California’s Central Valley region closed out 2024 with its largest surge in positive absorption of industrial space since the warehouse boom of 2022.
Driven by several large new leases, Central Valley’s industrial market notched 2.9M SF of positive net absorption in the fourth quarter, up from 223K SF in Q3 and more than three times the total for the first nine months of 2024 of about 830K SF.
Three of the four largest leases signed in Central Valley in the fourth quarter were new deals, led by Georgia Pacific’s 1.3M SF lease at International Commerce Park in Tracy, CBRE reported.
In December, a joint venture between Trammell Crow and Realty Income broke ground on a 655K SF, build-to-suit industrial facility in Stockton that has been preleased by The Home Depot. The $100M facility, located at 320 McCloy Avenue, is slated to be delivered in 2026.
The Port of Stockton issued a 50-year ground lease to Trammell Crow for the 59-acre site. The project, which will add four rail tracks to the Port’s existing infrastructure, also will include 350K SF of outside storage space.
The 141M SF industrial market in Central Valley experienced leasing activity totaling 3.2M SF in Q4. Other large deals included Pflug’s renewal of a 408K SF lease at 17500 Shideler Parkway in Lathrop and a new lease for 152K SF at 1150 Arbor Avenue in Tracy inked by Peet’s Coffee.
Despite the surge in positive net absorption, the overall industrial vacancy and availability rates in Central Valley ticked up in the fourth quarter to 7.9% and 10.5%, respectively. Sublease offerings remained elevated, totaling 2.6M SF. The average direct asking lease rate remained stable at $0.74 per SF NNN.
The development pipeline in the region includes 2.4M SF of build-to-suit projects under construction as well as projects in the planning stage encompassing 3.1M SF. A 295K SF build-to-suit and a 350K speculative project were delivered in the fourth quarter.
There were no new speculative construction starts in 2024 due to the high cost of construction, high interest rates and moderating occupier demand.
CBRE expects the dearth of speculative development to continue in Central Valley in 2025, with positive absorption driven by the scheduled delivery of pre-leased buildings in coming quarters.
“Looking ahead, net absorption is anticipated to stay positive. Leasing and sales activity are projected to rise in mid to late 2025, while the availability of sublease space is expected to stabilize,” CBRE’s outlook said.
A 900K SF industrial facility rising in Stockton will become Walmart’s fifth “next-generation” fulfillment center, which deploys an automated high-density storage and retrieval system.
According to the retail giant, the new technology streamlines a manual 12-step process down to five steps, doubling the storage capacity and the number of customer orders that can be fulfilled in a day, expanding next-day and two-day online shipping capacity.