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As has been reported widely, the 2009 Marin County office market was difficult for building owners as transactions dwindled to a trickle and the national severe slowing of the economy visited Marin County, although not as severely as many other national and even Bay Area markets.
With current market rental rates dipping 20 percent to 30 percent and increased vacancy from Sausalito through Novato, office building values dropped at least the same amount. Very few office buildings were sold compared with previous years.
However, Marin County was saved from even worse numbers experienced around the country, even in major metropolitan beacons such as San Francisco and New York. Marin County, like Palo Alto and Mountain View, was largely saved from even worse rent and value reduction by its high desirability as a world-class location; well spread affluence throughout the county; its great diversity of business types, including some very recession-proof businesses; and the lack of over-building due to Marin County’s geographic and political “barriers to entry."
Much of the vacancy is actually concentrated in the largest office buildings in the county with well over 100,000 square feet. Smaller and medium buildings are a lot less vacant, particularly in southern Marin County.
But how has 2010 started? Actually it has started with a lot of leasing activity from small, medium and even larger firms coming to market now to take advantage of the new low rates. This has seemed to place a bottom on the fall of rents, which had probably hit bottom in October 2009, based on a recent small bounce back upward in rents in Southern Marin today versus lower rents just a few months ago.
Nevertheless, the market remains attractive and competitive for tenants coming into the market, and I project it to stay that way for at least the rest of this year.
Class A rental rates per square foot per month are now ranged roughly as shown next. The Sausalito through Larkspur Landing office rental rates range from $2.75 to $3.75, down nearly a full $1.00 per square foot from recent highs. Downtown San Rafael rents range from $2.75 to $3.25, which I think will fall a little more. North San Rafael has fallen significantly to the $2.00 to $2.40 range, a full $0.40 per square foot decline. Novato has fallen to $1.75 to $2.45, also down approximately $0.40 to $0.50 from recent highs. So as always, the further north, generally the less rent per square foot is required.