Sacramento: The Last Frontier for Industrial Options?
Investors have been active in Sacramento during the last year because of low vacancy, high demand, lack of new construction and affordable developable land, resulted in a spec development spike.
WEST SACRAMENTO—Sacramento’s industrial market is continuing to attract institutional-grade investment companies. Historically low vacancy rates, significant rent growth, strong tenant demand and availability of developable land have put Sacramento’s industrial market on the map. In fact, Sacramento was named one of 10 emerging industrial markets to watch in 2019 by Colliers International.
An example of that intense investor demand is 3771 Channel Dr., a 624,356-square-foot warehouse/distribution center on 50 acres that closed last week. The buyer was LBA Logistics and the seller was Sacramento Foodco Investors.
“This transaction is one of many examples of Northern California or Southern California-based companies acquiring Sacramento industrial assets to add to their portfolios,” Bob Shanahan, senior research analyst with Colliers International, tells GlobeSt.com. “Sacramento’s sound industrial market fundamentals have attracted investors from across the state with more than $879 million in 309 closed sales transactions in 2018.”
Glen Allen, president of Newport Real Estate Services, played a major role as asset manager for the seller. In that capacity, he orchestrated a multi-million-dollar restoration of the property as well as providing significant assistance in the sale transaction.
Colliers Sacramento represented both the buyer and seller. Steve Cippa, senior vice president, Tommy Ponder, vice president, and the team at Colliers International’s Sacramento office, provided expertise on land use, market conditions, future site layout and lease up forecasting during the course of the sale.
“Investors have been active throughout the Sacramento market over the last year because of the low vacancy, robust demand, lack of new construction and affordable developable land,” Ponder tells GlobeSt.com. “This has resulted in a spike in speculative development in Sacramento along with a sizable number of large investment sales closed, both individual value-add acquisitions and massive portfolio sales. Sacramento could be called the last frontier for this type of opportunity.”
The asset was sold 63% leased, providing the new owner a unique value-add opportunity in a market experiencing double-digit annual rent growth. The 50-acre parcel also offers opportunities for expansion and future development of up to 300,000 square feet in the highly desirable industrial-zoned area of West Sacramento.
“The Sacramento industrial market continues to receive well-deserved attention from institutional developers,” Ponder says in the Colliers report. “With Sacramento being the fastest-growing major city in California, we have seen an influx of new residents as well as institutional and regional capital, and out-of-market tenants.”
West Sacramento is the second-largest industrial submarket in the Sacramento region with more than 19 million square feet of existing inventory. The area has recorded a flurry of activity in the last 12 months, recording 1.3 million square feet of net absorption in 2018.
Colliers Sacramento brokered the largest Sacramento lease last year at 3771 Channel Dr., leasing 389,000 square feet to TK Classics. Cippa and Ponder were awarded the listing amid intense competition in mid-2017, then leased almost two-thirds of the building.
“Attracting yet another major national developer the caliber of LBA Logistics is a huge win for Sacramento. We are eager to collaborate with them as they embark on the lease-up of existing space,” said Cippa.
LBA Logistics owns and operates a national industrial portfolio totaling more than 43 million square feet and has an ongoing investment program focusing on core, core-plus, value-add and development opportunities throughout the US. LBA also acquired a 155,222-square-foot West Sacramento industrial asset with a tenant in place in October 2018.