Demand for South-Central Marin offices rises as mask rules end

Over the past year, the office market in central and southern Marin County has seen a rebound of vitality.

Several of the highest profile properties in the region are well over 90% occupied and are seeing transactions into the mid-$6 range per square foot monthly. Market-wide vacancy for the combined region across all property types now sits at 15.5% and average asking rate is $4.80 per square foot on a monthly full-service basis.

We are seeing the most interest in buildings that are located near amenities and in properties that have improved their tenant experience. Yet the impact of COVID-19 was very uneven, as some properties have seen an acceleration of momentum and others have struggled.

The trends began in the spring of 2021 as workers became fully vaccinated and we saw significant activity from businesses looking to return to office space in the region. Initially we saw smaller organizations able to adapt quicker to the change of restrictions and brought workers back to in-person activities. Landlords were able to be flexible with shorter commitments and tenants were willing to pay higher rents for quality space.

That demand momentum slowed down with the spread of delta in the summer and omicron over the end of the year.

However, we are again seeing signs this spring that as masking rules are relaxed, people are again looking to get workers together and make commitments to office space. Demand is coming from businesses that want to leave San Francisco, businesses that shut down office space at the beginning of the pandemic, and businesses that are looking for different space than what they previously occupied.

Larger employers have been slower to bring employees back to in-person and commit to office space, so the buildings that accommodate larger blocks of space have not seen as much activity. Buildings that are farther from amenities or have not invested in updates are struggling to secure new tenants. As the pandemic accelerated trends already in the making, buildings that felt dated before the pandemic, feel even more dated today.

Generally, when businesses are looking for space, they are looking for updated, quality locations and are willing to pay for quality.

As many workers have enjoyed the comforts of working from home over the past couple of years, employers are finding it important to offer a high-quality experience at the office. Many of the most recent trends for office space include a “residentialization” of the office with settings like living-room-style collaboration zones, outdoor meeting areas for backyard-style casual sessions, and high-table, bar-style drop-in seating for hybrid workers.

The hybrid work model continues to be the dominant model for most organizations.

Being able to spend time together is important for collaboration, corporate culture, creativity, innovation and general well-being. Yet minimizing commutes and maximizing productivity have been benefits that many workers have become accustomed to over the past couple years.

The details around hybrid work remain extremely varied amongst organizations and will likely take a couple of years to develop. The challenge for many organizations is how to drive cost savings from real estate, when many of the workers want to be in the office at the same time, leaving the office full on some days and empty on others. We expect to see significant change over the coming year as companies adjust to their new needs. Overall transaction volume has been down for a couple of years, and that appears to have created a backlog that we expect to come forward over the next year or two.

Many organizations are finding that they need different space from what they currently occupy and as anyone who has lived through a remodel knows, modifying a space while occupying it can be very difficult.

High construction costs are a challenging factor in the equation. Low interest rates are creating some opportunities for groups looking to purchase commercial real estate. After the disruptions over the last couple years, creativity and understanding corporate objectives is more important than ever in crafting a winning commercial real estate strategy.

Whitney Strotz (415-485-0500, whitney.strotz@cushwake.com) is managing principal of Cushman & Wakefield’s North Bay operations.