Will the Pressure Valve be Released on East Bay Industrial?

PLEASANTON, CA—Market conditions in the East Bay continue to favor landlords, specifically, demand is strong in spite of increasing rents and lack of availability. Numerous tenants are currently seeking more than 5 million square feet of industrial space, but efforts to find space are stymied by the area’s 4.2% vacancy rate, which means that little room exists for movement within the market. More than 3.2 million square feet of development are underway and of that, 2.2 million square feet will be delivered this year, according to a second quarter report by JLL. As the 13 speculative projects in the pipeline are completed, the market should experience some relief.

That being said, one of the scarce available properties is available no more, with Dermody Properties acquiring a 390,800-square-foot distribution space at Hacienda Business Park. The warehouse/distribution space is situated on a 22.38-acre parcel and includes excess land for future building expansion, resulting in an additional 85,520 square feet. It features 28 to 30-foot interior clear height, 45 dock-high doors with the potential to add more and four grade-level doors, making it an ideal property for logistics-focused companies. The purchase exemplifies Dermody Properties’ strategy to acquire or develop properties in land-constrained submarkets of key logistics markets.

“We focus on areas that offer convenient access and true strategic advantage to industrial and logistics companies,” Condon said. “The property at Hacienda Business Park is located just 20 minutes from the Central Valley, 30 minutes from the Port of Oakland and within 30 minutes of two international airports.”

Hacienda Business Park is directly served by three freeway intersections off of Interstate 580 and one near Interstate 680, giving it freeway access in the Bay Area. The location also offers many commute benefits because of its reverse-commute location and close proximity to BART, with trains arriving every 15 minutes during peak travel hours.

“Hacienda Business Park offers highly functional logistics space in a submarket with high barriers to entry for new development,” said Douglas A. Kiersey Jr., president, Dermody Properties. “This highly desirable property is an ideal complement to the Dermody Properties strategic portfolio and we are pleased to grow our presence in the dynamic and growing Bay Area market.”

Neighboring corporate tenants include national leaders such as AT&T, Boeing, Clorox, Roche and Kaiser Permanente, and industrial leaders such as US Foods, Iron Mountain and AGA. This breadth and diversity of companies adds to the strength and stability of Pleasanton’s economy by building a local supply chain and robust business-to-business activity.

Greig Lagomarsino, Michael Lloyd, John S. Steinbuch and Nick Ousman of Colliers International, and Adam Pastor from Eastdil Secured brought the opportunity to Dermody Properties.

The property will be managed by the company’s West region office led by George Condon, West region partner. Dermody Properties will manage the facility with support from a local JLL property management team. The team plans a few upgrades at the outset of the ownership process.

“Dermody Properties is installing a new roof and upgrading the sprinkler system to an ESFR system,” Condon tells GlobeSt.com.

The second quarter recorded what could be an emerging trend in the East Bay: the preleasing of new construction at near-record-high rents, says the JLL report. A large corporate occupier leased a 121,696-square-foot building prior to completion at a new market-high rental rate. Strike prices for renewals and new leases grew by 6.1% during the last quarter, and deals are transacting on average 4% higher than the asking rate.

The 2.2 million square feet of new product scheduled to deliver to the market this year will help satisfy tenant demand, but higher rents will drive some to nearby markets such as Livermore and Central Valley, where labor and operating costs are lower. The need for last-mile delivery space will only increase, so vacancy in the East Bay is expected to stay low, even as new product is delivered to the market, according to the report.

Dermody is a national private equity real estate investment, development and management company focused exclusively on the logistics real estate sector. Previous reports by Dermody indicate that the company is actively seeking acquisitions throughout the Bay Area.