November 28, 2018 High Demand Expected to Continue in Bay Area Industrial, but Challenges on the Horizon
High Industrial Demand was recently covered by BisNow:
In Silicon Valley, the East Bay, Tri-Valley, and Central Valley, industrial markets are reporting historically low vacancy, high demand, strong growth and a healthy pipeline of new development. Cushman and Wakefield reported 4.8% vacancy in East Bay/ Pleasanton market and the Central Valley reported 3.5% last quarter. In the past, vacancy below 10% was a landlord’s dream. Short term, developers continue to push forward with projects in markets with many tenants seeking high-quality space. Even though vacancy is very low across Northern California’s industrial markets, the third quarter marked the sixth quarter of negative absorption in the East Bay, largely driven by tenants moving into Class-A space and leaving Class-C space vacant.
Recent studies have shown that rent growth is expected to become more modest than the 30% per year reported in the past. Although, the industry should expect 3% to 5% rent growth each year. The Central Valley is starting to benefit from warehouse distributors and manufacturers leaving the 880 corridor and moving toward the tri-valley area, where they don’t have to compete with Apple, Facebook, and Tesla for employees. In addition, the Central Valley has added significant build-to-suit properties in the last 2 years, adding 18M SF to the market. With all of this progress, labor costs are rising, especially since much of the labor force coming into the 880 corridor doesn’t live close by and often commutes from the Central Valley.
Year-over-year, industrial transactions are up 26% nationally, compared to retail transactions up 1% office transactions down 13% and apartment transactions up 8%. Industrial users, especially smaller users in 20K to 50K, are having trouble hiring and retaining qualified employees, especially since employees don’t have housing options close to these industrial employers. In addition, infrastructure around any industrial building also must endure heavy traffic, which typically includes trucks 24 hours a day, which makes it difficult to build near any residential area. Many cities perceive distribution, fulfillment and logistics jobs as not being high-wage, highly educated jobs that many would prefer to bring into their cities. The perception remains that warehouses are just large boxes with a few employees in them that don’t act as economic drivers that bring high-wage earning individuals into their communities.
Read the full story on BisNow