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Office, retail real estate markets improve in Marin County

Marin County by the numbers

Demographics (with one-year changes)

Population: 258,826 (down 0.323%)

Median age: 47.3 (down 0.211%)

Employed population: 130,860 (down 2.82%)

Median household income: $110,843 (down 12.3%)

Median property value: $1.08 million (up 0.709%)

Source: Datausa.io

Commercial real estate (second quarter)

Retail vacancy rate: 5.90%

Industrial vacancy rate: 2.50%

Office vacancy rate: 23.80%

Source: Keegan & Coppin Co. Inc.

Read more local commercial real estate market analysis.

The impact of the coronavirus pandemic on Marin County commercial property has in some ways paralleled that of the much larger San Francisco market across the Golden Gate Bridge to the south, according to market experts. But certain types of office, retail and industrial properties have fared better in suburban Marin than the urban hub of the Bay Area.

“We didn’t see a glut of sublease (office) space hit the market, and asking lease rates generally have not been discounted,” said Haden Ongaro, who oversees Newmark’s North Bay operations.

A long-standing trend for the Marin office market is for companies in San Francisco to consider office space across the bridge to relocate for Marin amenities such as better parking, lower lease rates, closer proximity to founders’ or top executives’ homes, and more options for employee housing across the Richmond-San Rafael Bridge in the East Bay and further to the north in Sonoma County.

Since the pandemic took hold in the first quarter of 2020, the North Bay has benefited from an outflow of residents of densely populated urban centers, particularly as many Bay Area companies moved office operations to remote work. And that interest from San Francisco companies has picked up again.

“It’s not overwhelming, but we’re getting more calls and inquiries,” Ongaro said.

Central Marin has seen the most office market activity for the county in the recovery from the pandemic recession, according to Whitney Strotz of Cushman & Wakefield. Vacancy in the submarket fell to 11.8% in the third quarter of this year, down from a pandemic high of 16% at the beginning of this year. Much of that change in vacancy came from deals inked in the first half of this year that are now commencing.

“There was really a lot of activity,” Strotz said.

As vaccines rolled out early this year and pandemic restrictions statewide eased in mid-June, companies needed more room for workers were out shopping for Marin office space, according to Matt Brown of Meridian Commercial.

“We did more office deals in the second quarter than in all of 2020,” Brown said.

Though some put their plans on hold as the wave of delta virus variant infections grew.

“Not everybody is downsizing,” Ongaro said. “Some say they are hiring and do not know where to put them.”

A key type of Marin office user that has been most active in the market are “essential” businesses, particularly physicians and dentists, Brown said.

“These people cannot work from home,” he said. “Employers where people work at a (computer) terminal and do not interact with the public continue to work from home.”

One example of a Marin office space where the tenant was exiting the market but is being occupied by others looking to expand is the former 40,000-square-foot Glassdoor headquarters building in the Shoreline Office Center complex at 100 Shoreline Highway in Mill Valley. The jobs information portal startup had planned to keep the office after it consolidated Bay Area offices to a San Francisco high-rise, but in the first months of the pandemic the company cut over 80 jobs in the Marin office among 300 in the region.

Brian Foster of Cushman & Wakefield represented fast-growing men’s personal care products brand Everyman Jack its lease of a quarter of the former Glassdoor space at Shoreline, and a fitness concept is now committed to half of the remaining space.

But one factor that has helped separate which commercial properties have been garnering more tenant attention is how much the ownership has been putting back into the buildings.

“Buildings (whose owners) have done a lot of upgrades to interiors and tenant spaces and are located near amenities are in high demand and actually have seen a bounce back in occupancy better than prepandemic levels,” Strotz said.

Ongaro points to upgrades that have been going on in north San Rafael at 4000 Civic Center, in Mill Valley at Belvedere Place, and in Novato at the 100 Wood Hollow and the Hamilton Landing complexes. At 4000 Civic Center, an outdoor bar-style seating area was created, and the former footprint of a planned office building next to the former Air Force base control tower at Hamilton Landing now is proposed to be an outdoor meeting area.

The pandemic has accelerated a trend among office users to view outdoor spaces as an important feature, and that helps the Marin office market, Ongaro said.

“We’re spending more time on tours talking about outdoor spaces than indoor,” he said. “People are thinking about not just going outside but working outside.”

Power plug-ins and commercial-grade WiFi connectivity are key to such outdoor spaces, Ongaro said.

Marin County by the numbers

Demographics (with one-year changes)

Population: 258,826 (down 0.323%)

Median age: 47.3 (down 0.211%)

Employed population: 130,860 (down 2.82%)

Median household income: $110,843 (down 12.3%)

Median property value: $1.08 million (up 0.709%)

Source: Datausa.io

Commercial real estate (second quarter)

Retail vacancy rate: 5.90%

Industrial vacancy rate: 2.50%

Office vacancy rate: 23.80%

Source: Keegan & Coppin Co. Inc.

Read more local commercial real estate market analysis.

And at 2 Belvedere Place, where office-on-demand provider WeWork had offered its enterprise venture with flexible space for larger companies in 26,000 square feet, the lobby is getting redone with a “living wall” greenery feature. WeWork continues to occupy the second floor of 1 Belvedere Place.

Two major commercial property sales affecting the Marin office market are the portfolio sale of Professional Financial Investors multifamily and office properties in bankruptcy court this fall. Another is the purchase early this year of the 770,000-square-foot vacant former Fireman’s Fund Insurance headquarters campus in Novato by Bay Area developers that proposed to redevelop it for housing.

Like with office space, Marin County retail real estate has been hit by the pandemic restrictions on which businesses could operate and to what degree. But there remains a disconnect between activity for the larger retail spaces in the county and the smaller spaces, according to Vesa Becam of Keegan & Coppin Co. Inc.

“The challenges facing retail before the pandemic are still facing retail,” Becam said. “Things that were true before the pandemic are still true today.”

Vacancy of Marin County retail space was only 3.8% of 5.89 million square feet tracked by Cushman & Wakefield at the end of the first half of this year.

Some retail centers were struggling before and continue to have challenges with occupancy, and some have encountered challenges by trying to fill vacancies with retailers that were not stable or a good mix for the property, she said.

Food, personal services and fitness businesses generally seem to be on the rebound in Marin, particularly those that figured out how to leverage digital marketing and ordering, but larger gyms have struggled under various public health rules in the pandemic, Becam said. Continuing to be a hot item are food-oriented spaces with fully or mostly built out kitchens, especially those with potential for outdoor seating, takeout and delivery.

For example, a 13,000-square-foot David M. Brian department store space in the Bon Air Center in Greenbrae has been vacant for two years, but now two regional and one local retailers are interested in the space, said Becam, who markets the property.

“Soft (goods) retail still has troubles,” Becam said, referring to shops that sell pliable items like bedding. “Now, people are use d to shopping online and in peripheral markets.”

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He graduated from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.

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