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January 06, 2017

5 things about fourth-quarter industrial leasing

Sacramento Business Journal

Ben van der Meer

As 2016 moves into the record books, industrial real estate brokers are as optimistic as they've been in a long time. Here are five highlights from fourth-quarter leasing, according to Sean Gallinger, an associate vice president specializing in industrial and land properties with Kidder Mathews.

  • Tenants are in growth mode. Gallinger said every client he represents is currently looking for more space. In some cases, it's a company that's been around for 15 or 20 years looking to own rather than rent. In others, companies are in 2,000 square feet but looking for 10,000, he said.
  • Positive absorption continues, to the tune of about 744,000 square feet in the fourth quarter. Gallinger said that number includes new buildings with immediate occupancy, but existing buildings probably had between 300,000 and 400,000 square feet of new tenancy during the quarter.
  • One fast-growing sector and one new one will play big roles in ongoing absorption in 2017, Gallinger said. Amazon's move into Metro Air Park will probably spur other firms tied to e-commerce to look for spots there and in Natomas. And with marijuana now legal in California, expect a rush of companies setting up greenhouses and processing sites, particularly in South Sacramento and around Point West and Arden-Arcade, he said.
  • "I think 2017 is going to be the year of significant rent growth," Gallinger said. Vacancy is between 7 and 7.5 percent, and for Class A space, 4 to 5 percent. That will push up rents, and over the course of the year, make the case stronger for more speculative construction.
  • The area has an opportunity to draw some manufacturing jobs, Gallinger said. One of his clients, BMC, leased 240,000 square feet in Woodland and will have more than 80 manufacturing jobs there in a few years. Spillover from the Bay Area, and auto companies considering this region, could mean more companies and jobs will follow BMC.

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