The Marin County office property investment market is heating up again, though it might be early to call this a repeat of the buying frenzy for the market’s class A space in recent years, according to local real estate experts.
“A number of those buildings that sold two years ago now are selling again at seemingly would be profits on what the buyers paid two years ago,” said Haden Ongaro, who leads Newmark Knight Frank’s North Bay team from offices in San Rafael.
Over about 18 months from 2015 through 2016, 42.2 percent of Marin County class A office space changed hands, according to Ongaro. The most notable of the sales within the Novato submarket was the Hamilton Landing complex, totaling 406,355 square feet. With a final sale price of $84 million, this is the highest price tag on a Novato office property since the former Fireman’s Fund Insurance Company campus, totaling 710,330 square feet, sold in 2007 for $312 million.
In San Rafael, the significant sales of 2015 came from buyers who are well-acquainted with the area, according to Ongaro. Kaiser Permanente bought 1650 Los Gamos Dr. (148,534 square feet), Seagate Properties purchased 899 Northgate Dr. (54,406 square feet), and BioMarin Pharmaceutical purchased 700 Irwin St. (25,545 square feet), only a few blocks from its headquarters at the San Rafael Corporate Center.
Recent examples of a changeout of ownership are 899 Northgate, and listed properties such as 53,000-square-foot 1050 Northgate and 144,000-square-foot 75 and 88 Rowland Way in Novato. San Rafael-based Seagate led investors to buy 899 Northgate a year and a half ago, and they sold it in February to an entity managed by Novato-based Professional Financial Investors for $18.9 million.
“Seagate went in and rehabbed what had not been done in a long time,” said Whitney Strotz, whose Marin-based Cushman & Wakefield team marketed the property for the latest sale. In addition to enhancing the lobby, the tenant spaces and common areas were upgraded. Occupancy went from 50 percent at the previous purchase to within 4,000 square feet of capacity at the time of the latest sale.
Owners that had purchased buildings in the past couple of years and invested in better interior finishes and speculative buildouts to allow quick tenant occupancy have had the best results, Strotz said. For example, the 200,000-square-foot Exchange at Larkspur Landing did such and is down to only one vacancy, of 1,800 square feet.
Rents in central and southern Marin for the best space are $5 to $6.25 a square foot monthly, Strotz noted. Average rents in downtown San Francisco have soared into the mid-$6 range.
“For our best space to be in line with their average is an indicator that the price pyramid may be going up,” Strotz said. “The best stuff in San Francisco is 50 percent above that average, so there is room for pricing to go up in the North Bay.”
This upward pressure on Marin rents plus the lack of new class A space in the county is fueling investment activity, according to Ongaro. One new office building in the offing is the last planned building for Hamilton Landing in Novato, a 53,000-square-foot structure that would approximate the look of the converted Air Force base hangars in the development.
A couple of tenants are in discussions about leases, and construction could begin as early as this year, Ongaro said.
North Bay commercial real estate market update