For the second quarter of 2008, Marin County’s overall average asking rate for office space increased $0.04 from the close of first quarter 2008 to $2.79 per rentable square foot (full service) at the close of the second quarter. This increase in asking rate coincided with a minor, 10-basis-point decrease in vacancy countywide from 13.3% in the first quarter of the year to 13.2% for the second.
Marin County closed its second quarter with slightly more than 1.25 million square feet of total available office space, comprised of 962,128 square feet of direct space and 287,961 square feet, or 23%, of sublease space. Gross absorption for the second quarter 2008 was slightly down from the previous quarter, with 219,521 square feet. Net absorption for the second quarter of 2008 closed at a positive 12,119 square feet, which, although minimal, was meaningful, as this market had reported negative net activity in both the previous two quarters.
Southern Marin
In Southern Marin (Sausalito, Tiburon, Mill Valley), the overall average asking rate in the second quarter of 2008 increased $0.09 to $3.60 (full service) from the previous quarter. Vacancy decreased 110 basis points to finish the quarter at 8.8%. Within the submarket, Sausalito/Tiburon finished the quarter with a 6.9% vacancy rate, down 60 basis points from the last quarter, and an average asking rate of $3.58 per rentable square foot (full service), up a $0.01 from fourth quarter 2008.
Meanwhile, Mill Valley ended with a 12% vacancy rate, down 170 basis points from the past quarter and an average asking rate of $3.62 (full service), which is up $0.04 compared to the past quarter. Sublease space is still relatively abundant in this submarket, as it accounts for 32.6%, or 31,643 square feet, of total availability; this is in large part due to the credit crunch. If we ignore the sublease space in this submarket, the vacancy rate would be at a strong 6%.
Central Marin
In Central Marin (Corte Madera, Larkspur, Greenbrae), vacancy reported an increase of 200 basis points from the previous quarter, closing the second quarter 2008 at 10%. The average asking rate still increased $0.06 to close the quarter at $3.74 per rentable square foot (full service).
Asking rates at EOP’s Greenbrae Drake’s Landing remained the highest in the county, at $4.85 per rentable square foot (full service). Within the submarket, the Larkspur/Greenbrae average asking rate decreased by $0.04 from first quarter 20087 to $3.91 (full service) at the close of the second quarter, while its vacancy rate jumped 320 basis points during the same time period to finish at 12.2%. It’s interesting to note that just one year ago, the vacancy rate for this submarket was at a mere 4.4%.
Due to the continuing credit crunch, we’re still seeing real estate and financial companies looking to downsize or close offices. This market has been drastically affected due to its abundance of financial institutions. On the other hand, Corte Madera’s vacancy tightened slightly to 6% during the second quarter of 2008, compared to 6.2% in the first quarter, while its overall asking rate decreased a modest $0.07 to $3.09 per rentable square foot (full service) due to a reduction in Class A space and an increase in Class A product.
Northern Marin
In Northern Marin (San Rafael, Novato), the vacancy rate decreased 30 basis points from 14.8% in first quarter 2008 to 14.5% at the end of the second quarter. Asking rates in Northern Marin increased by $0.01 from last quarter to $2.59 (full service) in second quarter 2008. San Rafael posted a 14.2% vacancy, a drop of 70 basis points from last quarter, coupled by an average asking rate of $2.78, an increase of $0.14 during the same time period. Novato’s vacancy rate ticked up 10 basis points, to 14.8%, at the close of second quarter 2008, while its average asking rate remained flat at $2.39 (full service).
Summary
We anticipate sublease space to continue to hit the market throughout the year as companies adjust staffing levels. It’s interesting to note that 23% of the current space available on the market is sublease space, a sizable reduction from its 28.5% level a year ago. On another note, positive net absorption was reported in this submarket in second quarter 2008 for the first time in three quarters.
Investment activity in the second quarter was substantially down compared to the same reporting period in previous years. The largest office building sold in second quarter 2008, in terms of square footage, was 7428 Redwood Boulevard in Novato. This 11,500-square-foot project was sold to PSI as an owner-user sale. Another notable sale was 900 Mission Avenue in San Rafael, which totals 10,611 square feet.
