Q3 INDUSTRIAL MARKET REPORT
The industrial market in Sacramento continued to impress during the
third quarter, with positive trends across the board and lots of
momentum entering the final months of 2018. Vacancy rates have hit
a record low as stiff competition for space led to yet another
period with positive net absorption. This has kept asking rents
rising to unprecedented levels, inspiring investor confidence and
further tightening the market.
MARKET OVERVIEW
Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P
916 784 2700 www.GallelliRE.com
Industrial Vacancy vs. Net Absorption
MARKET TRENDS
Industrial Investment Sales Volume by Quarter
• Industrial vacancy has fallen every quarter for the last three
years, dropping to its lowest level on record as it hit 6.0% in Q3.
This represents more than a 32% drop year-over-year from Q3-2017,
when it sat at 8.6%.
• Sacramento’s consistently dipping vacancy rates are the result of
11 consecutive quarters of positive net absorption, with Q3
recording ±379,999 square feet. This puts the MSA at over
±3,880,000 square feet in the last 12 months and on pace to
potentially surpass 2017’s record-breaking total.
• A few key submarkets have been responsible for the majority of
recent positive net absorption. Roseville/Rocklin topped all
submarkets with ±231,858 square feet, edging out West Sacramento
which led the region for the first two quarters of 2018.
• Goodwill Industries of Sacramento signed the largest lease of Q3
with ±170,302 square feet at 3689 Industrial Boulevard in West
Sacramento, followed by PRIDE Industries leasing ±133,656 square
feet in Roseville.
• Rents continue rising for Sacramento’s industrial market, with
the average NNN monthly asking rate hitting a record $0.53 per
square foot in Q3 (up 23% year-over-year from $0.43 PSF in Q3-17).
The Power Inn submarket led all others at $0.71 per square foot,
with South Sacramento close behind averaging $0.67 per square foot.
- It is worth noting that these submarkets comprise much of the
“green zone”, where marijuana cultivation and manufacturing have
revitalized the industrial market.
INVESTMENT HIGHLIGHTS • Sacramento’s industrial market saw an
encouraging amount of investment activity in the third quarter,
with 19 sales totaling ±1,970,000 square feet and trading for over
$140 million. This brings the 2018 total up to $382,008,921 for
±5,381,156 square feet which equates to an average price per sqaure
foot of $71.38.
• The average sale price fell to $71.38 per square foot in the
third quarter, down from $82.68 per square foot in Q2. This is
largely due to the fact that only two sales eclipsed $100 per
square foot, compared to six the previous quarter.
• Two large transactions were responsible for nearly half of the
quarter’s total sales: Nearon Enterprises bought the American
Building Supply Portfolio in Power Inn for $34,000,000 at $65.00
per square foot and Bixby Land Company acquired 3510 Carlin Drive
in West Sacramento’s Southport Business Park for $33,400,000 at
$86.00 per square foot.
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
M ill io n s
Net Absorption Vacancy
M ill io n s
Total Dollar Volume # of Transactions
SPOTLIGHT ON: MOVEMENT AT McCLELLAN McClellan’s industrial market
has been on a hot streak the past few years, and is one of few
submarkets where developers have the confidence to build
speculative construction. Much of the activity has centered around
McClellan Business Park, a master- planned development on the
former McClellan Air Force Base which is home to more than 16
million square feet of mixed-use facilities and an airport.
Crews recently broke ground on what will be the first speculative
development in the park’s history, with past construction
consisting primarily of build-to-suits. Site work for the ±417,214
square foot building has been underway since September, with the
22.9 acre project set for completion by mid-2019. The space will be
ideally suited for a single distribution/logistics tenant, but
could also be split up.
There are plans in the works for US Foods to build a ±340,000
square foot distribution center on the property as well, utilizing
the 35 acre parcel which the company bought in 2011. The park’s
industrial buildings are currently 95% occupied, with an additional
500 acres available for future development which could accommodate
roughly 5 million square feet of additional space.
OUTLOOK Sacramento’s industrial market has been rock-solid in
recent years and rent growth has finally made new construction a
viable option, inspiring some of the first speculative development
since the downturn. West Sacramento’s prime location at the
confluence of three major freeways, along with its affordable fee
and permit structure, is key to the area’s appeal, already
delivering nearly 500,000 square feet of new industrial space in
2018. NorthPoint recently broke ground on over 400,000 square feet
of additional speculative space in the booming Southport area, with
Ridge Capital to begin construction on ±350,000 square feet of
speculative projects in Southport next quarter.
These projects, combined with activity at McClellan Business Park,
will bring ±1.25 million square feet of urgently needed inventory
to the market and are likely to have tenants-in-tow by the time
they deliver.
Vacancy Net Absorption Avg. Asking Rate
6.0% $0.53±379,999 SF
Auburn 1,337,853 4,730 0 4,730 0.4% 0 (3,200) 0 $0.49
Davis/Woodland 8,491,749 822,075 120,878 942,953 11.1% 40,522
198,523 0 $0.32
Downtown 668,537 0 0 0 0.0% 4,000 0 0 -
East Sacramento 205,636 0 0 0 0.0% 0 0 0 -
Elk Grove/Laguna 2,462,688 185,172 0 185,172 7.5% 19,186 (11,921) 0
$0.54
Folsom/El Dorado Hills 1,595,987 125,640 0 125,640 7.9% (7,700)
20,120 0 $0.64
Mather 2,719,136 118,730 0 118,730 4.4% 7,415 72,319 51,156
$0.52
McClellan 9,789,615 227,271 0 227,271 2.3% 99,123 413,031 417,637
$0.55
Northgate/Natomas 9,534,356 324,451 51,827 376,278 3.9% (62,656)
37,836 0 $0.53
Northeast Sacramento 2,890,681 155,892 0 155,892 5.4% (36,383)
16,326 0 $0.55
Power Inn 16,547,467 833,054 0 833,054 5.0% (150,385) 55,418 0
$0.71
Richards 2,746,050 13,654 0 13,654 0.5% 0 0 0 $0.38
Roseville/Rocklin 8,922,605 500,189 0 500,189 5.6% 231,858 477,095
0 $0.38
South Sacramento 2,470,069 879,097 0 879,097 35.6% 0 0 0
$0.67
Sunrise 5,897,981 75,426 15,000 90,426 1.5% 37,256 (55,311) 0
$0.56
West Sacramento 14,384,084 914,447 42,245 956,692 6.7% 197,763
(88,414) 473,016 $0.53
Totals 90,664,494 5,179,828 229,950 5,409,778 6.0% 379,999 941,809
$0.53
Gallelli Real Estate is a private firm that specializes in
commercial estate services and property management. We believe that
as a boutique firm whose understanding of the business runs as deep
as our core values, our advantage is large. We take pride in our
unique approach to offer more individual solutions that address the
ever changing needs of our clients and the industry. After all, our
success is measured by the success of our clients and the strength
and longevity of our relationships. For the latest news from
Gallelli Real Estate, visit GallelliRE.com, or follow us on
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About Gallelli Real Estate
Colin Grimm Research Analyst 916 784 2700
[email protected]
Gallelli Real Estate 3005 Douglas Blvd #200 Roseville, CA 95661 P
916 784 2700
Market Statistics