North Bay Office Market Continues to "Heat Up"

Southern Marin Rents Reach New High
The office market in Marin County closed 1999 with another record-breaking year featuring the lowest vacancy rate on record: 2.5%. The vacancy rate has been steadily declining for the past five years as the Marin economy, driven by the high-tech industry, continues to thrive with the lowest unemployment rate in the nation, the booming housing market, and retail sales at an all time high.

The market features strong demand for new office space. Approximately 900,000 square feet of new office prospects are seeking space in a market that contains less than 200,000 square feet of space available for immediate occupancy. Net absorption of office space for the past eighteen months was in excess of 500,000 square feet. As a result we have a market that is characterized by strong demand, little supply and rapidly increasing rents.

Rents for Class A office space in Southern and Central Marin range from $3.00 to $4.00 per square foot per month while a few deals have exceeded the $4.00 rate. In Southern Marin the rents have increased by 25% in the last six months. Vacancy rates of 1% and 2% respectively, in these areas, combined with little new development insure that this upward trend will continue. Class A rental rates in San Rafael, Northern Marin, and Novato are also increasing rapidly and range between $2.00 and $2.75 per square foot per month.

Some Relief On The Way
The present situation will be alleviated to some degree later this year as several office projects come online. These include 100,000 square feet at Belvedere Place in Mill Valley, 220,000 square feet under construction at Hamilton Landing in Novato, 40,000 square feet at Rafael Town Center in San Rafael, and 160,000 square feet in the Faskin Project in San Rafael. An additional 126,000 square feet is scheduled to commence construction at the Marin Business Center in Novato, and 56,000 square feet at Novato Creek Landing. Also of great interest will be the dispostion of the 400,000 square foot project in San Rafael that was committed to several years ago by the FAIR ISAAC COMPANY. It will also be of great interest to see how much of this "to be developed" space will in fact be available when it is completed. Several of the above mentioned projects are experiencing strong pre-leasing activity.

 

VACANCY AND ABSORPTION SUMMARY
			Vacancy		Absorption
Submarket	Rentable SF	Available SF Year-end 1999	Percent Vacant Year-end 1999	Percent Vacant Third Qtr. 1999	4th Qtr. 1999	Year-to-Date 1999	Weighted Average Rent
Southern Marin	652,427	7,925	1.2%	2.2%	6,644	31,513	$2.92
Central Marin	1,054,081	23,965	2.3%	3.2%	9,329	35,199	$2.93
Central San Rafael	725,351	18,873	2.6%	2.9%	2,492	40,108	$2.40
North San Rafael	2,143,816	42,811	2.0%	1.7%	(6,285)	106,870	$2.35
Navato	1,773,835	67,661	3.8%	3.6%	(3,774)	9,584	$1.91
TOTAL MARKET	6,349,510	161,235	2.5%	2.7%	8,406	223,274	$2.32

"Move North Young Company"

The companies that look to locate or relocate north to Petaluma, Cotati, Rohnery Park and the Santa Rosa will benefit the most in the current market. Limited space opportunites and increasing rents in the southern markets will cause companies to seek the solution to their space problems in Sonoma County.

At year end those areas offered more than 700,000 square feet of existing inventory and numerous office parks that give the expanding company opportunities to develop headquarter campus environments. A healthy vacancy rate of about 10% maintains rents for existing inventory at lower and more competitive rates. For example, rents for Class A space range from $1.75 per square foot per month to $2.25 per square foot per month. Compared to Marin's rents it is evident that substantial economic savings are available to those companies that are ready to venture north.

In addition to the economic advantages, Sonoma County offers the quality of life that only the "wine country" can offer. Combined with healthy housing market it is clearly an excellent place to look for your next office move.

Bill McCubbin is a principal and the CEO of Orion Partners Ltd. located in San Rafael. To report your transactions, receive our detailed market study, or for questions or comments, please call (415) 472-8703, or fax (415) 472-3508.