Napa County's office and industrial markets had more activity in the first half of 2011 than in 2010, but a more dramatic than normal summer slowdown has some wondering whether the market improvement will continue.

Inside Napa city limits, the vacancy rate for multitenant office buildings had increased to 18 percent after the completion of significant mixed-use projects The Riverfront, Napa Square and Main Street West and rapid contraction by residential real estate and mortgage companies, according to Michael Moffett of Coldwell Banker Commercial Brokers of the Valley.

"With new deals and backfill after the mortgage fallout, I think it's pushing vacancy down to somewhere in the 14 percent to 15 percent vicinity," he said.

Mr. Moffett helped broker two significant office leases inside the city. One of the largest office deals in the market in 2011 was the lease of 4,000 square feet of new space downtown to Bank of the West at The Riverfront. Taking advantage of opportunities with older space, Huneeus Vintners leased 5,800 square feet of the Main Street Exchange building on two floors at 1040 Main St. in Napa for the new offices of the St. Helena-based wine company, which owns Quintessa in St. Helena, Flowers on the Sonoma Coast and a number of other North Coast and South American wine brands.

"Recently, office users have been relocating to the downtown area to be near the excitement," Mr. Moffett said. An influx of new restaurants downtown in the past year and now 23 wine tasting venues there are convincing some office users to move to gain options for entertaining tenants.

The vacancy rate for all the new office space in Napa and the business parks to the south was about 43 percent in mid-2011, according to Colliers.

The historic 5 percent to 6 percent vacancy rate for buildings constructed more than a few years ago rose to nearly 16 percent, according to Mr. Moffett. Now, market data points to a rate of 12 percent to 13 percent.

"We're trending to a lower vacancy rate and positive absorption," he said. Companies are starting to act on opportunities to get good deals for expansion space. "There's very little sublease space in the market."

The market for office space is closely tied to employment. Napa County’s unemployment rate dropped to 8.8 percent in August from 9.4 percent 12 months before, according to state figures. While job growth in the first half of 2011 started to subside in other North Bay counties in July and August, Napa County continued to have net job gains.

The vacancy rate for industrial space in Napa County decreased in the second quarter of 2011 to 14.2 percent from 15.4 percent in the prior quarter, reversing a 0.7 percentage point increase from the prior quarter, according to Robert Gerard, research analyst for Colliers International's Fairfield office.

"The decrease in vacancy has largely been a result of a significant increase in deal velocity" in the second quarter, he said.

Most of that activity has been wine-related, which historically has been the driving force for Napa Valley industrial real estate. Boisset Wines USA's lease of 80,000 square feet of wine warehouse space at 677 Hanna Ct. in American Canyon's Green Island Industrial Park from ICC/Stravinski in an expansion from Benicia, Portocork America's expansion and lease renewal of 42,000 square feet at 560 Technology Way in Napa Valley Gateway Business Park and Biagi Bros.'s expansion to 100,000 square feet at 80 Technology Way, according to Chris Neeb of Cushman & Wakefield.

"We're chewing away at the inventory," he said, noting the majority of the available warehouse space are sublease space from Constellation Brands at 50 Technology Ct. in Napa Valley Gateway and ICC/Stravinski's recently built space in Green Island. The only new warehouse space coming is a 107,000-square-foot multitenant warehouse in Napa Valley Gateway Business Park, partly for expansion of Metropolitan Van Lines and the rest for lease.

Other large warehousing leases in the first three quarters of 2011 were Groskopf Warehouse & Logistics' lease of 60,000 square feet, the Sonoma-based company's first in Napa Valley, with an option on the rest of the 150,000-square-foot building at 801 Hanna Ct. in American Canyon. WineBid.com expanded to 25,000 square feet at 755 Skyway Ct. from 15,000 square feet of ICC/Stravinski space. Wine fulfillment and logistics provider Rapid Transit leased 12,000 square feet at 720 Airpark Rd.

The market for light-industrial space is tightening in the business parks south of Napa.

"If you're looking for 15,000 to 30,000 square feet of decent concrete tiltup with dock loading doors, the options are becoming limited," Mr. Neeb said.

Portocork extended and expanded into the entire 42,156 square foot warehouse building at 560 Technology Way in the Napa Valley Gateway. Mezzetta Pepper expanded its warehousing, leasing 29,243 square feet at 110 Mezzetta Ct. in American Canyon.

Yet after a strong spring recovery in the commercial real estate markets of Solano and Napa counties there was a greater-than-typical slowdown in activity, leading to the same or greater industrial vacancy in the third quarter of this year, according to Mr. Gerard.

"From the debt crisis to disappointing employment news, there is a myriad of economic uncertainty, leading to many potential tenants and investors remaining on the sidelines," he said.

Investors on the move in Napa County have been largely focused on medical office buildings (1100 Trancas for $12 million), hotels (Napa Valley Marriott and Avia Napa Valley) and retail (the Kohl's-anchored portion of Parkway Plaza). Another potential major retail sale is Napa Town Center in downtown Napa, in escrow by an affiliate of Zapolski Real Estate.