One of the challenges for commercial tenants and benefits for property investors of Marin County office real estate the lack of new space to lease.
The county’s vacancy rate was 10.6 percent in the third quarter, according to Cushman & Wakefield. While that’s a big improvement from the over 20 percent availability in the market for years after the dot-bomb recession of 2001, the current vacancy rate doesn’t take into account some larger-floorplate spaces that don’t fit current tenant interests.
Outside of a few properties, tenants don’t have many options for, particularly for the best-quality space, and that’s pushing up rental rates, according to local experts. For example, the vacancy rate for all classes of office space in central Marin (Corte Madera, Greenbrae, Larkspur and part of San Rafael) is 4.4 percent, well below the 10 percent level generally considered to provide enough space to meet tenant needs readily.
“It feels like we will potentially have more room to grow, with rents in Marin still being at or below the most expensive in downtown San Francisco,” said Whitney Strotz, who oversees Cushman & Wakefield’s San Rafael office.
Southern Marin historically has led the county’s office market in waves of vacancy reduction and rent growth, and that’s evident now. The asking full-service rent at Belvedere Place in Mill Valley is $6.15 a square foot monthly, up from $4.50 two years ago.
“That’s a pretty dramatic increase,” said Haden Ongaro, who runs Newmark Knight Frank’s North Bay operations.
Owners have been upgrading office properties to make them market-ready and adding outdoor amenities that haven’t been seen largely at Marin’s larger facilities, Ongaro said. For example, a big remodel with a new lobby is set to be done at 100 Wood Hollow Drive in Novato this fall, and coming with it is not only a new lobby look but also a putting green and bocce court. At the Hamilton Landing complex in Novato, the newly vacated 11,000-square-foot YMCA space getting tenant-specific improvements removed. Also getting outdoor upgrades is Marin Executive Center at 4000 Civic Center Drive in north San Rafael, with barbecue pits as well as bocce.
“The idea is to activate the outdoor area,” Ongaro said.
And the market-ready 4000 Civic Center upgrades are coming as one of Marin’s fast-growing technology-related tenants winds down its business. Episodic video-game developer Telltale Games, known for its “The Walking Dead” series, had expanded to multiple floors of the building and had been considering expansion to 60,000 square feet in the hilltop 1 Thorndale Drive building. Started in 2004 and reportedly employing about 400 at its peak, the company announced Sept. 21 on Twitter it was laying off all but 25 to finish up business, a layoff reported in gaming trade press as 225 positions.
Demolition of Telltale space will ready it for new tenants, Ongaro said. As Belvedere Place in Mill Valley prepares for the first North Bay arrival of fast-growing coworking chain WeWork in 30,000 square feet, the facility is getting a 1,500-square-foot fitness center for tenants and bicycle lockers.
But it’s not just new owners like those of Belvedere Place and Wood Hollow that are upgrading properties, Ongaro said. The next generation of the family that purchased the 16,000-square-foot 990 A Street building in San Rafael is remaking tenant spaces to be ready to occupy.
Commercial Real Estate Guide