essentially bottoming and concessions maxed out, landlords are likely to find some relief in the next
12 months. However, the market is still saddled with high vacancy
buildings that will keep pressure on existing ownership to use these
tools to keep tenants upon renewal and attract new tenants.
Q1 2011
Richards
Marysville /
Yuba City
Q1 2012
CONSTRUCTION SUMMARY
The current development pipeline for Sacramentos industrial market still includes only one
recent project start, a build-to-suit manufacturing plant for Mori Seiki in Davis that totals
200,000 square feet and is expected to be completed in mid-2012. Other project news
includes the following activity at McClellan:
Repurposing efforts were recently completed on buildings 700 and 640, totaling
235,000 square feet, primarily including $4 million of exterior improvements. A
35,000 square-foot lease was recently signed in Building 700, and other prospects
continue to show interest in the space.
INVESTMENT CLIMATE
Sale activity for Sacramento industrial space remained active during 1st Quarter 2012 with
the majority of the sale activity during the quarter for buildings 20,000 square feet or smaller
(70%), with only 11% of the sales for buildings greater than 50,000 square feet.
With respect to the industrial investment market, cash is king, and buyers with cash will
continue to seek out acquisition opportunities priced right. It will be a buyers market for
product other than Class A for at least the next 18-24 months, but still challenging to get
buyers to make a decision. Financing will continue to be a challenge.
8.3%
8.1%
8.0%
7.5%
7.0%
6.7%
6.0%
5.0%
2007
Dec
2008
2009
2010
2011
2012
Mar
Cap rates on Sacramento industrial sales continue to stay above pre-recession levels, but
continued to show more stabilizing during 1st Quarter 2012 despite the bank REOs and
foreclosure sales. As investor interest trickles back to Sacramento as a result of escalating
market pricing in the Bay area, more market deals will get done which will have positive
implications on cap rates.
TO
Ce
T
O
H
MEDICAL CARE
In fact, several large medical expansion projects have been ongoing in the Sacramento region, including the following:
the recent completion of Kaiser Permanentes new 67,000
SF Promenade Medical Office Building in Elk Grove.
TO IN S
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CR
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IN SACR
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EN
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FEATURED DEALS
SALE COMPARABLES
MAP #
PROPERTY LOCATION
RENTABLE SF
SALE PRICE
PRICE/SF
SUBMARKET
BUYER
SELLER
11
71,175
$13,650,000
22
14,000
$2,000,000
33
850 F Street
19,770
$1,570,000
44
153,000
$4,500,000
$29.41 N. Highlands
Recycling
Industries
Clara Massie
9656 Jackson Rd
10,900
$650,000
$59.63 Mather
Aguilera Trust
Richbaw Trust
$191.78 Davis/Woodland
James Didion
John Buckel
$142.86 Mather
Transportation
Srvcs
David Nickum
850 F Street
LLC
LEASE COMPARABLES
MAP #
PROPERTY LOCATION
LEASED SF
CLASS
TENANT
SUBMARKET
TYPE
START RATE
Natomas/
Northgate
New
N/A
Power Inn
Renewal
N/A
11
72,005
22
63,630
33
1620 W. National Dr
61,360
N/A
Natomas/
Northgate
New
N/A
44
47,840
N/A
Davis/Woodland
New
N/A
55
43,560
New
N/A
COLLIERS COMPARABLES
MAP #
PROPERTY LOCATION
LEASED SF
CLASS
1309 Melody Rd
37,000
2561 Mercantile Dr
4
5
TENANT
SUBMARKET
TYPE
START RATE
Satellite Composites
Marysville/
Yuba City
New
$0.23
28,000
Paper Processors
Rancho Cordova
New
$0.40
22,000
NE Sacramento
New
$0.25
2445 Front St
11,300
West Sacramento
Renewal
$0.39
9,720
RETECH
Rancho Cordova
New
$0.38
1
OLIVEHURST, CA
4
3
4
3
2
5
3
1
4
5 2
25
SUBMARKET ANALYSIS
1Q 2012
Submarket
Auburn / Lincoln
Warehouse
Flex
Davis / Woodland
Warehouse
Flex
Downtown / Midtown
Warehouse
Flex
East Sacramento
Warehouse
Flex
Elk Grove / Laguna
Warehouse
Flex
Folsom / El Dorado
Warehouse
Flex
Marysville / Yuba City
Warehouse
Flex
McClellan / North Highlands
Warehouse
Flex
Northeast
Warehouse
Flex
Northgate / Natomas
Warehouse
Flex
Power Inn
Warehouse
Flex
Richards
Warehouse
Flex
Roseville / Rocklin
Warehouse
Flex
South Sacramento
Warehouse
Flex
Sunrise / Highway 50
Warehouse
Flex
West Sacramento
Warehouse
Flex
Overall
Warehouse
Flex
Overall Market
Rentable
Building Area
Direct
Vacancy Rate
Overall
Vacancy
Rate
Availability
Rate
2,902,280
612,940
203,715
239,433
7.0%
39.1%
16.6%
39.6%
12,225
(636)
12,225
(636)
0
0
$0.54
$0.69
17,321,229
2,073,335
12.0%
21.1%
108,136
108,136
200,000
$0.26
675,033
82,107
12.2%
11.4%
15,310
15,310
$0.81
3,248,865
163,126
5.0%
5.9%
33,576
33,576
$0.43
241,779
63,700
26.3%
28.2%
(3,200)
(3,200)
$1.70
943,985
137,355
14.6%
16.5%
(4,400)
(4,400)
$0.68
109,253
49,976
45.7%
45.7%
$1.06
6,211,742
395,919
761,251
56,763
12.3%
14.3%
16.2%
13.2%
2,759
3,106
2,759
3,106
0
0
$0.38
$0.74
4,278,766
1,940,360
188,089
295,704
4.4%
15.2%
7.1%
20.6%
(10,036)
9,868
(10,036)
9,868
0
0
$0.67
$0.73
6,294,013
201,886
761,518
16,942
12.1%
8.4%
16.8%
14.1%
9,680
900
9,680
900
0
0
$0.43
-
18,520,039
2,178,281
3,143,860
534,060
17.0%
24.5%
18.5%
27.6%
173,620
(16,420)
173,620
(16,420)
0
0
$0.41
$0.58
Net
YTD Net
Under
Absorption SF Absorption SF Constrcuction SF
Direct FS
Average Lease
Rate $/SF
6,272,508
531,479
8.5%
10.3%
(2,641)
(2,641)
$0.39
1,092,514
197,547
18.1%
24.9%
(4,171)
(4,171)
$0.72
12,639,078
2,229,530
1,763,127
591,230
13.9%
26.5%
18.5%
28.1%
103,388
3,694
103,388
3,694
0
0
$0.33
$0.69
28,518,809
1,323,355
3,196,094
182,666
11.2%
13.8%
16.3%
20.0%
111,346
(383)
111,346
(383)
0
0
$0.33
$0.50
4,969,908
251,681
559,348
42,922
11.3%
17.1%
12.2%
17.1%
1,515
11,472
1,515
11,472
0
0
$0.30
$0.55
19,419,549
3,201,434
3,005,628
508,194
15.5%
15.9%
18.6%
19.9%
(69,305)
66,275
(69,305)
66,275
0
0
$0.40
$0.93
4,549,509
172,617
3.8%
6.4%
1,392
1,392
$0.40
408,275
63,592
15.6%
15.6%
198
198
14,670,534
3,488,714
1,826,485
800,917
12.5%
23.0%
16.7%
28.3%
123,815
21,635
123,815
21,635
0
0
$0.39
$0.62
16,679,744
1,350,378
1,162,003
249,245
7.0%
18.5%
12.7%
19.0%
(5,699)
20,274
(5,699)
20,274
0
0
$0.41
$0.60
167,440,558
19,649,030
11.7%
16.1%
589,371
589,371
200,000
$0.36
19,701,332
3,974,998
20.2%
24.1%
127,922
127,922
$0.71
187,141,890
23,624,028
12.6%
16.9%
717,293
717,293
200,000
$0.39
Results are from CoStar and include all industrial space existing, under construction, or under renovation greater than 5,000 square feet located in all core areas of Sacramento, Placer, El Dorado and Yolo counties.
BROKERAGE SERVICES
Industrial Specialists
Bud Applegate
Steve Cippa
Jim Dennis
Trent Thomason
Steve Chamberlain
Heath Charamuga
Vice President
trent.thomason@colliers.com
+1 916 563 3011
Industrial Sales & Leasing
Investment Specialists
John Banchero
John Jackson
Ben Prater
Vice President
john.jackson@colliers.com
+1 916 563 3033
Investment Sales
Investment Advisor
ben.prater@colliers.com
+1 916 563 3060
Investment Sales
Colliers Management
Randy Dixon
Managing Director
randy.dixon@colliers.com
+1 916 563 3023
John Shaffer
Colliers International
301 University Avenue, Suite 100
Sacramento, CA 95825
www.colliers.com/sacramento