Marin County’s office market may be nearing maturity

The redeveloper of former Coast Guard aircraft hangars into the Hamilton Landing business park sold 405,000 square feet of office space in July 2015. (Newmark Cornish & Carey)


A surge in property sales has come as Marin County’s office market reaches maturity, and with that is coming higher rents and fewer space options.

Marin has among the lowest unemployment rates in the state and among the strongest paces for job growth. The joblessness rate was 3.5 percent in August, according to the state Employment Development Department. It ranked No. 2 behind San Mateo County in Silicon Valley. Marin’s rate was virtually unchanged from a year before.

Marin nonfarm jobs increased over 12 months by 3,500, or 3.1 percent, to 117,700.

Yet the office vacancy rate in Marin County has had fairly flat growth for more than five quarters, with percentages of available space ranging from the high 9s to the low 10s, according to Whitney Strotz, North Bay market leader for Cushman & Wakefield.

Of about 10 million square feet the brokerage tracks in the market, 10.3 percent was available in the third quarter, or around 1 million square feet.

The vacancy rate increased from 9.6 percent in the second quarter, he said. There were 59,000 square feet of negative absorption, meaning that much more space came on the market than was leased or sold.

That jump in vacancy is largely because of Fair Isaac Co.’s putting its entire 120,000-square-foot building on the market for sublease, up from 60,000 square feet.

“It had a little artificial impact on the numbers because they still exist there and still have a need for half the building,” Strotz said.

Most Marin tenants are not noticing it getting easier to find a new home locally — quite the opposite, Strotz said. There were 258 office suites available at the end of September, down from 275 in late June.

“We’re seeing the number of choices available to tenants going down, and that probably reflects the experience of tenants,” Strotz said.


North Marin has several space requirements for lease that could take a large part of the available inventory off the market, according to Haden Ongaro, who leads Newmark Cornish & Carey’s North Bay operations. Among the more sizable space needs looking in north San Rafael and Novato are a company seeking 40,000 square feet and two wanting 20,000 square feet.

“They will be taking inventory, and as spaces come off the market, there will be increased rental rates,” Ongaro said.

The 405,000-square-foot Hamilton Landing office development his company markets in Novato is up to 95 percent occupancy, with active negotiations for the last two 20,000-square-foot spaces.

“We expect it to be fully leased by the end of this year,” Ongaro said. “There have been only a couple times in its history that it’s been fully leased.”

Strotz sees several sizable space requirements in Marin of 15,000–80,000 square feet.

“Generally, they are local folks expanding, he said.

Health care, biotechnology and video game companies have been active tenants and buyers of property in Marin in the past few years. BioMarin Pharmaceutical, Ultragenyx and Raptor Pharmaceutical have occupied tens of thousands of square feet in Novato, and BioMarin has been moving into more industrial buildings around its main production plant in the Bel Marin Keys business park. BioMarin also acquired the 255,000-square-foot San Rafael Corporate Center and has been building structures and acquiring surround land for expansion.

In San Rafael and Novato, game developers Take Two Interactive (2K Games), Activision-Blizzard (Toys for Bob) and Tell Tale Games have expanded in the past two years.

But there is also growing market demand from specialty foods producers, Strotz said. He brokered a deal at Larkspur Landing for nearly 6,000 square feet of office space for Mezzetta Foods, which is moving its headquarters functions from its American Canyon plant.


Indicative of the Marin office market’s health during the past two years has been a string of sales of large properties. More than 40 percent of the county’s top-class space has changed hands, according to Ongaro.

“The trend of 40 percent of class A being sold in the past two years now has trickled down to 10,000- to 20,000-square foot buildings,” he said.

For example, an 11,000-square-foot building in central San Rafael is in escrow to a company that plans to occupy it, as is a 31,000-square-foot office building at 21 Pelican Way in the same city.

“That activity for a long time was on the sidelines,” Ongaro said.

Several of Novato’s significant sales in the past two years came from institutional buyers outside the North Bay:

• In 2015, Portland’s ScanlanKemperBard Companies bought Hamilton Landing in Novato for $84 million.

• Newport Beach-based Buchanan Street Partners, 121,537-square-foot Rowland Plaza.

• San Francisco-based Ellis Partners, 87,268-square-foot Woodside Office Center.

• In February of this year, Align Real Estate & PCCP, based in Los Angeles, purchased 121,537-square-foot Wood Hollow Office Park.

Big San Rafael sales last year came from buyers who are well-acquainted with the area, Ongaro said. Kaiser Permanente bought 148,534-square-foot 1650 Los Gamos Dr., long a hard-to-lease space originally designed for back-office uses. Kaiser is putting medical offices in there.

And San Rafael-based investor and developer Seagate Properties purchased 54,406-square- foot 899 Northgate Dr., and BioMarin Pharmaceutical purchased 25,545-square-foot 700 Irwin St., only a few blocks from its headquarters at the San Rafael Corporate Center.

“Folks like Ellis Partners and other have bought in the past 24 months because they predicted the maturation of our marketplace,” said Steve Leonard of Cushman & Wakefield. “No new space is coming on line.”

If you had a space requirement over 25,000 square feet, availabilities have narrowed dramatically to a few options, he said.

Marin’s industrial market has long since matured, according to Jeffrey Wilmore of Keegan & Coppin Co. Inc./ONCOR International.

“Land is too expensive in Marin to build industrial,” he said.

There has been activity in specialty industrial space. For example, San Rafael’s EO Products bought a 15,000-square-foot warehouse to secure expansion space in a market with limited options.

“Going to Richmond is not something Marin companies want to do,” Wilmore said.

Although, sometimes they outgrow Marin. For example, fast-growing companies Lumigrow and Mommy’s Bliss moved to the East Bay in the past year.


Market experts are split on whether the changes in ownership are affecting rents. The average office monthly asking rent for Marin has risen 28 cents a square foot over five quarters, as the vacancy rate, an indicator of supply, has been flat for that long, according to Strotz of Cushman & Wakefield. The average was $2.97 in the third quarter, up from $2.69 in the same quarter a year earlier.

“For our market, that’s a pretty big escalation from what it has been,” he said.

He points to a connection between decreasing space availabilities and increasing asking rents.

Others see a tighter connection between the new ownership and rent movement.

“What we’ve seen with larger institutional sales is the new owners coming into the market have pushed lease rates, Ongaro said.

He points to higher asking rates by new ownership of large properties such as 1 and 3 Harbor Dr. in Sausalito; Drake’s Island, Wood Island and Larkspur Landing office parks in Greenbrae and Larkspur; 4000 and 4040 Civic Center in San Rafael; and 100 Wood Hollow and Hamilton Landing in Novato.

With the higher rents are coming renovations such as exterior and interior improvements, modernization and updated landscaping.

“It’s a reflection of what’s going on in the rest of the Bay Area,” Ongaro said.

Though monthly asking rents for class A — top class — space in Marin are $3–$5 a square foot, rents in San Francisco are $6–$7 and Palo Alto $7–$8 on a triple-net basis.

“Costs with Title 24 [energy-efficiency requirements] and tenant-improvements are much higher, so you need the ability to push rents to do the necessary work,” Ongaro said.

Fixing up the property to make it higher profile and attractive to tenants has more to do with these rent movements than just change in ownership, Strotz said.

“You have to have people willing to pay higher prices for pricing to move,” he said.

And the trend of San Francisco companies relocating from that high-rent market to Marin may be ebbing, Strotz said.

“It was a strong demand factor in the market for a while, but we’re seeing less of that,” he said.

Jeff Quackenbush (, 707-521-4256) covers construction, commercial real estate and wine.