The Marin County office vacancy rate declined nearly 2% in the second quarter to 12.5%. Class A properties reported a vacancy rate of 15.8%. Class B properties reported a 1% decline in the last quarter. The current vacancy rate is 6.9%. Asking lease rates have steadily increased in nearly all Marin submarkets over the past 18 months. Upward pressure on asking lease rates is expected to continue through the second half of 2007.
The Southern Marin submarket vacancy rate currently stands at 7.4%, virtually unchanged from last quarter. The Class A market reported a vacancy rate of 11.2% marking a 1% increase from the previous quarter. New space availability in just a few properties led to this increase, but strong levels of tenant activity still remain in most of the submarket. Asking rents have topped $4.00 psf on a full service basis in some high-identity properties. The Class B market reported a .5% vacancy rate increase from the end of 2006. Most leases signed in class B properties were for spaces smaller than 5,000 square feet.
For most of the past 18 months, Central Marin office properties reported the lowest vacancy rate in the county. That trend has continued throughout 2007 with a reported vacancy rate of 3.8%, virtually unchanged from last quarter. The Class A market remains very strong with a vacancy rate of 2.9%, a 2% drop from last quarter. Class A properties such as Drake’s Landing and 700-1100 Larkspur Landing have experienced high levels of tenant demand, and asking rents for some spaces have topped $4.50 psf on a full service basis. The Class B market also reports a low vacancy rate of 5.1%, unchanged from the first quarter. Primarily consisting of smaller spaces, Class B properties report high levels of demand from users requiring less than 2,000 square feet of operating space.
The Central San Rafael submarket reported a vacancy rate of 10.3%, down 1% from the first quarter. The Class A vacancy rate of 15.9% represents a 3% increase from the previous quarter. Significant leases include an 11,447 square foot lease signed by Morgan Stanley at 1101 Fifth Ave. and a 6,000 square foot lease signed by California Film Institute at 900 Fourth St126,000 square feet of new Class A inventory is currently under construction at 2350-2370 Kerner Blvd. and is scheduled for completion by mid-summer. Asking rates for Class A space have topped $3.00 psf on a full service basis for some high-identity properties. The Class B submarket reports a vacancy rate of 5.3%, virtually unchanged from the first quarter.
The North San Rafael submarket reported a vacancy rate of 18.6%, down 3% from the previous quarter. More than half of the submarket’s vacant space exists in just one property, while most other properties are at or near capacity. The Class A market reports a vacancy rate of 25.1% marks an 8% decline from the previous quarter. This is mainly due to a lease signed by a major tenant at 1 Thorndale for 55,000 square feet. Another significant deal occurred at 100 Smith Ranch Road, where Innovative Art, formerly Portal Publications, signed a lease for 14,200 square feet. The Class B submarket vacancy rate of 4.9% is unchanged from the last quarter.
The Novato submarket experienced a 1% decline in vacancy from the first quarter, and currently reports a rate of 13.9%. The Class A submarket reported a vacancy rate of 13.9%, virtually unchanged from last quarter. Several significant leases were signed including a 11,500 square foot lease signed at Hamilton Landing by Activision, Inc and an 8,000 square foot lease signed by Virtual Space Entertainment at 75 Rowland Way. The Class B submarket reported a 2% vacancy rate decline from the first quarter, and the current vacancy rate stands at 13.7%.
The Marin office market reported its lowest countywide vacancy rate in the past 5 years, with the countywide vacancy rate now below 15%. There has been a marked increase in tenant demand, especially in Class A properties. Even with 126,000 square feet of new inventory set to enter the market at 2350-2370 Kerner Blvd late in 2007, vacancy rates are expected to continue their decline throughout the year.
The Sonoma County office market experienced an overall vacancy rate of 20.2%, a 1% decrease from the previous quarter. The Class A market reports a vacancy rate of 31.7%, down 2% from the first quarter. The high Class A vacancy rate is mainly due to over 400,000 square feet of vacant space at Sonoma Mountain Village in Rohnert Park. The Class B submarket reported no change from the first quarter and reported a vacancy rate of 8.4%. Asking lease rates have experienced upward pressure in certain newer, higher-end Santa Rosa properties, specifically in the downtown and Northeast parts of the city. However, rent growth has slowed in certain submarkets reporting higher vacancy rates.
The Petaluma office submarket reported a vacancy rate of 22.7%, virtually unchanged from the first quarter. The Class A vacancy rate of 28.2% is unchanged from the first quarter but marks an 8% increase from the end of 2006. The vacancy rate increase from the end of the year is the result of the new 144,000 square foot RNM development at South McDowell Blvd. Basin St. Properties has approvals for 200,000 square feet of office development on North McDowell with 50,000 square feet already under construction. The Class B market, with a vacancy rate of 10.6%, is virtually unchanged from the previous quarter. In light of these new projects, it remains to be seen if current levels of tenant demand will lead to positive absorption in the second half of 2007.
The Rohnert Park submarket reported a significant vacancy rate decline from the first quarter. The current rate of 41% marks a decline of over 4% from the previous quarter. Aiding this vacancy rate decline, AT&T recently signed a lease for over 40,000 square feet at Sonoma Mountain Village. It is possible that a portion of the Sonoma Mountain Village space (previously occupied by Agilent) may eventually take on a retail use, thereby reducing the amount of vacant office space in Rohnert Park. The Class B submarket vacancy rate of 7.8% represents a 1% increase from the previous quarter.
Santa Rosa office properties reported continued high levels of tenant activity and a vacancy rate of 12.7%, nearly unchanged from the first quarter. Class A properties experienced no vacancy rate change from last year and currently report a 18.4% vacancy rate. A steady vacancy rate is good news as significant new inventory was added in the Airport and Fountaingrove areas earlier in the year. Rent growth has slowed in the last year as tenant demand has yet to absorb new office inventory. The asking rent for the most desirable spaces remains $2.50 psf on a full service basis. The Class B market reported a vacancy rate of 8.1%, nearly identical from the previous quarter.
The Sonoma County flex market continues to provide tenants with a less expensive alternative to traditional office space. Despite heavy tenant interest, new inventory has resulted in a countywide vacancy rate of 18.9%, nearly identical to last quarter. The vacancy rate for Petaluma flex properties, at 12.2%, is unchanged from the last quarter. The Santa Rosa flex market reported a vacancy rate of 27.4%, virtually unchanged from the previous quarter. The largest example of vacant flex inventory remains the 167,000 square foot property at 2877 Giffen Ave. Asking lease rates for flex space have changed very little in the past year.
Despite the arrival of new office inventory, the Sonoma County office vacancy rate has remained stable. Tenant activity in the market has remained strong, but increased inventory has led to vacancy rate increases in some submarkets over the past six months. With more new office properties expected to arrive on the market in both Petaluma and Santa Rosa this year, it remains to be seen if tenant demand can continue to keep up with new inventory.
| MARIN | 2nd QTR | 2nd QTR | ||||||
|---|---|---|---|---|---|---|---|---|
| Building | Inventory | Direct | Sublease | Vacancy | Net Ab- | Full Service | Sq.Ft Leases | |
| Submarket | Class | (SF) | Available | Available | Rate | sorption | Rent Range | Signed |
| Southern Marin | Class A | 516,877 | 50,973 | 6,967 | 11.2% | -10,149 | $2.75-$4.65 | 12,909 |
| Class B | 386,798 | 5,895 | 1,500 | 1.9% | 6,903 | $2.00-$2.75 | 6,702 | |
| Total | 881,553 | 56,868 | 8,467 | 7.4% | -3,246 | 19,611 | ||
| Central Marin | Class A | 638,159 | 18,276 | 0 | 2.9% | 572 | $2.75-$4.15 | 16,655 |
| Class B | 446,091 | 22,883 | 0 | 5.1% | -405 | $1.95-$2.85 | 11,890 | |
| Total | 1,084,250 | 41,159 | 0 | 3.8% | 167 | 28,545 | ||
| Central San Rafael | Class A | 478,016 | 48,751 | 27,017 | 15.9% | 13,730 | $2.25-$3.15 | 36,709 |
| Class B | 536,195 | 19,703 | 8,600 | 5.3% | -1,999 | $1.75-$2.50 | 13,450 | |
| Total | 1,014,211 | 68,454 | 35,617 | 10.3% | 11,731 | 50,159 | ||
| North San Rafael | Class A | 1,462,303 | 338,533 | 28,943 | 25.1% | 94,082 | $2.25-$2.65 | 78,939 |
| Class B | 724,121 | 38,614 | 767 | 5.4% | -757 | $1.75-$2.30 | 11,207 | |
| Total | 2,186,424 | 377,147 | 29,710 | 18.6% | 93,325 | 90,146 | ||
| Novato | Class A | 1,701,774 | 114,829 | 121,610 | 13.9% | 20,708 | $1.75-$2.50 | 24,890 |
| Class B | 672,396 | 90,920 | 1,525 | 13.7% | 16,393 | $1.75-$2.15 | 18,435 | |
| Total | 2,374,170 | 205,749 | 123,135 | 13.9% | 37,101 | 43,325 | ||
| Marin Totals | Class A | 4,797,129 | 571,362 | 184,537 | 15.8% | 118,943 | $1.75-$4.65 | 170,102 |
| Class B | 2,765,601 | 178,015 | 12,392 | 6.9% | 20,135 | $1.75-$2.85 | 61,684 | |
| Total | 7,562,730 | 749,377 | 196,929 | 12.5% | 139,078 | 231,786 | ||
| SONOMA | Building | Inventory | Direct | Sublease | Vacancy | 2nd QTR Net Ab- | Full Service | 2nd QTR Sq. Ft. Leases |
| Submarket | Class | (SF) | Available | Available | Rate | sorption | Rent Range | Signed |
| Petaluma | Class A | 1,334,522 | 256,023 | 120,000 | 28.2% | 11,442 | $1.75-$2.35 | 11,490 |
| Class B | 603,598 | 42,314 | 21,521 | 10.6% | -1,351 | $1.45-$1.90 | 13,460 | |
| Total | 1,938,120 | 298,337 | 141,521 | 22.7% | 10,091 | 24,950 | ||
| Rohnert Park | Class A | 760,495 | 595,982 | 0 | 78.4% | 80,000 | $1.70-$2.15 | 51,200 |
| Class B | 853,766 | 66,598 | 0 | 7.8% | -11,916 | $1.25-$1.80 | 10,871 | |
| Total | 1,614,261 | 662,580 | 0 | 41.0% | 68,084 | 62,071 | ||
| Santa Rosa | Class A | 2,317,996 | 355,986 | 71,536 | 18.4% | 12,578 | $1.50-$2.50 | 39,549 |
| Class B | 2,863,680 | 203,580 | 28,357 | 8.1% | 4,002 | $1.25-$1.90 | 34,178 | |
| Total | 5,181,676 | 559,566 | 99,893 | 12.7% | 16,580 | 73,727 | ||
| Sonoma County | Class A | 4,413,013 | 1,207,991 | 191,536 | 31.7% | 104,020 | $1.70-$2.50 | 102,239 |
| Class B | 4,321,044 | 312,492 | 49,878 | 8.4% | -9,265 | $1.25-$1.90 | 58,509 | |
| Total | 8,734,057 | 1,520,483 | 241,414 | 20.2% | 94,755 | 160,748 | ||
| FLEX | ||||||||
| Petaluma | 1,262,913 | 149,002 | 4,822 | 12.2% | 11,904 | $1.70-$2.25 | 18,240 | |
| Santa Rosa | 989,758 | 222,084 | 49,069 | 27.4% | 3,908 | $1.15-$2.10 | 14,675 | |
| Total | 2,252,671 | 371,086 | 53,891 | 18.9% | 15,812 | 32,915 |
