7 trends for south-central Marin County office real estate for the pandemic and beyond

It’s tough to wrap all the complexities, shifts, challenges and surprises of 2020 into a meaningful summary. However, throughout the year, our team has worked alongside our clients to identify trends and key learnings that emerged for the commercial real estate industry and how they apply to the southern-central Marin County market.

Statistically, total office square footage leased in this market was down by about one-third from 2019 levels, and vacancy rate increased to 15.7% from 8.4% in the fourth quarter of 2019. Clearly, it was a very difficult year to make new commitments to office space.

Average asking rates remained nearly flat at $4.84 per square foot monthly. That’s up 1 cent per square foot from the prior year, due to more expensive space coming to market. But for those buildings that lowered asking rates, we saw an approximate 10% decrease in rate. Some landlords have taken advantage of the quieter market to modernize and update their spaces in advance of expected demand, and others are lowering rates to attract occupiers.

While other shifts may continue to emerge, a little over a year into the global pandemic, we offer seven market lessons we expect to have far-reaching impacts on our market for years to come.

1. COVID-19’s impact on property was highly uneven

Depending upon the property type, location and tenant mix, we observed a mix of results and we are anticipating variety in how properties bounce back going forward. While most office buildings were not used as much last year, many landlords still received most of their rent and have been holding firm on rates. Properties that were vacant going into the pandemic are likely still vacant. Properties that were outdated before, feel even more outdated now.

The variety of experiences creates a much more diverse marketplace than we have had over the last few years.

2. The pandemic accelerated already-emerging trends

Marin has seen companies moving to the suburbs or looking to create hub-and-spoke configurations over the last several years, and we are seeing even more of that now. The stay-at-home restrictions forced organizations to realize some of the strengths and weaknesses of not being in the office and clearly accelerated trends such as remote working and movement to the suburbs.

Marin office space with its easy parking, walk-up buildings, productive outdoor work areas, and buildings with operable windows has been a compelling option.

Almost universally, office workers have appreciated the shorter commute times of the past year. Many of the new leases completed in 2020 were from companies new to the market, and central-southern Marin is the first landing spot for many of these organizations moving north from San Francisco.

3. The future of office in Marin looks bumpy, but with potential

The combination of job losses, remote working and stay-at-home orders dealt a severe blow to demand metrics in 2020. Several smaller companies with lease expirations decided to put their furniture in storage and completely close their physical office to save on cash-flow.

However, numerous studies conclude that the office will remain an important part of an organization’s structure and strategy post-COVID. Expert consensus is that long-term office-using-job growth and movement to the suburbs will combine to build back demand.

Central-southern Marin’s sublease rate of 11.7% remains well below that of neighboring San Francisco’s, at 51.8%, one of the highest in the country. This likely suggests a quicker bounce back for the market as restrictions are lifted and likely strength for Marin versus San Francisco.

4. Hybrid model is optimal model for most users

Through collaborations with George Washington University and other partners, our research indicates that most companies are not moving to a 100% remote model. Although there is no universal answer on the optimal balance of remote versus the office, most surveys show that the majority of employees expect to spend two to four days in the office post-COVID. Their employers expect the same.

Many employees spent time in different work environments, like coffee shops, client sites, home or secondary offices pre-COVID, and we anticipate that will expand in the future.

5. Shifting purpose means changing space

Bringing people together and empowering them to create new ideas, products and relationships is the purpose of place. With Marin County’s strong entrepreneurial and service industries, collaborating and being in-person will likely remain an important aspect.

As the emphasis of the office will be on collaboration, socializing, innovation and creating culture — activities that are difficult to support through remote work —office space will change to reflect this shift. Many organizations will find that their old spaces will need to be reworked or changed to accommodate their needs going forward.

We are seeing landlords take an active approach and creating speculative suites that are ready-to-occupy, with updated configurations and finishes.

In southern-central Marin, The Harbors in Sausalito, The Exchange at Larkspur Landing and Drake’s Landing in Greenbrae are among the properties to have recent updates spaces to meet emerging expectations.

6. Sales has slowed greatly, but pricing not so much

Unlike the Great Financial Crisis of 2007–2009, when values dropped and remained low for a couple of years, in this cycle, pricing has held firm. Despite a significant decline in sale volume, properties that transacted did so with little to no discount.

Very low interest rates and strong government-backed Small Business Administration programs have helped maintain pricing, particularly for smaller properties. The average price per square foot of office building sales actually increased in 2020 across central-southern Marin.

7. Finding the right balance

It’s not just about giving employees flexibility over when, where and how to work. Rather, it takes active planning to balance preferences with company goals and costs. It’s no longer just about rows of desks. It’s about space as an enabler and determining the optimal configuration for an organization.

Building and sustaining culture in a hybrid model and shifting to a greater emphasis on flexibility will be important. The focus will be on understanding how space enables an organization’s employees to do their best work and a company to achieve its financial goals.

Fortunately, the market has more variety of options and solutions available for tenants and creative answers exist to match the unique needs of occupiers.

Whitney Strotz is an executive managing director and North Bay market leader in the Larkspur office of Cushman & Wakefield.