NORTH BAY -- Petaluma's industrial market continues to be a focal point for commercial real estate activity in the Highway 101 corridor in the North Bay, but the corridor's office market is improving from the south, according to market experts.

"It's a really active market right now," said Petaluma-based James Manley of Keegan & Coppin/ONCOR International.

Cassidy Turley is tracking 32 industrial space requirements searching for nearly 581,000 square feet in Sonoma and Marin counties.

"We're tracking 300,000 to 400,000 square feet of industrial deals in Petaluma and Marin right now that could be signed in the third quarter," said Steven Leonard of Cassidy Turley.

Petaluma's industrial vacancy rate is expected to contract in the second quarter, according to Mr. Manley. The rate fell to 12.3 percent of 5.3 million square feet in the first quarter from 16.1 percent a year before, according to Keegan & Coppin.

Petaluma's industrial market has had some retrenchment, particularly with the departure of Pomegranate Communications to Portland this spring.

A historical pattern for Marin County's office market during economic cycles is for vacancy rates fall and rents rise in San Francisco and then southern Marin cities, moving progressively move northward into Petaluma. A striking example of that is a recent rise in asking rates for north San Rafael office space from $2.25 a square foot per month to $2.65 or more, according to Mr. Leonard.

"There are accounting firms coming up for renewal in (San Francisco) that are looking at $5 rents on renewal and looking for $3 or less in north San Rafael," Mr. Leonard said.

Office vacancy in Marin County is expected to dip below 20 percent in the second quarter of this year, according to Haden Ongaro, managing director of Cornish & Carey Commercial Newmark Knight Frank's North Bay offices. A rate of 10 percent often is a rule of thumb for a balance of enough leasing demand and enough square footage available to occupy.

"It's been in the 20 (percent) to 24 percent range for several years," Mr. Ongaro said. "It got down to 19 percent, then space was put back on the market by Fireman's Fund, Autodesk and others, and it went back up."

Of the 7.87 million square feet of office space Cornish & Carey tracks in Marin, 21.2 percent was available for lease. That includes 27 percent of the 5.22 million square feet of top-class space, with most of the vacancy in Novato.

However, the Hamilton Landing development in Novato has been quickly filling up vacant space, including the first deal in the 120,000 square feet in two renovated hangars that are vacant yet still leased through the end of this year to Walt Disney Co. Raptor Pharmaceutical leased 31,000 square feet this spring, and two pending leases could fill up another 50,000 square feet, according to Mr. Ongaro.