Asking Rates Rise for Office Properties as Vacancy Declines
At the end of 2007, Marin County’s office market was experiencing an increased average asking rate and decreased vacancy from the previous year. The overall average asking rate increased $0.29, or 10.7% from 2006, to $2.72 per rentable square foot (full service) at the close of 2007. This increase in asking rate coincided with a 10 basis point decrease in vacancy countywide during the same time period.
Overall, vacancy fell from 13.1% in 2006 to 13% at the completion of 2007. Marin County finished 2007 with slightly more than 1.2 million square feet of total available office space on the market, comprised of 968,355 square feet of direct space and 251,304 of sublease. Gross leasing activity was slightly down from 2006, but very comparable with its five-year historical average. Net absorption, at 219,857 square feet, however, was much improved with nearly twice the positive activity seen in 2006.
Southern Marin
In Southern Marin (Sausalito, Tiburon, Mill Valley), the overall average asking rate increased $0.42, or 12%, to $3.50 (full service) from the previous year. Vacancy ticked up 300 basis points but still finished the year in single digits at 8.9%. Within the submarket, Sausalito/Tiburon finished the quarter with a 7.9% vacancy rate and an asking rate of $3.67 per rentable square foot (full service), an increase of 18.3% from a year ago. Mill Valley ended with a 10.6% vacancy rate, a more than double increase in vacancy from 2006’s 5.2%, and an average asking rate of $3.31 (full service).
Central Marin
In Central Marin (Corte Madera, Larkspur, Greenbrae) vacancy reported an increase of 280 basis points from the previous year, closing 2007 at 8%. In response to such a tight market, Central Marin’s asking rate increased for the eighth consecutive quarter, finishing 2007 at $3.95 per rentable square foot (full service), an almost 20% increase from a year ago. Asking rates at Greenbrae’s Drake’s Landing remained the highest in the county at $5 (full service). Within the region, the Larkspur/Greenbrae average asking rate increased by nearly $1 (23%) from 2006 to $4.28 (full service) at the close of 2007, while its vacancy rate moved upward during the same time period to an 8.6% vacancy rate. Corte Madera vacancy also moved up slightly during 2007 to end the year at 6.8%, while its asking rate increased $0.19 to $3.17 per rentable square foot (full service) by year’s end. It’s worth mentioning that the increase in vacancy for this submarket is due to ±20,000 square feet of sublease space at Larkspur Landing and Drake’s Landing hitting the market.
Northern Marin
In Northern Marin (San Rafael, Novato), the vacancy rate fell by 130 basis points during the year, from 15.8% in 2006 to 14.5%. Asking rates in Northern Marin increased by $0.18 from last year to $2.52 (full service) in 2007. San Rafael posted 16.1% vacancy, down 150 basis points from a year ago, and an average asking rate of $2.71, a 9% increase from a year ago.
Novato accounted for the bulk of the year’s activity in the Northern Marin submarket with two key lease transactions to Disney at One Thorndale (50,000 square feet) and 500 Hangar Avenue (120,000 square feet). Novato’s vacancy rate decreased 100 basis points to 12.6% at the close of 2007, while its asking rate increased $0.12 to $2.25 (full service).
Summary
Gross activity in 2007 totaled 917,840 square feet, once again with the bulk of activity occurring in Northern Marin. This amount is well below the 2006 gross level, but still ranks comparatively to the overall annual average of the past five years. Marin County picked up the pace from last year as net absorption tallied 219,857 square feet in 2007, nearly double the positive figure reported in 2006. This market hasn’t reported a negative annual net absorption figure in any of the past five years (2003-2007).
Office Property Investment Activity
On the investment front for 2007, the big story was the San Rafael Corporate Center. Seagate Properties 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 2008.
Health care was a strong player for 2007, as Sutter Health acquired 100 and 101 Rowland Way and Marin Square plus the adjacent land. Institutional investors played a big part in the investment activity for 2007 as well. American Assets acquired the Fireman’s Fund property at 777 San Marin Drive for $439 per square feet, while the Marin County Employees Retirement Association bought One McInnis in San Rafael for $455 per square foot.
