New construction absorption drives NorCal Industrial market for four consecutive years
New construction activity accounts for 42.6 million square feet of absorption
New construction absorption has made up the lion’s share of total net absorption in the market since 2017, accounting for 42.6 million square feet of absorption over the four-year period, compared to 17.9 million square feet among the older inventory. New construction absorption in 2020 is expected to surpass 2018 highs as a handful of tenants are expected to move into their newly delivered spaces in the fourth quarter.
Despite the vacancy rate for new construction sitting at 17.7 percent across the region, compared to 4.0 percent for older product, move-in activity on newly delivered buildings has kept the market in positive territory despite negative absorption on older product since 2019. The Central Valley and North Bay have the highest new construction vacancy rates at 21.9 percent and 20.8 percent, respectively. Speed-to-market options for vacant newly-delivered product remains relatively limited in the East Bay and Silicon Valley.
Tenants continue to seek modern, first-generation spaces for their operations. As some tenants, such as those in Sacramento, experienced a flight to quality in recent years, other tenants require modern facilities for their regional and last-mile distribution needs. As of the third quarter, 11.3 million square feet of industrial space is under construction across Northern California, the lowest since 2016, leaving even fewer options in the pipeline.