DCT® Featured in Biznow: 2% Vacancy And Dropping In East Bay Industrial

October 31, 2017

An Article in Biznow by Julie Littman

2% Vacancy And Dropping In East Bay Industrial

The Bay Area’s bustling economy has an incredible downside. With so much economic activity, industrial tenants are running out of space to set up shop. Developers DCT Industrial, Overton Moore Properties and Trammell Crow are building new facilities in the East Bay and most recently began projects in San Leandro. Redevelopments are turning once vacant parking lots and shuttered facilities into Class-A industrial space that is in extremely high demand.

2% Vacancy And Dropping In East Bay Industrial

“The challenge we’re having now is one of scarcity. Scarcity of opportunities as well as scarcity of space for users,” DCT Industrial Senior Vice President Dave Haugen said. “Users are frustrated right now. There is not a lot of availability for them.”

The vacancy rate in the East Bay is 2%, while it is even tighter along the peninsula and northern San Mateo county has vacancy rates at about 1.3%, according to Haugen. Rents have grown on average 15% to 16% along the 880 corridor over the last six years.

“Rental rates are at an all-time high,” Haugen said. “This is the highest anybody can remember in their careers.”

Overall asking rents for the Oakland industrial market, which spans from Richmond to Newark, have grown 64% since Q3 2013 and are now at $0.91/SF for triple-net leases, according to a report from CBRE.

Proximity for many of these companies is key, and they cannot move away from their customer bases to cheaper rent areas in the Central Valley, Haugen said. With more demand for faster and better delivery of e-commerce products, last-mile distribution also needs to be closer to customers, but not enough space could threaten the future of these companies.

“A lack of availability in warehouses and all other things will limit growth,” Haugen said.

New Construction In San Leandro Will Offer More Space

2% Vacancy And Dropping In East Bay Industrial

San Leandro is among the East Bay cities to experience an influx of new development and is actively working with developers to build up its industrial market. The city is particularly attractive for developers and tenants because of its proximity to the Port of Oakland, centrality among core Bay Area markets and easy access to Interstate 880, which connects to the rest of the Bay Area, Haugen said.

While Haugen said the recent spate of deals and new construction is coincidental, San Leandro has been providing developers with many opportunities for redevelopment, whether it be a fallow facility like the old Kraft site or underused parking lots.

DCT also is working on its own San Leandro ground-up development at 2001 Williams St. The Class-A 75K SF warehouse will sit on a 3.6-acre site, formerly a parking lot, and is expected to be available for lease during the first quarter. Haugen said he expects the space to be filled by an advanced manufacturing, food processing or e-commerce business.

DCT’s portfolio consists of 5.5M SF of assets in San Francisco, the Peninsula, 880 corridor and San Joaquin County. DCT is finishing an 800K SF project in Tracy, recently purchased a building in Hayward and is working on a new development in Manteca. The developer also has redeveloped a 300K SF building in Hayward that was leased to UPS.

2% Vacancy And Dropping In East Bay Industrial

Trammell Crow and Principal Real Estate Investors began construction on San Leandro Business Center in mid-October. The 552K SF Class-A industrial buildings will offer space for high-tech manufacturing, assembly and distribution. Trammell Crow is the master developer of the project, a 30.6-acre site expected to be completed fall of 2018.

Building 1 will be about 122K SF, Building 2 will be 137K SF, and Building 3 will be about 294K SF. The buildings will have clear heights of 32 feet to 36 feet, ESFR sprinkler systems, rear loading docks and car and trailer parking. CBRE Senior Vice Presidents Michael Barry and Bob Ferraro are leasing agents for the project, designed by HPA and built by general contractor Lusardi Construction.

2% Vacancy And Dropping In East Bay Industrial

Overton Moore Properties also began construction of its 300K SF spec industrial building at 2000 Marina Blvd. early fall. The project, designed by HPA and built by general contractor KPRS, will provide a good location for advanced manufacturing, food processing and last-mile distribution, according to OMP CEO Timur Tecimer.

“Bay Area demographics and density enable consumer products and e-commerce distribution platforms to reach more than 6 million people within 60 miles,” Tecimer said.

The project will have clear heights of 32 feet, an ESFR sprinkler system, a gated truck court and parking with capacity for 60 trailers. The building can accommodate solar panels on the entire roof and has connectivity to San Leandro Fiber Optic Loop. The over 13-acre site is close to the Oakland International Airport, Port of Oakland and Interstate 880.

CBRE Senior Vice President Kevin Hatcher as well as Barry and Ferraro will manage leasing efforts at the property. Hatcher originally arranged the sale of the property to OMP in December from Georgia-Pacific Corp.

Users Leasing Large Industrial Blocks

2% Vacancy And Dropping In East Bay Industrial

Given current leasing activity, it likely will not take long to lease up these new developments. During Q3, several large leases were inked throughout the East Bay. Office Depot renewed a 476K SF lease at a Prologis property at 6700 Auto Mall Parkway in Fremont, and Apple signed a 150K SF lease from BlackRock Realty for a sublease/expansion space, also in Fremont, according to a report from Cushman & Wakefield.

Other large leases include a 121K SF lease for DGA Services in Fremont and a 108K SF for Hawaiian Express in Hayward, according to CBRE. Comstock Realty Partners fully leased its Comstock Industrial Center in San Leandro to Wayfair and CEVA Freight in June.

A building at 1577-1599 Factor Ave. in San Leandro was fully leased during October. The 62K SF two-story industrial building’s new tenants, Atlantic Specialty Coffee and OnePoint Patient Care, will move into the building in November. Atlantic Specialty, which manufactures decaffeinated green coffee, will use the facility to test coffee from over 10 countries. Sun Chemical and Reliable Power renewed space in the location.

Transwestern Senior Managing Director Edward Del Beccaro and Associate Michael Lind represented the landlords Raymond Gallagher and Liz Gallagher. The landlords purchased the building in 2002 and recently finished upgrades, including a new fire alarm system, elevators, regraded parking lot, landscaping and a lobby. CBRE represented Atlantic Specialty while Colliers represented OnePoint.

Find out more about the East Bay industrial market at Bisnow’s NorCal Industrial Surge! event Dec. 7 in San Francisco.