Sac Industrial Completions Go to Single Users

SACRAMENTO—The local economy remains strong with signs of continued expansion across all major industries. The metropolitan area added nearly 19,000 positions during the past year, a trend that is expected to continue in the coming quarters, according to a mid-year report from Cushman & Wakefield.

Significant job growth is expected in the construction industry with experienced trade labor needed due to major developments in the multifamily, single-family and industrial markets. This has been driven by the fact that Sacramento has become a prime spot for relocations from the Bay Area, drawn by the lower cost of living with a comparable quality of life.

Occupier demand continues to drive strong net absorption numbers which reached 854,000 square feet during the quarter, with the mid-year figure hitting a record 2.7 million square feet. Much of the quarterly activity was attributed to construction completions, resulting in a 10 basis-point decrease in the vacancy rate to 4.4%, a new market low, says the report.

Market inventory nearly reached 142 million square feet, but supply of space is rapidly dwindling and functional space is extremely scarce. Quarterly net absorption was driven by the completion of two construction projects: Veritiv’s new 387,000-square-foot facility at 3510 Carlin Dr. in West Sacramento and McKesson’s 316,000-square-foot building at 7701 Foothills Blvd. in Roseville.

At the conclusion of the second quarter, there were two speculative projects under construction totaling 408,000 square feet of available space. Both are in West Sacramento and being developed by North Point, a new developer in the region. As lease rates rise beyond the $0.50 per-square-foot mark, developers will be increasingly incentivized to begin phasing-in speculative construction projects as the higher rents will offset record construction and permitting costs, according to Cushman & Wakefield. A strong local economy combined with new space that meets current tenant needs will help to make Sacramento a more viable option when competing for new large-block and e-commerce users.

Tenant demand is beginning to shift, as evident by recent construction completions. Two of the second quarter’s three completions were 300,000 square feet or more for single users, far from the 10,000 to 50,000-square-foot-sized industrial on which Sacramento has historically relied.

That trend is likely to continue as McClellan Park breaks ground on McClellan Distribution Center, a 417,000-square-foot class-A distribution warehouse building. This new product will fill a void in the market for recently built high clear-height buildings that can service e-commerce tenants.

Set for completion by mid-2019, the project is located at 2400 McClellan Park Dr., minutes from downtown Sacramento and visible from Interstate 80. The warehouse space is divisible and can accommodate up to 22,000 square feet of customizable office space. Key building features include cross-dock loading with 135-foot truck courts, 95 dock doors and four grade-level doors, 36-foot clear height, 50 by 54 foot column spacing, rail spur potential via Union Pacific and BNSF, and ESFR sprinklers.

“The building is designed as a logistics warehouse with e-commerce among the targeted tenant types. The building design has flexibility for multi-tenant operations and traditional warehouse storage tenants as well,” Ken Giannotti, senior vice president of marketing and leasing at McClellan Park, tells GlobeSt.com. “McClellan Park is centrally located within the Sacramento region. This building site is immediately adjacent to the I-80/Winters Street four-way interchange and is within one mile of the Business 80 loop, allowing ready highway access to the entire region. McClellan’s location is also attractive to industrial tenants because tenants can secure workforce from the entire region.”

The building is being constructed on 22.9 acres, with additional land available immediately adjacent to the parcel. The Winters Street/Interstate 80 interchange provides immediate east-west access and access to Interstate 5, approximately 7 miles west.

“McClellan Distribution Center is a key development in the next phase of our master-planned campus,” said Giannotti. “McClellan Park has increasingly proven itself as a hub for industrial growth and job creation in the greater Sacramento region, and this warehouse will further cement our proven commitment to economic growth.”

This is the initial building to be constructed speculatively on McClellan Park’s westside industrial district.  McClellan Park has more than 500 acres of developable land in this area and is entitled to construct more than 5 million square feet of industrial space.

The groundbreaking of the distribution center coincides with the next phase of development of the reuse project. Since the official closure of McClellan Air Force Base in 2001, the privatized McClellan Park has grown to include a diverse mix of companies that span its 8.5 million square feet of leasable space and 500 acres of developable land. A total of $580 million dollars has been invested across the project in infrastructure and building improvements, and the project encompasses a mix of residential, office and warehouse space, in addition to event venues, restaurants and Sacramento McClellan Airport, the nation’s largest privately owned public-use airport. McClellan Park unveiled a campus-wide rebranding earlier this year.

“We recognize McClellan’s rich history as an Air Force Base and look forward to redeveloping it as a valued center for innovation and industry in Sacramento County, through these new developments,” adds Giannotti.

The average asking rate grew another $0.04 during the quarter to $0.52 per square foot per month, a 8.3% increase, says Cushman & Wakefield. Rent growth has been accelerating in recent quarters. For comparison, the asking rent climbed 6.7% in the first quarter of this year, while increasing by 2.2% in the fourth quarter of 2017.