Comstock's magazine 1117 - November 2017 - Page 82

FOLSOM & EL DORADO HILLS all-time records next year, according to a first-quarter 2017 report by real estate services firm Cushman & Wakefield. But even as prices spike regionwide, the mar- ket in El Dorado Hills and Folsom stands out — its rents for industrial space are second-highest among Sacramento’s 16 sub-markets, according to a second- quarter 2017 report by commercial bro- ker Colliers International. With marijuana growers snapping up properties nearer downtown, traditional tenants like framers and plumbers are crowding into sub-markets like Folsom- El Dorado. “In the last 12 months or so, it’s turned from a tenant’s to a landlord’s market,” says Jason Rutherford, senior vice pres- ident at Colliers International, who lives and has listings in El Dorado Hills. The tightening is regionwide but most acute in places like El Dorado and Folsom, which lack product because there’s been no construction in 10 years. “Landlords are now able to dictate terms,” he says. “It used to be easy to say on any given deal that you’d get a month of free rent per year of the term. That’s not the case anymore.” Landlords have also turned into wary suitors, scrutinizing the poten- tial tenant’s industry and balance sheet in a way they previously didn’t. Folsom and El Dorado Hills represent a specialized type of market for industri- al space. Rutherford defines it as a “flex” market — buildings that allow occupants options, like putting a showroom and 82 | November 201 7 offices in the front of the building while keeping the back for a warehouse. Kuhl sees it as a market dominated by small warehouse spaces of 5,000 to 10,000 square feet — the type sought out by con- tractors. And it caters to businesspeople who want to live locally — someone who bought a house in the area a few years ago but is tired of jamming onto Highway 50 every morning to get to downtown, Kuhl says. The El Dorado Hills and Folsom industrial-space market may be unusu- al, but its market dynamics are typical of the region. “It’s harder and harder to find good quality [warehouse] products,” says Zac Sweet of commercial development and management company Buzz Oates. The Sacramento area’s vacancy rates are averaging 6.4 percent — the lowest since 2000, according to the Cushman & Wakefield report. If you’re a commercial tenant or buy- er, it actually may be worse than that. Cushman & Wakefield’s Matt Cologna says that a few large vacant industri- al buildings across the region (more than 100,000 square feet) are skewing the numbers. If you subtract those, his back-of-the-envelope calculation shows a real vacancy rate of 4.6 percent. A healthy commercial vacancy rate, one that gives landlords and tenants some parity in leverage, runs 8 to 12 percent, he says. “The supply-demand curve is way out of alignment,” Cologna says. And that hurts the region’s reputation as a place to get affordable industrial rental rates. Tenants up for renewal are sometimes seeing 20-percent increases, according to Cologna. California’s green revolution has a role in the scramble. With marijuana growers snapping up properties near- er downtown, traditional tenants like framers and plumbers are crowding into sub-markets like Folsom-El Dorado, says Rutherford. What’s most needed in Folsom-El Dorado are more of the flex and light in- dustrial spaces that the area already has.