Asking Rates Rise as Vacancy Declines
The third quarter of 2007 ended with Marin County’s office market experiencing increased rents and decreased vacancy. The overall average asking rate increased $0.08, to $2.59 per rentable square foot (full service) to close the third quarter. This increase in its asking rate has coincided with a vacancy drop countywide. Marin County finished the third quarter 2007 with slightly more than one million square feet of total available office space on the market, comprised of 736,000 square feet of direct space and 284,000 of sublease. Leasing activity picked up during the quarter with gross absorption reporting 230,440 square feet and positive net absorption of 119,614 square feet.
Southern Marin
In Southern Marin (Sausalito, Tiburon, Mill Valley), the overall average asking rate held steady from the previous quarter, increasing by just a penny to $3.33. Meanwhile, vacancy ticked up slightly to finish the quarter at 7.3%. This represents a slight increase since the last quarter; however, is a decrease from one year ago. Within the submarket, Sausalito/Tiburon finished the quarter with a 6% vacancy rate and an asking rate of $3.42 per rentable square foot full service, while Mill Valley ended with a 9.2% vacancy rate and an average asking rate of $3.23 (full service).
Central Marin
In Central Marin (Corte Madera, Larkspur, Greenbrae), vacancy reported a slight increase from the previous quarter, closing Q3-07 at 4.8%. However, this rate remains below its level a year ago. In response to such a tight market, Central Marin’s asking rate ticked up for the seventh quarter in a row, finishing the third quarter at $3.61 per rentable square foot (full service). Asking rates at Greenbrae’s Drake’s Landing remained the highest in the county, nearing $5 (full service). Within the submarket, Larkspur/Greenbrae experienced little change as the asking rate remained even at $3.86 (full service) and there was only a slight increase in the vacancy rate. Corte Madera, on the other hand, saw its vacancy rate rise while the asking rate increased $0.15, to $3.16 per rentable square foot (full service).
Northern Marin
In Northern Marin (San Rafael, Novato), the vacancy rate dropped to close Q3-07 at 13.2%, its lowest point in the six years NAI BT has tracked the market. Asking rates in Northern Marin increased $0.06 during Q3-07 to $2.45 (full service). San Rafael accounted for the bulk of the activity in the Northern Marin submarket, with key deals at One Thorndale (50,000 square feet to Disney), 1600 Los Gamos Road (24,000 square feet to Stormfront Studios and a 21,600 square foot renewal for THX Ltd.), and 100 Smith Ranch Road (14,200 square feet to Innovative Art). It’s important to note that the 50,000 square feet taken by Disney is a short-term deal, set to end when Disney moves to space being built at Novato’s Hamilton Landing. Novato’s vacancy rate decreased to 11.4% at the close of Q3-07, while its asking rate increased $0.03 to $2.24 (full service).
Summary
Overall, the Marin County office market picked up the pace to begin the second half of 2007 with a net absorption of 119,614 square feet and a gross absorption of 230,440 square feet—once again, with the bulk of the activity happening in Northern Marin.
As we continue into the final quarter of the year, we anticipate asking rates to slowly rise; however not at the speed we’ve seen in the past year. Also, with the "credit crunch," we’ve seen multiple mortgage companies throughout the county close their doors or drastically cut jobs. Consequently, we anticipate large blocks of increased amounts of sublease space to begin hitting the market become available in the fourth quarter.
Investment Activity
On the investment front for Q3-07, the big story was the San Rafael Corporate Center. Seagate Properties in San Rafael entered into a joint venture with JP Morgan to buy the existing 155,000 square foot office project, along with the adjacent land, with plans to break ground on close to 240,000 square feet of speculative office construction in the coming year. Other properties to exchange hands were the 29,400 square feet at 20 Leveroni Court, which was bought by to SPG Solar. SPG is set to occupy a majority of the space to support its growing business.
