Marin office space gets pricier at midyear; Solano, Napa industrial real estate vacancies climb

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North Bay industrial space garnered the most company interest in the second quarter, following a trend in the past several years, but deal activity slowed for warehouses at midyear in step with the office and retail markets.

Solano and Napa counties were the most active areas for North Bay warehouse deal-making, but the pace at which new or existing space is coming on the market outpaced the rate at which it was being leased in the second quarter, leading to the first increase in industrial vacancy in those markets since early 2018, according to Colliers International’s Fairfield office.

Vacancy rates increased to 5.9% at midyear in Napa County from 2.5% of 14.5 million square feet in the first quarter and went up to 7.0% of 37.2 million square feet at midyear in Solano County from 4.5% early this year, according to Colliers.

The brokerage noted that in those two counties, only a few leases were inked in the quarter were larger than 40,000 square feet, including 24Seven Enterprises’ deal for the 404,000-square-foot remainder of the long-vacant Savemart warehouse in Vacaville, meal-deliverer Thistle’s 79,000-square-foot new space also in Vacaville, and wine distributor QX’s lease of 249,000 square feet in American Canyon.

But those vacancy increases came up from the lowest supply of available warehouse space in years: 2.0% in mid-2018 in Napa and a nearly nonexistent 0.8% in Solano.

“While there are signs of a slowing national economy, the outlook for the broader San Francisco Bay Area is more optimistic. Many of this region’s leading businesses, such as the food, wine and e-commerce industries, are growing at a significantly faster rate than the overall economy,” said Phil Garrett, head of Colliers in Fairfield.

About 894,000 square feet of warehouses, all larger than 250,000 square feet, are under construction in Napa and Solano counties.

In Sonoma County, the industrial real estate market had little movement, according to James Manley in Keegan & Coppin’s Petaluma office.

The brokerage reported that the vacancy rate for that product type at midyear was 4.9%, up from 4.6% in the first quarter and 4.0% a year before. The countywide office vacancy rate was virtually unchanged over 12 months, at 12.4% last quarter.

“Right now, people are getting a little bit nervous,” Manley said.

Concerns about global trade have been whip-sawing equities markets.

This is adding to a cooling off of demand for industrial space for the cannabis industry.

“Having cannabis leveling off and a cautious consumer outlook is coming at a time of year when market activity usually levels off.”

New ownership of key office properties in Marin County’s most expensive submarkets — south of San Rafael and closest to San Francisco via the Golden Gate Bridge and ferries — is sending rental rates upward on the new cost bases, but active deal-making to fill vacancies made average rents in southernmost buildings dip from mid-2018, according to Newmark Knight Frank’s second-quarter report. A major sale in the second quarter was of the 114,000-square-foot 1 and 3 Harbor Drive complex in Sausalito to a group led by San Rafael-based Seagate Properties for $53 million, or about $465 a square foot, three years after it had sold for nearly $35 million.

“The spread between rents in the north and the south of the county is at a record high,” wrote Haden Ongaro, who leads the brokerage’s North Bay team. “Expect continued pressure on rents to the north as buildings change hands and leases roll to the south.”

The report points to the Drake’s Landing three-building, 130,000-square-foot class A complex in the central Marin town of Greenbrae just off Highway 101. It is near the interchange with Interstate 580 that links Marin to the East Bay.

The buildings were among a wave of major southern and central Marin office properties that changed hands in 2016 and moved asking rents for such buildings to a high-water mark above $5 per square foot monthly on a full-service basis. Now, the asking rate at Drake’s Landing is $6.75.

That’s compared with San Francisco’s Financial District, where average full-service class A asking rents were north of $7 a square foot monthly as of last quarter, according to Newmark Knight Frank. But less than 10% of 54 million square feet there was available for lease, and under 5% was vacant. By comparison, 12.1% of 859,000 square feet in southern Marin, where the average asking rent was nearly $4, and 5.7% of 1.1 million square feet was available in central Marin, with owners asking just over $5 there.

And new ownership for 4040 Civic Center Drive in north San Rafael as of the second quarter now is asking for nearly $4 a square foot, according to Newmark Knight Frank.

But a lot of the office leasing activity in Marin in the second quarter was renewals, including of 165,000 square feet for Autodesk’s headquarters and a nearby building. Two new leases were for an ambulatory surgery group, filling 17,000 square feet of longstanding vacant space in the 1 Thorndale building in San Rafael, and 11,000 square feet to Sutter Health in Novato.

And taking more office space out of the Novato office leasing market was Southern California law firm Tyson & Mendes, which in May bought a largely vacant 32,000-square-foot building for $7.4 million, or $231 a square foot.

Marin office leasing is expected to pick up in the second half of this year, and deal-making in the fourth quarter could put absorption of space countywide into the positive column, according to Brian Eisberg and David Walwyn of Meridian Commercial.

“There are pending biotech leases and other development opportunities being explored that will bring some needed vitality and additional employment to Marin County, especially Novato,” they wrote in a research report.

Jeff Quackenbush covers wine, construction and real estate. Contact him at or 707-521-4256.

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