They’re not building much of it anymore. Constraints on construction of office space in Marin County plus its closeness to San Francisco has made Marin real estate a hot item for investors and tenants alike in recent years.
But pricing and lack of options also is partly contributing to some slowness in whittling down vacancy rates.
The proportion of available space in the Marin County office market in the third quarter of this year was pretty much where it was a year ago, around 20 percent, according to Haden Ongaro, who leads Newmark Knight Frank’s North Bay brokerage team. That’s about double what’s often considered to be a balanced market.
“Things have been basically flat from a vacancy point of view,” Ongaro said. “That’s largely because the majority of our vacancy is in north San Rafael and Novato.”
The square footage of vacant spaces in those two submarkets represent half the availabilities in Marin County, he said.
First there was the departure of Fireman’s Fund Insurance Company, now Allianz, from Novato in early 2016 to Petaluma. Allianz’s former 710,330-square-foot Marin campus at 773–777 San Marin Drive has roughly 100,000 square feet of subtenants.
Then two other big subleases became available in the north Marin office market in 2016 and early 2017. Most notably, Fair Isaac Corp. is offering the entire 124,196-square-foot building at 200 Smith Ranch Road in north San Rafael for sublease.
“For a small market, a 100,000-square-foot sublease has a big effect,” Ongaro said.
And startup Raptor Pharmaceutical vacated 60,979 square feet at Hamilton Landing in Novato after its $800 million merger with Horizon Pharma.
This increase in available sublease space is part of a larger trend seen across the Bay Area.
FEWer SPACE OPTIONS
But despite this persisting and new vacancy, asking rental rates countywide have increased about 3 percent in each of the past three years, Ongaro said. While rents overall haven’t moved much in northern Marin, asking rates in central and southern Marin have jumped 18 percent in the past three years.
While a number of new property owners have undertaken renovations to bring the buildings up to modern standards and finishes, proximity to San Francisco has a lot to do with it, Ongaro said.
But the true measure of Marin vacancy is how many opportunities typical tenants have to find new space, according to Matthew Brown of San Rafael-based Meridian Commercial.
“It’s really tricky to come up with a lot of alternatives over 10,000 square feet,” Brown said.
Not much gets built in Marin because it’s an expensive place to buy land, to build and to live, not only for company owners but also for employees, he said.
One thing that might change that metric is the growing groundswell in the Bay Area and California’s capital for building more housing quickly to ease a shortage that’s often called a crisis, Brown said. Part of a 15-bill affordable-housing package passed by the Legislature on Sept. 15 was Senate Bill 35, which streamlines approval of housing projects in locales that have not been meeting regional goals.
“That could crowd out office projects, certainly in the county of Marin,” Brown said. “If you can build housing without discretionary approval, why beat your head against the wall to build office? The price per square foot of rent for residential is about the same as for office.”