Q3 INDUSTRIAL MARKET REPORT
The industrial market in Sacramento continued to impress during the third quarter, with positive trends across the board and lots of momentum entering the final months of 2018. Vacancy rates have hit a record low as stiff competition for space led to yet another period with positive net absorption. This has kept asking rents rising to unprecedented levels, inspiring investor confidence and further tightening the market.
MARKET OVERVIEW
Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700 www.GallelliRE.com
Industrial Vacancy vs. Net Absorption
MARKET TRENDS
Industrial Investment Sales Volume by Quarter
• Industrial vacancy has fallen every quarter for the last three years, dropping to its lowest level on record as it hit 6.0% in Q3. This represents more than a 32% drop year-over-year from Q3-2017, when it sat at 8.6%.
• Sacramento’s consistently dipping vacancy rates are the result of 11 consecutive quarters of positive net absorption, with Q3 recording ±379,999 square feet. This puts the MSA at over ±3,880,000 square feet in the last 12 months and on pace to potentially surpass 2017’s record-breaking total.
• A few key submarkets have been responsible for the majority of recent positive net absorption. Roseville/Rocklin topped all submarkets with ±231,858 square feet, edging out West Sacramento which led the region for the first two quarters of 2018.
• Goodwill Industries of Sacramento signed the largest lease of Q3 with ±170,302 square feet at 3689 Industrial Boulevard in West Sacramento, followed by PRIDE Industries leasing ±133,656 square feet in Roseville.
• Rents continue rising for Sacramento’s industrial market, with the average NNN monthly asking rate hitting a record $0.53 per square foot in Q3 (up 23% year-over-year from $0.43 PSF in Q3-17). The Power Inn submarket led all others at $0.71 per square foot, with South Sacramento close behind averaging $0.67 per square foot. - It is worth noting that these submarkets comprise much of the “green zone”, where marijuana cultivation and manufacturing have revitalized the industrial market.
INVESTMENT HIGHLIGHTS • Sacramento’s industrial market saw an encouraging amount of investment activity in the third quarter, with 19 sales totaling ±1,970,000 square feet and trading for over $140 million. This brings the 2018 total up to $382,008,921 for ±5,381,156 square feet which equates to an average price per sqaure foot of $71.38.
• The average sale price fell to $71.38 per square foot in the third quarter, down from $82.68 per square foot in Q2. This is largely due to the fact that only two sales eclipsed $100 per square foot, compared to six the previous quarter.
• Two large transactions were responsible for nearly half of the quarter’s total sales: Nearon Enterprises bought the American Building Supply Portfolio in Power Inn for $34,000,000 at $65.00 per square foot and Bixby Land Company acquired 3510 Carlin Drive in West Sacramento’s Southport Business Park for $33,400,000 at $86.00 per square foot.
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
M ill io n s
Net Absorption Vacancy
M ill io n s
Total Dollar Volume # of Transactions
SPOTLIGHT ON: MOVEMENT AT McCLELLAN McClellan’s industrial market has been on a hot streak the past few years, and is one of few submarkets where developers have the confidence to build speculative construction. Much of the activity has centered around McClellan Business Park, a master- planned development on the former McClellan Air Force Base which is home to more than 16 million square feet of mixed-use facilities and an airport.
Crews recently broke ground on what will be the first speculative development in the park’s history, with past construction consisting primarily of build-to-suits. Site work for the ±417,214 square foot building has been underway since September, with the 22.9 acre project set for completion by mid-2019. The space will be ideally suited for a single distribution/logistics tenant, but could also be split up.
There are plans in the works for US Foods to build a ±340,000 square foot distribution center on the property as well, utilizing the 35 acre parcel which the company bought in 2011. The park’s industrial buildings are currently 95% occupied, with an additional 500 acres available for future development which could accommodate roughly 5 million square feet of additional space.
OUTLOOK Sacramento’s industrial market has been rock-solid in recent years and rent growth has finally made new construction a viable option, inspiring some of the first speculative development since the downturn. West Sacramento’s prime location at the confluence of three major freeways, along with its affordable fee and permit structure, is key to the area’s appeal, already delivering nearly 500,000 square feet of new industrial space in 2018. NorthPoint recently broke ground on over 400,000 square feet of additional speculative space in the booming Southport area, with Ridge Capital to begin construction on ±350,000 square feet of speculative projects in Southport next quarter.
These projects, combined with activity at McClellan Business Park, will bring ±1.25 million square feet of urgently needed inventory to the market and are likely to have tenants-in-tow by the time they deliver.
Vacancy Net Absorption Avg. Asking Rate
6.0% $0.53±379,999 SF
Auburn 1,337,853 4,730 0 4,730 0.4% 0 (3,200) 0 $0.49
Davis/Woodland 8,491,749 822,075 120,878 942,953 11.1% 40,522 198,523 0 $0.32
Downtown 668,537 0 0 0 0.0% 4,000 0 0 -
East Sacramento 205,636 0 0 0 0.0% 0 0 0 -
Elk Grove/Laguna 2,462,688 185,172 0 185,172 7.5% 19,186 (11,921) 0 $0.54
Folsom/El Dorado Hills 1,595,987 125,640 0 125,640 7.9% (7,700) 20,120 0 $0.64
Mather 2,719,136 118,730 0 118,730 4.4% 7,415 72,319 51,156 $0.52
McClellan 9,789,615 227,271 0 227,271 2.3% 99,123 413,031 417,637 $0.55
Northgate/Natomas 9,534,356 324,451 51,827 376,278 3.9% (62,656) 37,836 0 $0.53
Northeast Sacramento 2,890,681 155,892 0 155,892 5.4% (36,383) 16,326 0 $0.55
Power Inn 16,547,467 833,054 0 833,054 5.0% (150,385) 55,418 0 $0.71
Richards 2,746,050 13,654 0 13,654 0.5% 0 0 0 $0.38
Roseville/Rocklin 8,922,605 500,189 0 500,189 5.6% 231,858 477,095 0 $0.38
South Sacramento 2,470,069 879,097 0 879,097 35.6% 0 0 0 $0.67
Sunrise 5,897,981 75,426 15,000 90,426 1.5% 37,256 (55,311) 0 $0.56
West Sacramento 14,384,084 914,447 42,245 956,692 6.7% 197,763 (88,414) 473,016 $0.53
Totals 90,664,494 5,179,828 229,950 5,409,778 6.0% 379,999 941,809 $0.53
Gallelli Real Estate is a private firm that specializes in commercial estate services and property management. We believe that as a boutique firm whose understanding of the business runs as deep as our core values, our advantage is large. We take pride in our unique approach to offer more individual solutions that address the ever changing needs of our clients and the industry. After all, our success is measured by the success of our clients and the strength and longevity of our relationships. For the latest news from Gallelli Real Estate, visit GallelliRE.com, or follow us on Twitter: @Gallelli_RE and LinkedIn.
About Gallelli Real Estate
Colin Grimm Research Analyst 916 784 2700 cgrimm@GallelliRE.com
Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P 916 784 2700
Market Statistics