Industrial Market Trends - 3rd Qtr 2014

Compared to the previous quarter’s stellar success the third quarter managed to post more modest results. Several large moves carried the quarter and prevented it up from being flat. Vacancy dropped 70 basis points. The biggest move was done by Southern Wine & Spirits who occupied nearly 188,000 square feet of warehouse and distribution space in the North Valley. This was an expansion that more than doubled the amount of space they were leasing Downtown. Their former 80,000 square-foot space is expected to vacate at the beginning of the fourth quarter.

With a very low supply of desirable inventory left, the remaining availabilities for spaces over 20,000 square feet are depleting quickly. A common theme for the several larger deals was to improve space and location qualities. The trend of alternate users like charter schools, fitness gyms, and religious institutions seeking affordable options in older industrial properties remains very strong. Since the beginning of the year over 100,000 square feet of space has been absorbed by non-traditional tenants. 

Contributing to the vacancy decline is a lack of new inventory being built on a speculative basis. The last time any major new speculative projects were developed was in 2008. Since 2008 there have been no speculative projects over 50,000 square feet built. Instead, a lack of available options over 100,000 square feet combined with historically affordable land prices, and attractive financing terms have spurred the development of larger facilities by owners.