San Francisco Industrial Vacancy Grows 70BPS in Q4
The increase in vacancy is related to new construction activity, which is up 1.5% for the quarter.
Marcus & Millichap has released its fourth quarter forecast for the industrial market in San Francisco. This quarter it predicts that the vacancy rate will increase 70 basis points to 6.5%.
The increase in vacancy is likely related to an active construction pipeline. The report also anticipates that new construction deliveries will total 1 million square feet in the fourth quarter, an increase of 1.5%. As a result, rental rates are also up, climbing 5.4% to $26.98 per square foot. While the growth rate has fallen from 2017 and 2018, the rental rate has steadily grown over the last five years, even through 2020.
Dermody Properties newest project is among the new construction projects planned. The firm acquired a 49-acre land site in Fairfield, a city in the North Bay and plans to build a 700,000-square-foot, five-building industrial facility on the site. The project will break ground this year, and it will deliver in the third quarter of 2022.
Dermody has branded the property the LogistiCenter. The five-buildings will range in size from 82,620 square feet to 259,200 square feet with class-A features, like 32-foot to 36-foot clear heights, a minimum of 50-foot by 50-foot column spacing, ample car and trailer parking and ESFR sprinklers. The properties also have easy access to the San Francisco, Oakland and Sacramento International Airports as well as the Ports of Richmond, Oakland and Stockton.
San Francisco has had an active construction pipeline in all asset classes. In July, the San Francisco Peninsula recorded a marked improvement in the second quarter, according to a recent report from Colliers. Overall, gross absorption was 2.9 million square feet, a 184.5% improvement from the second quarter of 2020. The report includes office, industrial and R&D assets in its analysis.
The R&D sector drove much of the gains in the second quarter. The report attributes the positive gross absorption to the gain in gross absorption to 2 million square feet of office and R&D space new construction deliveries, of which 95.3% was immediately absorbed when it hit the market.
Despite the strong metrics, cap rates have remained flat at an average of 5%. Asset pricing has increased to $500 per square foot.