Are commercial vacancies in Sonoma higher than normal?
Drive down any street in Sonoma and odds are you’ll see a “For Lease” sign. There are vacant storefronts up and down Highway 12 in the Springs, on East and West Napa streets, and on Broadway.
Advertisements for commercial properties dot the landscape on First Street, on Fifth Street, and on the south end of Riverside Drive, where a big sign advertises 5,000 square feet of available space.
Even Sonoma’s venerable Plaza area is for rent, with space available in the Mercato, El Paseo, the Feed Store, and a section of the building on the southeast corner of First Street East and East Napa, where California’s very first post office was originally housed.
All told, there are 29 Sonoma Valley commercial real estate properties listed for lease on loopnet.com, the leading mobile and online commercial real estate marketplace. Is 29 a lot? Do the vacancies mean something?
Isaac Raboy, senior vice president at Mason McDuffie Commercial Real Estate, who has worked in the Valley for 25 years, believes they might.
“There are an unusual number of vacancies at the moment, and the prices have gone up a fair amount,” Raboy said. “Not nearly as much as sales prices have, but the prices we’ve gotten for leased places lately have definitely been at the high end.”
Valuation of commercial real estate is calibrated on a sliding scale, with location, building condition, and use type all played as trump cards. Retail space is pricier than office space, for instance, and downtown locations fetch a higher premium than outliers.
For example, at 17400 Sonoma Highway in the Springs, an advertised re-let is listed at 90 cents per square foot. Downtown, in the El Paseo building on the east side of the Plaza, two retail spaces are listed at $5.90 per square foot. That’s a difference of 555 percent.
According to Raboy, a small handful of people own most of the real estate downtown, and that kind of virtual monopoly can make negotiations complex.
“Some landlords are pretty adamant about not negotiating price. That’s perfectly OK, and that’s their right, but finding a replacement tenant is expensive,” Raboy said. There are repair costs and aesthetic upgrades, even hardscape adjustments.
“A medical tenant might need sinks installed, for example,” Raboy said. “And there’s paint, and carpet, and maybe lighting that needs upgrading.”
Liz Payne, co-owner of Frenchie’s, a curated general store stocked with picnic provisions at 521 Broadway, counts herself lucky. While she declined to reveal the terms of their business’s tenancy, she and her partner had long set their sights on the building they’re in.
“We knew the owner of the business that was here before we were, and when they vacated, they let us know. Our landlord is really fair about price. He owns just this one building downtown.”
Downtown rents are from $2 to 6 per square foot, which — even calculated at the low end for Frenchie’s roomy storefront — translates into a whole lot of paté. “We’re not worried,“ Payne said. “We’re here for the long term.”
Sonoma Chamber of Commerce CEO Mark Bodenhamer said he doesn’t see any “major holes in our economy” that would leave so many spaces vacant. “In terms of the sales tax trend, those numbers have been relatively strong,” Bodenhamer said. “There’s a lot of economic interest in the commercial sector here.”
Raboy agrees, despite characterizing the current commercial scene as a “tenants market,” but laments the paucity of a particular type of commercial space.
“There are no small industrial spaces for rent. Zero,” Raboy said. “If somebody were to build a fair number of industrial spaces that were between 2,000 to 7,000 square feet… oh my gosh! They would probably be filled before they were built..”
Like any other transaction, leasing space for a business is a kind of dance, and Raboy encourages Sonoma businesses to bring their own music. “Prospective tenants should absolutely try to negotiate price. I expect in the near term that prices will be coming down a bit, maybe five or 10 percent, because there is a little bit more than normal space available.”