CONCORD BUSINESS PARK
EAST BAY INDUSTRIAL MARKET
East Bay industrial market fundamentals have strengthened dramatically in the economic expansion period. The vacancy rate is still near all-time lows, and well below its 10-year historical average, as demand has outpaced supply growth this cycle. But net absorption has turned negative over the past year as several large blocks of space have become available, and new speculative supply has delivered. The East Bay has added over 12 million SF of new industrial inventory since 2014, and there is around 5 million SF currently under construction. National industrial production is at an all-time high, and robust employment growth in the East Bay and across the Bay Area has bolstered the industrial sector. E-commerce sales are growing nationally at around 15% annually, according to the U.S. Census Bureau, and are helping to drive demand for East Bay industrial real estate. Tech-savvy and early-adopting East Bay and Bay Area residents are likely shopping online more often than average, and a thriving local economy and rising wages allow for the consumption of more goods. In response, retailers are growing warehouse inventories and establishing last-mile distribution centers for digital commerce.
The East Bay is the Bay Area’s largest industrial market by a significant margin, with over 260 million SF of stock. The large amount of inventory has been able to satisfy the needs of a wide range of tenants, spurring strong demand this cycle. This increased demand has driven rents significantly higher, up over 85% since 2011. Year-over-year rent growth has slowed slightly over the past few years, but is still measuring above the 10-year historical average. Despite the recent increases, industrial rents in the East Bay remain a discount compared to average rents in San Jose and San Francisco. Investors and owner/users are capitalizing on the industrial market's strong momentum. Sales volume reached a new record high in 2018, at over $2 billion, and the market has averaged over $1 billion in annual volume over the past ten years. Average asset pricing continues to increase, measuring over $200/SF, an around 160% increase since 2010.
LOCAL AREA - WALNUT CREEK/CONCORD
Concord is a city in California northeast of San Francisco. Nearby, Briones Regional Park features views of the Diablo Valley and a trail to Diablo Foothills Regional Park, with wildflowers and views of San Francisco Bay. A former coal-mining site, Black Diamond Mines Regional Preserve includes grasslands, pepper trees and lilies. The multi-use Iron Horse Regional Trail connects Concord to the city of Pleasanton. The overall vacancy rate in the East Bay Walnut Creek industrial market closed the fourth quarter at 5.1%, an increase of 30 bps from the previous quarter. Even though there was a slight increase in vacancy, there continues the trend of supply being very difficult to obtain in the market. There remains a shortage of vacancies over 10,000 square feet (sf) throughout the 15.9 million square feet
(msf) of inventory. Sales activity declined significantly this quarter, with only 2 buildings over 10,000 sf sold. This is a slight change of pace from the third quarter, when three properties totaling 50,000 sf traded. Though sales volume in the fourth quarter was the lowest of 2019, the lack of availability will make investors more inclined to continue buying buildings within the market.