Shortage of warehouse space drives construction in Sonoma, Napa, Solano counties

The better part of a decade in the works, a large warehouse project is now under construction at the entrance to the Eighth Street East industrial parks near the city of Sonoma.

But the 250,000-square-foot warehouse project, called Victory Station, is one of a few sizable industrial buildings set to come out of the ground in Sonoma County this year, at a time of scant vacancy and strong demand. It's a different story in the eastern half of the North Bay, where construction of more than 1 million square feet of warehouses are poised to begin this year.

“What attracts me to the North Bay is it's a tough, longer approval process, so the usual players such as Buzz Oates and Trammell Crow may get taken out of the market,” said Jose O'Neill, developer of Victory Station as well as completed warehouse projects in Napa and Petaluma in the past few years.

Buzz Oates Group of Companies has been building extensively in one part of the North Bay - Solano County, particularly Vacaville. But the Sacramento-based real estate development and construction has made a recent venture into Napa County. It has a 120,000-square-foot class A distribution warehouse under construction at 10 Jim Oswalt Way in American Canyon.

Another big industrial builder making inroads into Napa County is Innova Development of Los Angeles. Late last year, it finished an 82,000-square-foot new wine-bottle-decoration plant for Bergin Glass Impressions at 451 Technology Way in south Napa. Now, Innova is gearing up to break ground on a 73,000-square-foot warehouse around the corner on Gateway Road East.

McNeill has been working to get the Victory Station project built since he and financial backer Washington Capital Management purchased the property in April 2016. A grading permit was secured from the county of Sonoma in November; and a building permit, in the first half of March.

Led by general contractor Devcon, work on the pad for the building has been completed, and the underground utilities are installed. Soon the tiltup concrete walls will be poured and hoisted into place.

“Interest is coming from tenants in Sonoma (County) as well as Napa (County),” McNeill said. “The Napa market is really tight. … Finding land to put of a building this size is very difficult.”

Prices for large parcels of ready-to-build industrial-friendly land around the business parks of southern Napa Valley can be as much as $15 per square foot, he noted. “That starts pricing out rents for warehouses,” he said.

Another Sonoma County industrial project set to bring space to market this year is Billa Landing near Charles M. Schulz–Sonoma County Airport.

“Construction costs along with land values are increasing at such a rate that many users are surprised with how expensive it is to build new facilities and the time it takes to complete them,” said Shawn Johnson, managing partner of Keegan & Coppin Co. Inc./Oncor International. Dave Peterson and Danny Jones of the brokerage are marketing the Billa Landing project, which is set to have 380,000 square feet in five buildings.

The first two buildings, each with 48,100 square feet, are set to be completed by early September, according to Peterson. A lease is being drafted with an undisclosed Fortune 500 company for one of them, and terms are being discussed with multiple prospects for 20,000 square feet or all of the other, he said. Interested companies are looking for standard distribution warehouse space, a place to house or produce wine, or to room to operate cannabis-related businesses.

A third building with 70,000 square feet is in design review with the county of Sonoma, Targeted completion is late summer 2019.

“Typically 15,000 to 20,000 square feet is the highest-demand range, but there are a number of larger users throughout the county that require much larger spaces, and the availability of buildings over 40,000 square feet doesn't exist,” Peterson said in an email. “We have had just as much activity on the next two 70,000-square-foot buildings as we have on the 48,100sf buildings. Also, most of the existing buildings that are available in the market are obsolete compared to the needs of tenants, such as clear height and loading docks.”

Clear height is how high inventory or equipment can be stacked or positioned below the building supports. The project's clear height will range from 24 feet near the walls to 36 feet in the middle. Higher clearance allows companies to store more in the same footprint, Peterson said. The buildings also are designed with multiple loading docks and grade-level doors.

The industrial real estate vacancy rate in the Sonoma County Airport–area business parks was 2.0 percent in the first quarter, according to Keegan & Coppin. The rate was 4.6 percent for the whole county.

A rush of companies to secure industrial buildings inside Santa Rosa city limits for indoor cannabis cultivation has affected the industrial real estate market elsewhere in Sonoma County, pushing up sale pricing and rents in those areas by two to three times, Peterson said.

“That has pushed ‘traditional' users out of the those areas permitted for cannabis use due to the lack of affordability,” Peterson said. “Overall, it has impacted the entire marketplace by making industrial properties harder to find and, certainly, more expensive. Some of this increase in rents has helped developers begin to reach rents and returns that make new construction finally possible.”

Billa Enterprises in 2016 purchased 22 acres along Copperhill Parkway between Westwind and North Laughlin boulevards from Brondi Development, which has been rolling out buildings in Westwind Business Park for the past two decades. At the helm of Billa is Ajaib Bhadare, a board member of Santa Rosa's First Community Bank and a founder of Cerent Corp., a telecommunications equipment company that made a big splash for a quick-lived Petaluma-centered cluster called Telecom Valley.

Other industrial buildings coming out of the ground in Sonoma County are in Carneros Business Park, further north of Eighth Street East from Victory Station. Vintage Enterprises late last year purchased as many acres on four lots and is in escrow to buy another this year, with plans for 200,000-plus square feet of buildings.

In Napa County, The Pigman Companies and Kraemer Land Company plan to break ground in the second quarter of this year on the first phase of Napa Commerce Center at the southwest corner of Highway 29, Devlin Road and Airport Boulevard, near Napa County Airport. It's an 81,663-square-foot building.

Scannell Properties is set to return to the Napa market with a 90,000-square-foot speculative warehouse on Gateway Road East in Napa Valley Gateway Business Park. Several years ago, the company built a 644,000-square-foot distribution facility for Biagi Bros. and Jackson Family Wines in American Canyon.

In the third quarter of this year, Sacramento-based Panattoni Development, which has built hundreds of thousands of square feet of warehouses in south Napa Valley over the past two decades, is set to break ground on the first space at its five-building, 350,000-square-foot Napa Airport Corporate Center project at the intersection of Highway 29 and South Kelley and Devlin roads.

In Solano County, Innova plans to build a 64,000-square-foot warehouse on Maxwell Way in Fairfield, and Ridgeline has a 378,000-square-foot building in the works for the same city. Buzz Oates has proposed a 262,000-square-foot warehouse on Eubanks Drive in Vacaville.

Jeff Quackenbush (jquackenbush@busjrnl.com, 707-521-4256) covers the wine business, commercial construction and real estate.