[caption id="attachment_70237" align="alignright" width="200"] James Manley[/caption]

The economy continues to recover slowly, but we are experiencing positive growth in Petaluma. 2012 was a critical year. It appears to have been a turning point for Petaluma commercial real estate.

Office vacancy at the end of 2011 was estimated at 1,010,000 square feet, or approximately 31.3 percent of the entire market. Fourth-quarters 2012 office vacancy stood at 25.3 percent, with positive absorption of more than 180,000 square feet.

However, vacancy numbers can be misleading in that they represent actual "dark space." An occupied, marketed space is not considered vacant. There are office tenants still looking to downsize.

Significant Petaluma office deals of the past 12 months included Raydiance's lease of approximately 42,000 square feet at 1450 N. McDowell Blvd., Biosearch Technologies’ purchase of 120,000 square feet at 2199 S. McDowell, and Enphase Energy's lease of 96,000 square feet at the former Alcatel-Lucent campus in Redwood Business Park.

Office monthly lease rates in Petaluma range from 90 cents a square foot on a standard industrial gross (SIG) basis up to $2.15 a square foot on a full-service basis.

The mega-deal acquisitions for bank-owned and portfolio-exit properties are over. There are a couple of significant leased investment and user offerings, and there will be a few more as we progress through 2013. But don’t anticipate sub-$100 per square foot office property purchase opportunities.

The higher-end lease properties are starting to become more firm with their prices, while second-generation office space struggles to attract tenants. The Petaluma office market still needs to see some very active absorption in order to be considered "recovered," but we are heading in the right direction. We shouldn’t anticipate any upward pressure on the asking rates for office through 2013.

The industrial space market is another story altogether. Industrial vacancies rose and fell throughout 2011, finally settling around 17 percent at the end of that year. Last year, vacancy rates began a steady decline and ended the year at 9.6 percent. Single-digit vacancy is indicative of a tight market.

Some of these deals were considered stop-gap occupancies (i.e., get the lights on and get busy as quickly as possible), but most are steady, market-rate deals. 2K Sports signed a five-year deal at 3925 Cypress Dr. for more than 14,000 square feet of high-cube warehouse. That space is in the process of being converted to the company's particular use. The Office Playground of Novato ended its long search for relocation space and signed a five-year deal for close to 17,500 square feet, including a small office, at 715 Southpoint Blvd.

Likewise, SPG Solar leased more than 25,000 square feet of warehouse and office space at 1039 N. McDowell. There were dozens of small, incubator-size deals -- 1,500 to 3,000 square feet -- and now tenants have only a handful of spaces to look at for any size of industrial use. There are a couple of large spaces still available, but those should be absorbed by summer.

Warehouse rates average, on an SIG basis, 75 cents to 85 a square foot per month. But we are starting to see upward pressure on those prices for the smaller spaces and should expect to see upward pressure on pricing as we near the critical 7 percent vacancy rate.