77SOCIETY OF INDUSTRIAL AND OFFICE REALTORS ®
The I-880 Corridor warehouse market continued to strengthen through the first quarter of 2015, as the overall vacancy rate declined to 6. 5 percent from 7.0
percent year-over-year, and average asking rates increased
to $0.54/SF from $0.46/SF during the same time period. In
many submarkets, vacancy rates dropped to such low levels
that they are now noticeably affected by single buildings
coming onto the market. For example, in Newark, 95.0
percent of the warehouse vacancy was attributable to one
building, which became available after the tenant, Coasters,
moved to a newer building in Oakland. Indeed, one of the
main drivers of tenant demand right now is the large floor
plate user (more than 150,000 square feet). These large
tenants are snapping up the new construction coming on
line, often at top-of-the-market rents. These large tenants
are willing to pay a premium for modern features, such as
clear heights of 32 to 36 feet, ESFR sprinklers and more
generous staging areas.
The R&D market also continued to improve in first-quarter 2015, although perhaps a bit more slowly than
the warehouse sector. Vacancy dropped to 14. 29 percent
from 19. 9 percent a year ago, and average asking
rates increased to $1.04/SF. This marked a significant
milestone for the R&D market, as rates have not
surpassed $1.00/SF since 2007. Fremont, the primary
driver of the I-880 Corridor market with 70.0 percent of
the inventory, is being transformed. Marquee companies
are expanding within the market (Thermos Fisher, Lam
Research and Delta Products).
At the same time, the market is attracting significant
new high-tech and clean-tech users (Tesla, Solar City
and Apple). The opening of the new Warm Springs/
South Fremont BART station, with transit links to the
Silicon Valley, is slated for fall 2015. Already, a land
rush is underway to capitalize on Fremont’s “Innovation
Center” concept, which combines high-density urban
housing with high-tech industry and retail and park
amenities. As the fourth-largest city in the Bay Area, and
the city with the most industrially developable land in
the Bay Area’s inner core, Fremont is well-positioned
to capitalize on the tech boom. Expect rental rates to
continue to grow. Also expect to finally see some cap
rate compression on the investment sale of R&D assets,
which recently have been trading in the 7.0 percent to
7. 5 percent cap rate range.
The industrial category, which includes both manufacturing
and service/light industrial buildings, reported another quarter
of low vacancy (below 4.0 percent) and steadily increasing
asking rates. Expect this sector to perform strongly over the
next 24 months, as the small and medium-size businesses
that service the local economy prosper (contractors, material
suppliers and repairs). There was also increased investment
this sector by real estate investors who were priced out of the
frothy warehouse market. This is a good sign for the market,
as many of the light industrial buildings are in need of facelifts
and code upgrades to attract top businesses. The wide variety
of building types and ages in the industrial category makes it
difficult to make comparisons across markets and even within
markets. Rents can range from $0.50/SF on the low end to
$0.85/SF on the high end, depending on age, infrastructure,
improvements, etc.
By Steve Kapp, SIOR
Upstate New
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MARKET REPORT -
I-880 CORRIDOR
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