Big Napa-Solano industrial projects get pre-leasing, while office market hit hard by virus

Industrial rents in Solano and Napa continue to be about 20%–30% less than those in the East Bay.

With the rising costs of construction, limited supply and consistent demand, asking rates are steadily increasing at a healthy pace for Napa and Solano. Monthly rates for air-conditioned wine space in Napa and American Canyon (under 50,000 square feet) currently range from 85–90 cents per square-foot per month on a triple-net basis. These rates are up over 5% from the prior year. Light industrial rates for smaller spaces (5,000–30,000 square feet) are 85 cents to $1.10 per square foot.

In Solano, class A warehouse monthly triple-net rents are 55–65 cents per square-foot for larger spaces (over 100,000 square feet). Rents for smaller light-industrial space in Solano (5,000–25,000 square feet) range from the low 70 cent range to the low 80 cent range, depending upon the amount of necessary office build-out.

Over 1.9 million square feet of new industrial projects

The market has over 2 million square feet of active user requirements targeting occupancy over the next six to 12 months in both Napa and Solano counties. Most requirements are for 75,000–150,000 square feet, along with a handful of companies seeking space alternatives of 250,000–600,000 square feet.

The market barometer that best illustrates the substantial leasing activity in Napa and Solano for 2020 is the staggering 2,156,972 square feet of net positive absorption figure that took place last year. In comparison, positive net absorption for 2019 was just 201,393 square feet.

Industrial vacancy in the Napa county has remained consistently low, currently at 2.8%. The vacancy rate was at just over 2.4% at the end of 2019. Industrial vacancy for Solano decreased even with the substantial amount of new warehouse construction that was delivered to Napa and Solano. The year-end 2020 vacancy rate was 4.7%, down from 6.4% at year-end 2019.

With the ongoing tenant and owner-user demand, we expect the supply of industrial product for both markets to stay limited throughout 2021.

More than 1.9 million square feet of new Solano-Napa developments are underway to accommodate consistent tenant demand, and over 55% of the space is pre-leased.

There are several new construction projects that were delivered in 2020 and more coming for 2021 in Napa and American Canyon.

The Pigman Company, Kraemer Land and Cardinal Development delivered phase 2 at Napa Commerce Center, a 152,000-square-foot class A warehouse facility at 504 Devlin Road in Napa, and will soon break ground on Building H, a 79,943-square-foot warehouse building. Phase 1 included the 81,663-square-foot warehouse at 500 Devlin Road, completed in 2019.

Orchard Partners, Divco and RREEF are delivered the 702,000-square-foot, 40-foot-clear-height, rail-served distribution warehouse at 400 Boone Drive in American Canyon and are now under construction on a 201,950-square-foot build-to-suit warehouse at 300 Boone Drive for an e-commerce company.

ICC-Stravinsky delivered a 330,000-square-foot class A distribution warehouse on Commerce Boulevard in American Canyon. This building has been pre-leased to Valley Wine Warehouse.

There are also several projects in Solano underway or recently completed.

Ridgeline Property Group and USAA Real Estate delivered a 378,000-square-foot class A distribution building at 2200 Courage Drive in the Solano Business Park in Fairfield. Brian Tulloch delivered a 104,000-square-foot class A warehouse at 2370 N. Watney Way in Fairfield. Buzz Oates completed construction on a 263,400-square-foot warehouse located at 891 Eubanks Drive in Vacaville, and the company recently broke ground on a two-warehouse project with 511,000 square feet at 1051 Aviator Drive and 2041 E. Monte Vista Avenue in Vacaville. Link Industrial completed 2121 Icon Way in Vacaville, which is a 252,160-square-foot warehouse. Phelan Development is under construction on a three-building, 496,541-square-foot class A warehouse named Fairfield Commerce Center on Huntington Drive in Fairfield.

These developments come at a crucial time, as industrial inventory in Solano County remains extremely scarce, while demand from tenants remains robust.

Here are other significant industrial leases in 2020 for Napa or Solano: Saverglass leased 430,552 square feet at 2950 Cordelia Road in Fairfield. Ball Metal Beverage executed a build-to-suit lease of 251,616 square feet at Huntington Drive in Fairfield. Solano Food Bank leased 104,000 square feet at 2370 N. Watney Way in Fairfield. Valley Wine Warehouse leased 330,000 at Commerce Boulevard in American Canyon. Fior di Sole leased 153,311 square feet at 504 Devlin Road and 113,851 at 901 Kaiser Road in Napa.

In Vacaville, 617,000 square feet was leased for e-commerce use at 4800 Midway Road.

Phase 11 at Northbay Logistics Center, with 141,600 square feet at 2041 E. Monte Vista Avenue in Vacaville, was leased to Acorn Paper Products and is under construction. State of California leased 447,000 square feet at 2299 Commerce Way in Dixon.

Investment demand has remained robust for leased investment and owner-user sales, and it has been a challenge for buyers to locate quality industrial product to purchase.

Here are notable sales in 2020 and 2021: Lowenberg Corporation purchased 120,000 square feet at 4280 Iowa Street in Benicia. DRA Advisors and Ranger Northbay LCC purchased 700 Crocker Drive in Vacaville, a 100% leased, 843,248-square-foot class B warehouse.

Westcore Properties acquired a multiple building portfolio from USAA, which included the 378,000-square-foot warehouse at 2200 Courage Drive in Fairfield. Link Logistics acquired a 100% leased 330,750-square-foot distribution warehouse building at 5191 Fermi Drive in Fairfield. BentallGreenOak purchased a 100% leased 607,208 square foot distribution warehouse at 5195 Fermi Drive in Fairfield.

Chris Neeb, Glen Dowling and Matt Bracco are part of The Dowling-Bracco Team of JLL.