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
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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.