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Office vacancies coming down; industrial vacancies still at record highs

Santa Cruz Sentinel

Office vacancies dropped back down to last year’s levels and rents climbed slightly but the opposite was true for warehouse and manufacturing markets, which saw a climb in vacancies and a drop in rents, according to the latest quarterly report on commercial space by Cassidy Turley/ BT Commercial.

“I would say office is pretty cool and small industrial/warehouse is pretty warm, especially in Mid-County,” said Carol Canaris, managing broker with Cassidy Turley BT Commercial in the Capitola office. “This year’s activity level is better than last year’s and this summer, which is usually a pretty quiet time, has been very busy for our office.”

Office

After closing in on 1 million square feet a quarter ago, total office availability in the county dropped to 922,000 square feet, according to CT/BT. In the second quarter, office vacancies were still elevated, dropping only to 12.4 percent in the from 13.1 percent in the first quarter. CT/BT related the drop to a corresponding drop in the local unemployment rate.

The numbers, however, actually may reflect a rosier picture than reality, according to Erik Barbic, manager/broker with Sherman & Boone Commercial in Capitola. Because landlords are trying to keep space occupied, in some cases, they are lowering rents on a month-to-month basis.

“They are kicking the can down the road a little further,” Barbic said.

Deals are not only taking longer to complete due to financing problems, they often involve tenants shuffling locations for better space at lower costs rather than representing the needs of an expanded business.

“That’s where lot of the deals appear to be happening; tenants are relocating to spaces they couldnt have gotten two years ago,” Barbic said.

More than 80 percent of the county’s total vacancy is in Scotts Valley and Santa Cruz submarkets, which house about 60 percent of the county office base. Scotts Valley filled up only slightly, dropping its vacancy rate to nearly 18 percent from almost 20 percent in the previous quarter. Santa Cruz, however, had a slight increase in vacancy to about mid-16 percent; Mid County saw a minor decrease remaining in the high 6 percent range; and Watsonville reported a noticeable decline to below 5 percent. More than 90 percent of the 203 listings countywide are less than 10,000 square feet.

The smaller office space sector is softer in part because more people are staying at home to work to save rent, Barbic said.

The overall average asking rate for office was up 4 cents to $1.86 per square foot full service.

The largest deals of the quarter included a 12,500 square foot lease by Threshold Enterprises Ltd., a nearly 12,500 square foot space for Maria Yee and a 12,000 square foot space for Easton Bell Sports.

“We’re definitely seeing an increase in activity,” said Steven Sheldon of Sheldon Wiseman Commercial Real Estate in Santa Cruz. Sheldon said retail and research and development are both picking up.

Industrial

The industrial sector has fared better, staying below 5 percent for four years prior to mid-2009, and rising in the second quarter to 6 percent. The average asking rate for industrial space fell 4 cents to 71 cents per square foot on leases in which the tenant pays taxes and maintenance as well.

More than half of the 10.9 million square feet of Santa Cruz County industrial building space is in Watsonville. Total available industrial space climbed from 639,000 square feet to 655,100 square feet, the highest level since mid 2005. Most of it, 268,000 square feet is in Watsonville. Almost that much was available in the city of Santa Cruz. In Scotts Valley, a nine-unit, 18,450-square-foot warehouse project on Green Hills Road in Scotts Valley has mostly been leased or sold.

Outlook

Although unemployment in the county dropped in the second quarter, it has remained of major concern countywide, according to Cassidy Turley.

Seagate‘s pending migration from Scotts Valley will leave a significant number of buildings empty. The hard disk drive maker recently announced that it will be moving at least two-thirds of its 600 Scotts Valley over the hill to a consolidated facility in Silicon Valley. The construction slowdown has also resulted in Granite Construction recently putting a 60,000 square foot building on West Beach Street on the market for sublease, causing the available sublease to reach 101,700 square feet, its highest ever.

This article first appeared here.

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This entry was posted on August 24, 2010 by in Business, Real Estate.

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