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BACK TO SEARCHMarin Business Outlookhttp://www.northbaybusinessjournal.com © 2003 North Bay Business Journal BY JEFF QUACKENBUSH STAFF REPORTER MARIN -- The Marin commercial real estate market may be at a turning point. Market DATA from Orion Partners from the first quarter of this year are encouraging, showing decreased office space vacancy and increased absorption. After having risen to a plateau of more than 20% from mid 2001 through last year, the vacancy rate for office space slipped a couple of percentage points to 17.2%, according to Orion. Meanwhile, meager positive net absorption of office space at the close of 2002 swelled to 171,558sf in the first quarter of this year, Orion reported. Larkspur-based Meridian Commercial reports that the overall office vacancy rate has fallen to 20.0% so far this year from 25.0% in the second quarter of 2002. (Orion's and Meridian's vacancy rate figures differ, because Meridian counts the three 57,000sf unfinished hangars at Hamilton Landing as available to prospective tenants within six months of a lease deal.) Another encouraging sign is a reduction in office space available for sublease. In the past 12 months, office space available directly from building owners increased by 174,072sf, or 17.1%, while sublease space decreased by 473,579sf, or 59.7%, according to Meridian. Some of that reduction of sublease space has come from lease expiration, such as the 100,000sf GreenPoint had at Equity Office's Larkspur Landing business park, or property owner givebacks or takebacks, says Meridian partner Steven Leonard. Also good signs are recent and pending leasing, especially at the large new office developments that have accounted for a significant amount of vacant office space -- San Rafael Corporate Center in downtown San Rafael, Hamilton Landing in south Novato, and Woodside Office Center. "Orion has a number of leases working in the 30,000sf to 90,000sf range that, should they be signed in the next 60 days, would bring fairly dramatic positive absorption," says Orion CEO Bill McCubbin. "By this time next year, office vacancy could well be substantially less because of deals under way, and nothing else is being built." One of the large deals in the works is about 70,000sf for Sutter Health at 4000 Civic Center Drive in San Rafael. The deal hinges on whether the city will allow medical uses in the building, according to Meridian, which is brokering in the deal with Orion. While Meridian has four other deals in the works for 10,000sf to 70,000sf, the majority are in the 1,000sf-3,000sf range in southern Marin, where tenants are expecting substantially lower rents, Mr. Leonard says. Rents lower Countywide, rents have fallen 10%-20% generally, with some southern Marin tenants able to secure new leases at $2.75-$3.00/sf in buildings with leases inked in the past few years at $5.50/sf, according to Mr. Leonard. The gap is less severe in Novato, with about 50¢/sf separating new and existing leases, he points out. Mr. Leonard has noticed more market softness in fewer inquiries and more rent flexibility in the past three to five weeks, but he's unsure yet whether it's a pothole in the road to market recovery or historical summer slowness. Mr. McCubbin attributes some of the southern Marin-Novato rent dichotomy to snarled traffic on U.S. 101 that can add as much as 30 minutes to a commute from Novato to southern Marin. Increasingly more companies, especially those with many employees living in Sonoma County, are saying they would rather set up shop in Novato than southern Marin because of the traffic, he says. He hopes the highway widening work currently under way between San Rafael and Corte Madera and slated to wrap up in a year or two will bring relief, similar to the impact of recent widening through Santa Rosa. "If [the widening] doesn't improve the situation, the effects will be longer lasting than we're anticipating right now," Mr. McCubbin says. He notes that persistent traffic congestion could disrupt the historical migration of companies from infancy in southern Marin to expansions northward to Sonoma County. Retail and industrial space in Marin remain tight, with vacancy rates in the single digits. Some relief is coming from Keenan/Lovewell Ventures' 130,000sf commercial condominium project at the former Fairchild Semiconductor site in north San Rafael. It is set to have ground broken in July and space delivered early in 2004. Mr. McCubbin, whose brokerage is marketing the project, says the new project will not cannibalize the leasing market because of the mix of warehouse, R&D, and office space. |
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