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| Feb. 23, 2004 |
Commercial Real Estate: Retail Leads Way in 2004
by Jeff Quackenbush - North Bay Business Journal |
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The good news for the Sonoma County commercial real estate market in 2004 is two fold: early indications of improving fortunes for local companies and continued demand for retail.
Local business leaders were cautious about what 2003 would bring, but most sense a turnaround coming in 2004. In fact, local business owners' optimism is on tap to surpass that of three years ago, when the effects of the recession were rolling through the county's economy.
According to the Sonoma County Economic Development Board's latest survey of
executives at 300 local companies, well over half the respondents think their companies will have better sales and more potential for expansion in 2004. Another positive indicator is decline in the number of businesses filing for bankruptcy in 2003 from 2002.
Greater confidence and fewer bankruptcies have translated into demand for commercial space. But that demand has been mainly for smaller spaces or properties for sale, real estate experts say. Two-thirds of the 571,000sf of available office space in the Santa Rosa area is suitable for tenants needing 10,000sf or more, according to Barry Palma of Orion Partners. Orion estimated overall year-end vacancy to be nearly 12.0% in Santa Rosa and
12.4% countywide.
"If you look at buildings that can accommodate tenants of less than 10,000sf [in Santa Rosa], vacancy is 4%-4.5%," he says. "What's confusing for a lot of tenants is that landlords are still getting rent for large blocks of space."
Some larger deals -- often a year or more in the making -- have happened, too. Examples include Moss Adams' 12,000sf build-to-suit, Sonoma National Bank's 17,000sf backfill lease in Santa Rosa's Fountaingrove area, and E-Myth's 17,000sf first significant sublease of the Nokia space in southwest Santa Rosa.
If early-year activity continues and the market receives no significant shocks, Mr. Palma predicts overall countywide office vacancy could fall to 10%, which is the rule-of-thumb measure of a balanced market, or even lower. Rents for small spaces, which have fallen along with large-space rents, will shore up and potentially increase this year, he adds.
Retail
This will be an exciting, yet cautiously optimistic, year for retail real estate, according to Mark Koenig of BT Commercial/Terranomics. He points to Robertson Property Group being under construction in Petaluma on its 166,700sf Redwood Gateway center, which is slated for a fourth-quarter opening for anchor Kohl's department store. The center also has prospects from Michaels Stores and Pier One.
Also last month, Basin Street Properties broke ground on the 1,400-seat movie theater and 530-space parking garage component of its $100 million-plus Petaluma Town Center project. In addition, Florida-based shopping center development giant Regency Centers is eyeing redevelopment of the Kenilworth Junior High School site in Petaluma.
Retail activity outside Petaluma is promising, too, according to Mr. Koenig. The city- and voter-approved Lowe's home improvement store planned for Monahan Pacific's Cotati Commons may get under construction this year. Also, Kohl's is angling for a store in Santa Rosa to round out its nine-store push throughout the Bay Area, according to Mr. Koenig, who with partner John Schaefer represents Kohl's locally.
Some large spaces that have been vacant for a while could see action this year. Case in point is the 100,000sf former House2Home space at southwest Santa Rosa's Stony Point Plaza, which could have a new, as-yet-undisclosed tenant as early as April, predicts Mr. Koenig, who is involved in the deal.
Retail vacancy rates have remained in the mid to low single digits throughout the recession and dot-bomb, and they are expected to remain that way, predicts Mr. Koenig, considering much of the new space to be built is already spoken for.
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